FIRST DIVISION

[G.R. No. 127639. December 3, 1999.]

SAN MIGUEL CORPORATION and BERNARDO NOEL in his capacity

as Industrial Relations Manager , petitioners, v s . ALFREDO ETCUBAN,
BERNABE ETCUBAN, NORBERTO LABUCA, FELIPE ECHAVEZ,
BERNARDINO ENJAMBRE, ROGELIO ABELLANOSA, ROMULO
CATALAN, PEDRO EBOT, ANATOLIO GERALDIZO, JOSE ALFANTA,
EDUARDO LOFRANCO, LECERIO PARBA, RAFAEL AGUILAR, RICARDO
LACUAREN, BENJAMIN ALESNA, ANTONIO BACUS, PRIMO
SOTEROL, JESUS JADORMEO, MANUEL MANKIKIS, APRONIANO
ANG, RENATO VILLALON, SAMUEL OUANO, JOSE DELA, JESUS
BASILGO, CATALINO COLE, SR., ALFREDO GONZALES, RAMON
FLORES, MARCOS VITO CRUZ, JACINTO DIVINAGRACIA, ALAN
ALINSUGAY and CLAUDIO AGAN , respondents.

Estenzo, Paloma, Jamora and Solon for petitioners.

Basilio E. Duaban for private respondents.
Jesus V. Briol for private respondents.

SYNOPSIS

In 1981, respondent San Miguel Corporation (SMC) informed its Mandaue City
Brewery employees that it was suffering from heavy losses and nancial distress, which
could eventually lead to its total closure. Hence, in order to survive, there must be a
cutback in production and a corresponding reduction in the work force. Because of this,
SMC offered its "Retrenchment to Prevent Loss Program" to its employees. Convinced by
the representations and importunings of SMC, respondents, who had been employees of
SMC since the 1960s, availed of the retrenchment program at various times in 1981, 1982
and 1983. After their inclusion in the retrenchment program, respondents were given their
termination letters and separation pay. Sometime in May of 1986, respondents got hold of
an SMC publication allegedly revealing that SMC was never in nancial distress during the
time when they were being retrenched but was, in fact, enjoying a growth in sales.
Respondents also learned that, during their retrenchment, SMC was engaged in hiring new
employees. Thus, on 17 October 1988, respondents led a complaint before the Regional
Arbitration Branch of the National Labor Relations Commission (NLRC) for the declaration
of nullity of the retrenchment program with prayer for reinstatement, backwages and
damages. Thereafter, the Labor Arbiter dismissed the complaint because their cause of
action already prescribed, the cases having been led after the three-year prescriptive
period. On appeal, the NLRC a rmed the decision of the labor arbiter. On 14 December
1993, respondents then led a complaint against SMC before the Regional Trial Court of
Cebu City seeking for the declaration of nullity of their so-called collective "contract of
termination" with SMC. The RTC dismissed respondents' complaint on grounds of lack of
jurisdiction and prescription. On appeal, the Court of Appeals reversed and set aside the
lower court's order of dismissal and remanded the cases to the RTC for further
proceedings. Hence, this petition.
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 The Supreme Court is aware that the Civil Code provisions on contracts and
damages may be used as bases for addressing the claim of respondents. However, the
fact remains that the present action primarily involves an employer-employee relationship.
The damages incurred by respondents as a result of the alleged fraudulent retrenchment
program and the allegedly defective "contract of termination" were merely the civil aspect
of the injury brought about by their illegal dismissal. The civil rami cations of their actual
claim cannot alter the reality that it is primordially a labor matter and, as such, is
cognizable by labor courts.
Even assuming arguendo that the RTC has jurisdiction, respondents' action for the
declaration of nullity of the "contract of termination" had already prescribed. The fact the
SMC was never in nancial distress did not affect the cause of their "contract of
termination." Rather, the fraudulent representations of SMC only affected the consent of
respondents in entering into the said contract. Hence, if the consent of a contracting party
was vitiated by fraud, the contract is voidable. An action to annul a voidable contract based
on fraud should be brought within four (4) years from the discovery of the same. In the
present case, the action to question the validity of the contract was only brought on 14
December 1993, or more than seven (7) years after the discovery of the fraud in May 1986.
Accordingly, the Court reversed and set aside the decision of the appellate court and
reinstated the decision of the trial court.

SYLLABUS

1. LABOR AND SOCIAL LEGISLATION; LABOR COURTS; JURISDICTION;

REASONABLE CAUSAL CONNECTION RULE, CITED. — The demarcation line between the
jurisdiction of regular courts and labor courts over cases involving workers and their
employers has always been the subject of dispute. We have recognized that not all claims
involving such groups of litigants can be resolved solely by our labor courts. However, we
have also admonished that the present trend is to refer worker-employer controversies to
labor courts, unless unmistakably provided by the law to be otherwise. Because of this
trend, jurisprudence has developed the "reasonable causal connection rule." Under this rule,
if there is a reasonable causal connection between the claim asserted and the employer-
employee relations, then the case is within the jurisdiction of our labor courts. In the
absence of such nexus, it is the regular courts that have jurisdiction.
2. ID.; ID.; ID.; RESPONDENTS' CLAIM FALLS UNDER THE JURISDICTION OF
LABOR ARBITER. — In the present case, while respondents insist that their action is for the
declaration of nullity of their "contract of termination," what is inescapable is the fact that it
is, in reality, an action for damages emanating from employer-employee relations. First,
their claim for damages is grounded on their having been deceived into severing their
employment due to SMC's concocted nancial distress and fraudulent retrenchment
program — a clear case of illegal dismissal. Second, a comparison of respondents'
complaint for the declaration of nullity of the retrenchment program before the labor
arbiter and the complaint for the declaration of nullity of their "contract of termination"
before the RTC reveals that the allegations and prayer of the former are almost identical
with those of the latter except that the prayer for reinstatement was no longer included
and the claim for backwages and other bene ts was replaced with a claim for actual
damages. These are telltale signs that respondents' claim for damages is intertwined with
their having been separated from their employment without just cause and, consequently,
has a reasonable causal connection with their employer-employee relations with SMC.
Accordingly, it cannot be denied that respondents' claim falls under the jurisdiction of the
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 labor arbiter as provided in paragraph 4 of Article 217. HETDAC

3. ID.; ID.; ID.; RESPONDENTS' ACTION PRIMARILY INVOLVES EMPLOYER-

EMPLOYEE RELATIONSHIP COGNIZABLE BY LABOR COURTS. — Respondent's assertion
that their action is for the declaration of nullity of their "contract of termination" is merely
an ingenious way of presenting their actual action, which is a claim for damages grounded
on their having been illegally terminated. However, it would seem that respondents
committed a Freudian slip when they captioned their claim against SMC as an action for
damages. Even the term used for designating the contract, i.e. "contract of termination,"
was formulated in a shrewd manner so as to avoid a semblance of employer-employee
relations. This observation is bolstered by the fact that if respondents' designation for the
contract were to be made complete and re ective of its nature, its proper designation
would be a "contract of termination of employment." The Court is aware that the Civil Code
provisions on contracts and damages may be used as bases for addressing the claim of
respondents. However, the fact remains that the present action primarily involves an
employer-employee relationship. The damages incurred by respondents as a result of the
alleged fraudulent retrenchment program and the allegedly defective "contract of
termination" are merely the civil aspect of the injury brought about by their illegal
dismissal. The civil rami cations of their actual claim cannot alter the reality that it is
primordially a labor matter and, as such, is cognizable by labor courts.
4. ID.; LABOR STANDARDS; EMPLOYER-EMPLOYEE RELATIONSHIPS;
CONTRACT OF TERMINATION BETWEEN PETITIONER AND RESPONDENTS MERELY
VOIDABLE. — Even assuming arguendo that the RTC has jurisdiction, it is obvious from
respondents' own pleadings that their action for the declaration of nullity of the "contract
of termination" will not prosper. Respondents allege that they were deceived by SMC into
believing that it was under nancial distress which, thus, led them into concluding the
"contract of termination" with the latter. Respondents then posit that since the cause of the
contract, SMC's alleged nancial distress, was inexistent, the contract is null and void. The
argument is awed. The fact that SMC was never in nancial distress does not, in any way,
affect the cause of their "contract of termination." Rather, the fraudulent representations of
SMC only affected the consent of respondents in entering into the said contract. If the
consent of a contracting party is vitiated by fraud, the contract is not void but, merely,
voidable.
5. ID.; ID.; ID.; RESPONDENTS' ACTION HAS ALREADY PRESCRIBED IN CASE AT
BAR. — An action to annul a voidable contract based on fraud should be brought within
four (4) years from the discovery of the same. In the present case, respondents
discovered SMC's fraud in May 1986. However, the action to question the validity of the
contract was only brought on 14 December 1993, or more than seven (7) years after the
discovery of the fraud. Clearly, respondents' action has already prescribed.

DECISION

KAPUNAN , J : p

Before the Court is a petition for review on certiorari of the Decision, dated 16 May
1996 of the Court of Appeals in CA-G.R. CV No. 46554 and of its Resolution, dated
November 1996 denying petitioners' motion for reconsideration of said decision. The
Court of Appeals' decision reversed and set aside the resolution of the Regional Trial Court
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 of Cebu, Branch 19, in Civil Case No. CEB-15310, dismissing for lack of jurisdiction
respondents' complaint for damages against petitioners for terminating their employment
by fraudulently inducing them to accept petitioners' "retrenchment program." LexLib

The antecedents of this case are as follows:

In 1981, San Miguel Corporation (SMC) informed its Mandaue City Brewery
employees that it was suffering from heavy losses and nancial distress which could
eventually lead to its total closure. In several meetings convened by SMC with its
employees, it was explained to them that the distressed state of SMC was caused by its
poor sales performance which, in order to survive, called for a cutback in production and a
corresponding reduction in the work force. Because of this, SMC offered its "Retrenchment
to Prevent Loss Program" to its employees. The offering of the retrenchment program was
coupled with an unsolicited advise from SMC that it would be in the best interest of the
affected employees to avail of the said program since, by doing so, they would be able to
obtain their retrenchment bene ts and privileges with ease. SMC admonished its
employees that their failure to avail of the retrenchment program might lead to di culty in
following-up and obtaining their separation pay from SMC's main office in Manila.
Convinced by the representations and importunings of SMC, respondents, who had
been employees of SMC since the 1960s, availed of the retrenchment program at various
times in 1981, 1982 and 1983. After their inclusion in the retrenchment program,
respondents were given their termination letters and separation pay. In return,
respondents executed "receipt and release" documents in favor of SMC.
Sometime in May of 1986, respondents got hold of an SMC publication allegedly
revealing that SMC was never in nancial distress during the time when they were being
retrenched but was, in fact, enjoying a growth in sales. Respondents also learned that,
during their retrenchment, SMC was engaged in hiring new employees. Thus, respondents
concluded that SMC's nancial distress story and retrenchment program were merely
schemes to rid itself of regular employees and, thus, avoid the payment of their actual
benefits.
On 17 October 1988, respondents led a complaint before the Regional Arbitration
Branch No. VII of the National Labor Relations Commission (NLRC) for the declaration of
nullity of the retrenchment program. In their complaint, respondents alleged that they were
former regular employees of SMC who were deceived into severing their employment due
to SMC's concocted nancial distress story and fraudulent retrenchment program.
Respondents prayed for reinstatement, backwages and damages. On 25 July 1989, the
Labor Arbiter dismissed the complaint on the ground of prescription, stating:
What is apparent from their allegations, however, is that complainants are
contesting their respective terminations pursuant to the Retrenchment Program
effected by San Miguel Corporation in 1981, 1982, and 1983. These then are
claims for illegal dismissal which fall within the ambit of Article 291 of the New
Labor Code. It provides:
ART. 291. Money claims. — All money claims arising from
employer-employee relations accruing during the effectivity of this Code,
shall be led within three (3) years from the time the cause of action
accrued; otherwise they shall be forever barred. . . .
Under the aforequoted provision therefore, complainants' causes of action
have already prescribed.
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 Even if this O ce were to apply the more liberal interpretation of the above
provisions enunciated by the Honorable Supreme Court in the case of Callanta vs.
Carnation Phils., Inc., G.R. No. 70615, Nov. 3, 1986, an interpretation that views
illegal dismissal as an inquiry upon the rights of a person, hence, under Article
1146 of the Civil Code prescribes in 4 years, those who were retrenched in 1983, at
the very latest, had only until 1987 to institute a complaint against SMC.
The records will show that all the above captioned cases were led in
1988.
Clearly, therefore, complainants' causes of action have already prescribed.
1

Respondents then appealed to the NLRC which, on 20 December 1990, dismissed

the appeal and affirmed the decision of the labor arbiter.
On 14 December 1993, respondents, who were thirty-one (31) in number, again led
a complaint 2 against SMC, but this time before the Regional Trial Court of Cebu City,
Branch 19. Although their complaint was captioned as an action for damages,
respondents sought the declaration of nullity of their so-called collective "contract of
termination" with SMC. Respondents theorized that SMC's offer of retrenchment and their
acceptance of the same resulted in the consummation of a collective "contract of
termination" between themselves and SMC. Respondents asserted that since the cause of
their "contract of termination" was non-existent, i.e., the claim of SMC that it was under
nancial distress, the said contract is null and void. In this regard, respondents claimed
that they were entitled to damages because of the deception employed upon them by
SMC which led to their separation from the company. They further asseverated that their
separation from employment resulted in the loss of earnings and other bene ts. Hence,
they prayed that petitioners jointly and severally be ordered, among others, to pay each of
them the sum of P650,000.00 as actual and compensatory damages, P100,000.00 as
moral damages, P50,000.00 as exemplary damages, and 25% of whatever may awarded to
them as attorney's fees.
Instead of ling an answer, SMC led a motion to dismiss on the bases of lack of
jurisdiction, res judicata, payment, prescription and failure to state a cause of action. On 21
June 1994, the RTC issued a resolution granting SMC's motion to dismiss on the grounds
of lack of jurisdiction and prescription. The pertinent portion of the resolution reads:
Although plaintiffs, among others, pray for the declaration of nullity of the
contract of termination, their main cause is for damages, actual, compensatory
and moral damages in the "aggregate amount of P650,000.00 each and
P1,200,000.00 each" for plaintiffs Bernabe Etcuban and Jose Dela. The alleged
acts leading to their signing of the contract of termination are acts constituting
labor disputes. It is a case for damages resulting from illegal termination. Under
Article 217 of the Labor Code, such cases fall within the exclusive original
jurisdiction of the Labor Arbiter and the National Labor Relations Commission. In
fact, in 1988, plaintiffs instituted the same case for "Implementation of Art. 217,
par. 5, now (sic) Labor Code and Declaration of Nullity of 'Retrenchment' Program,
and Damages" (see annex "A" to motion to Dismiss) with the National Labor
Relations Commission. Their cases were dismissed, not because of lack of
jurisdiction, but because their cause of action already prescribed, the cases
having been led after the three-year prescriptive period. Plaintiffs have already
submitted to the jurisdiction of the NLRC when they led their cases with that
agency. And they prayed for the declaration of nullity of the retrenchment
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 program of defendant corporation. It was only after the dismissal of those cases
that they instituted this present suit.
xxx xxx xxx
Moreover, the contract of termination which plaintiffs were allegedly
induced to sign is not void from the beginning. At most, such contract is voidable,
plaintiffs' consent thereto being allegedly vitiated by fraud and deceit.

Thus plaintiffs allege that "the brainwashing conducting (ted) on the

affected employees through brie ngs and pulong-pulongs relative to the actual
economic condition of defendant corporation nally led plaintiffs to believe that
indeed said defendant was incurring losses and has opted to reduce its
production to arrest an immediate collapse of its operations. Thus, the
corresponding need to cut down on its work force;" (par. 11, complaint); "This
distressed state of affairs of the defendant corporation inculcated into their (sic)
minds of defendants and the worry of non-recovery of their bene ts in the event
defendant corporation closes down, induced plaintiffs to accept the "offer of
retrenchment". Thereupon, they were paid their so-called "separation pay". Hence,
the contract of termination evidenced by individual termination letters and
bene ts paid to each plaintiff was consummated." (par. 12). But that "records,
however, revealed that from 1973 up to 1983, inclusive, defendant corporation
never suffered any business reverses or losses in its operation." (par. 13,
complaint). LexLib

When the consent of one of the contracting parties is vitiated by fraud or

deceit, the resulting contract is only voidable or annullable, not void or inexistent.
The action to annul the same should be led within four (4) years from discovery
of the fraud or deceit. According to plaintiffs' complaint, they "acquired
knowledge of the actual business condition of defendant corporation only in May
1986 when one of them got hold of a copy of the company's publication. That
was the time they discovered that indeed, defendants deceived them . . . . (par. 14,
complaint.) From May 1986 to January 14, 1993, more than six (6) years have
already elapsed. Clearly, the action, has already prescribed.

The rest of the grounds need not be discussed.

WHEREFORE, for want of jurisdiction, and on the further ground of
prescription, the above-entitled case is dismissed.
SO ORDERED. 3

Respondents seasonably appealed to the Court of Appeals (CA). In its Decision

dated 16 May 1996, the CA reversed and set aside the lower court's order of dismissal and
remanded the case to the RTC for further proceedings. The pertinent portion of the
decision reads:
A scrutiny of the allegations of the present complaint reveals that
plaintiffs' cause of action is not actually based on an employer-employee
relationship between the plaintiffs and the defendants. It primarily involves a civil
dispute arising from the claim of plaintiffs that the cause for the contract of
termination of their services is inexistent rendering said contract as null and void
from the beginning. . . .
xxx xxx xxx

Guided thereby, we nd that recourse by plaintiffs-appellants to the civil

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 law on contracts by raising the issue [of] whether or not the contract of
termination of services entered into by plaintiffs with defendants is void from the
beginning due to inexistent cause of action under Article 1409 of the Civil Code,
places the case within the jurisdiction of the civil courts.
As re ned by the Supreme Court, where the resolution of the dispute
requires expertise, not in labor management relations nor in wage structures and
other terms and conditions of employment, but rather in the application of the
general civil law, such claim falls outside the area of competence of expertise
ordinarily ascribed to Labor Arbiters and the NLRC. Thus, the trial court erred in
finding that it has no jurisdiction over the case.

Secondly, the trial court erred in ruling that the complaint of plaintiffs-
appellants has prescribed. Article 1410 of the Civil Code, in relation to Article 1409
as herein before quoted, speci cally provides that the action for the declaration of
the inexistence of a contract on ground (3) above does not prescribe.
Thirdly, one of the requisites for the application of the principle of res
judicata is that there must be a judgment on the merits in the earlier case
involving the same parties and the same issues. Plaintiffs-appellants' complaint
was dismissed by the NLRC on the ground that their cause of action had
prescribed; no trial has been held on the first complaint. Thus, the dismissal of the
rst complaint is not a judgment on the merits and therefore not applicable to the
present case.
xxx xxx xxx

WHEREFORE, the order of dismissal is reversed and set aside. Let the
original records of Civil Case No. CEB-15310, be remanded to the Regional Trial
Court (Branch 19), Cebu City for further proceedings. Costs against defendants-
appellees.
SO ORDERED. 4

SMC led a motion for reconsideration but was denied in the CA's Resolution dated
14 November 1996. 5 Hence, this petition.
In its petition, SMC contends that the CA erred:
I
IN HOLDING THAT THE REGIONAL TRIAL COURT OF CEBU, BRANCH 19, HAS JURISDICTION
OVER THE INSTANT CASE AND THE CAUSE OF ACTION OF THE RESPONDENTS ARE NOT
ACTUALLY BASED ON AN EMPLOYER-EMPLOYEE RELATIONSHIP WHEN THE COMPLAINT
SHOWS THAT THE RESPONDENTS ARE CLAIMING TO HAVE BEEN UNJUSTLY SEPARATED
FROM THEIR REGULAR EMPLOYMENTS (sic) BY THE PETITIONERS AND ARE DEMANDING TO
BE PAID ACTUAL AND COMPENSATORY DAMAGES CONSISTING OF "THEIR EXPECTED INCOME
BY WAY OF SALARIES AND OTHER FRINGE BENEFITS DUE THEM UNDER THE LAW FROM THE
TIME OF THEIR SEPARATION AND UNTIL THEIR RETIREMENT DUE TO AGE OR LENGTH OF
SERVICE . . . SOCIAL SECURITY SYSTEM BENEFITS . . . RETIREMENT BENEFITS."
II
IN RULING THAT THE COMPLAINT OF THE RESPONDENTS HAVE NOT YET PRESCRIBED WHEN
THE RESPONDENTS HAVE CLAIMED IN THEIR COMPLAINT THAT THEY HAVE BEEN
ALLEGEDLY BRAINWASHED BY THE PETITIONERS AND THEIR COMPAINT (sic) WAS FILED
ONLY AFTER MORE THAN SIX (6) YEARS HAVE LAPSED FROM THE TIME THAT THE
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 RESPONDENTS CLAIMED TO HAVE "DISCOVERED THAT INDEED, DEFENDANTS (Petitioners)
DECEIVED THEM INTO BELIEVING THAT DEFENDANT CORPORATION WAS INCURRING LOSSES
IN ITS OPERATION HENCE, THE NECESSITY TO TRIM DOWN ITS WORK FORCE TO INDUCE
THEM TO ACCEPT THE "OFFER OF RETRENCHMENT (sic)."

III
IN RULING THAT "THE DISMISSAL OF THE FIRST COMPLAINT IS NOT A JUDGMENT ON THE
MERITS AND THEREFORE NOT APPLICABLE TO THE PRESENT CASE" WHEN IT IS THE SAID
DIVISION'S OWN FINDING THAT: "THE COMPLAINT FILED BY HEREIN PLAINTIFFS-APPELLANTS
(Respondents) WITH THE REGIONAL ARBITRATION BRANCH PRAYED FOR THE DECLARATION
OF THE TERMINATION SCHEME ALLEGEDLY DECEPTIVELY FORCED UPON THEM TO BE NULL
AND VOID WITH THE SAME PRAYER THAT THEY BE REINSTATED TO THEIR REGULAR
EMPLOYMENT WITHOUT ANY LOSS OF ANY RIGHTS (sic) AND BENEFITS (sic) AS WELL AS
PAYMENT OF THEIR BACKWAGES AND DAMAGES." 6

We find the petition impressed with merit. cdtai

The demarcation line between the jurisdiction of regular courts and labor courts
over cases involving workers and their employers has always been the subject of dispute.
We have recognized that not all claims involving such groups of litigants can be resolved
solely by our labor courts. 7 However, we have also admonished that the present trend is to
refer worker-employer controversies to labor courts, unless unmistakably provided by the
law to be otherwise. 8 Because of this trend, jurisprudence has developed the "reasonable
causal connection rule." Under this rule, if there is a reasonable causal connection between
the claim asserted and the employer-employee relations, then the case is within the
jurisdiction of our labor courts. 9 In the absence of such nexus, it is the regular courts that
have jurisdiction. 1 0
The jurisdiction of labor courts is provided under Article 217 of the Labor Code, to
wit:
ART. 217. Jurisdiction of Labor Arbiters and the Commission. — (a)
Except as otherwise provided under this Code the Labor Arbiter shall have original
and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision without extension, even in
the absence of stenographic notes, the following cases involving all workers,
whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that

workers may le involving wages, rates of pay, hours of work and
other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages
arising from employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code
including questions involving the legality of strikes and lockouts;
and
6. Except claims for Employees Compensation, Social Security,
Medicare and maternity bene ts, all other claims, arising from
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 employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding ve
thousand pesos (P5,000.00) regardless of whether accompanied
with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective
bargaining agreements and those arising from the interpretation or
enforcement of company personnel policies shall be disposed of by the
Labor Arbiter by referring the same to the grievance machinery and
voluntary arbitration as may be provided in said agreements. 1 1

With regard to claims for damages under paragraph 4 of the above article, this Court
has observed that:
Jurisprudence has evolved the rule that claims for damages under
paragraph 4 of Article 217, to be cognizable by the Labor Arbiter, must have a
reasonable causal connection with any of the claims provided for in that article.
Only if there is such a connection with the other claims can the claim for
damages be considered as arising from employer-employee relations. 1 2

In the present case, while respondents insist that their action is for the declaration
of nullity of their "contract of termination," what is inescapable is the fact that it is, in reality,
an action for damages emanating from employer-employee relations. First, their claim for
damages is grounded on their having been deceived into serving their employment due to
SMC's concocted nancial distress and fraudulent retrenchment program — a clear case
of illegal dismissal. Second, a comparison of respondents' complaint for the declaration of
nullity of the retrenchment program before the labor arbiter and the complaint for the
declaration of nullity of their "contract of termination" before the RTC reveals that the
allegations and prayer of the former are almost identical with those of the latter except
that the prayer for reinstatement was no longer included and the claim for backwages and
other bene ts was replaced with a claim for actual damages. These are telltale signs that
respondents' claim for damages is intertwined with their having been separated from their
employment without just cause and, consequently, has a reasonable causal connection
with their employer-employee relations with SMC. Accordingly, it cannot be denied that
respondents' claim falls under the jurisdiction of the labor arbiter as provided in paragraph
4 of Article 217.
Respondent's assertion that their action is for the declaration of nullity of their
"contract of termination" is merely an ingenious way of presenting their actual action,
which is a claim for damages grounded on their having been illegal terminated. However, it
would seem that respondents committed a Freudian slip when they captioned their claim
against SMC as an action for damages. 1 3 Even the term used for designating the contract,
i.e. "contract of termination," was formulated in a shrewd manner so as to avoid a
semblance of employer-employee relations. This observation is bolstered by the fact that
if respondents' designation for the contract were to be made complete and reflective of its
nature, its proper designation would be a "contract of termination of employment."
The Court is aware that the Civil Code provisions on contracts and damages may be
used as bases for addressing the claim of respondents. However, the fact remains that the
present action primarily involves an employer-employee relationship. The damages
incurred by respondents as a result of the alleged fraudulent retrenchment program and
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 the allegedly defective "contract of termination" are merely the civil aspect of the injury
brought about by their illegal dismissal. 1 4 The civil rami cations of their actual claim
cannot alter the reality that it is primordially a labor matter and, as such, is cognizable by
labor courts. In Associated Citizens Bank vs. Japson, 1 5 we held:
For the unlawful termination of employment, this Court in Primero v.
Intermediate Appellate Court, supra, ruled that the Labor Arbiter had the exclusive
and original jurisdiction over claims for moral and other forms of damages, so
that the employee in the proceedings before the Labor Arbiter should prosecute
his claims not only for reliefs speci ed under the Labor Code but also for
damages under the Civil Code. This is because an illegally dismissed employee
has only a single cause of action although the act of dismissal may be a violation
not only the Labor Code but also of the Civil Code. For a single cause of action,
the dismissed employee cannot institute a separate action before the Labor
Arbiter for backwages and reinstatement and another action before the regular
court for the recovery of moral and other forms of damages because splitting a
single cause of action is procedurally unsound and obnoxious to the orderly
administration of justice. (Primero v. Intermediate Appellate Court , supra, citing
Gonzales v. Province of Iloilo , 38 SCRA 209; Cyphil Employees Association-Natu
v. Pharmaceutical Industries , 77 SCRA 135; Calderon v. Court of Appeals , 100
SCRA 459, etc.) 1 6

Even assuming arguendo that the RTC has jurisdiction, it is obvious from
respondents' own pleadings that their action for the declaration of nullity of the "contract
of termination" will not prosper. Respondents allege that they were deceived by SMC into
believing that it was under nancial distress which, thus, led them into concluding the
"contract of termination" with the latter. 1 7 Respondents then posit that since the cause of
the contract, SMC's alleged nancial distress, was inexsistent, the contract is null and void.
The argument is flawed.
The fact that SMC was never in nancial distress does not, in any way, affect the
cause of their "contract of termination." Rather, the fraudulent representations of SMC only
affected the consent of respondents in entering into the said contract. 1 8 If the consent of
a contracting party is vitiated by fraud, the contract is not void but, merely, voidable. 1 9 In
Abando vs. Lozada, 2 0 we ruled:
As correctly pointed out by the appellate court, the strategem (sic), the
deceit, the misrepresentations employed by Cuevas and Pucan are facts
constitutive of fraud which is de ned in Article 1338 of the Civil Code as that (sic)
insidious words or machinations of one of the contracting parties, by which the
other is induced to enter into a contract which, without them, he would not have
agreed to. When fraud is employed to obtain the consent of the other party to
enter into a contract, the resulting contract is merely a voidable contract, that is, a
valid and subsisting contract until annulled or set aside by a competent court. . . .
21

An action to annul a voidable contract based on fraud should be brought within four
(4) years from the discovery of the same. 2 2 In the present case, respondents discovered
SMC's fraud in May 1986. However, the action to question the validity of the contract was
only brought on 14 December 1993, or more than seven (7) years after the discovery of the
fraud. Clearly, respondents' action has already prescribed.
The issue of jurisdiction and prescription having been resolved, it is no longer
necessary to discuss the issue on res judicata raised in this petition.
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 WHEREFORE, premises considered, the Decision of the Court of Appeals dated 16
May 1996 and its Resolution dated 14 November 1996 are hereby REVERSED and SET
ASIDE and the Resolution dated 21 June 1994 of the Regional Trial Court of Cebu, Branch
19, in CEB-15310, REINSTATED.
SO ORDERED. LLphil

Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

Footnotes
1. Rollo, pp. 49-50.
2. Id., at 52-62.
3. Id., at 26-28.
4. Id., at 37-41.
5. Id., at 42.
6. Id., at 8-9.
7. San Miguel Corporation vs. National Labor Relations Commission, 161 SCRA 719, 724
(1988).
8. National Federation of Labor vs. Eisma, 127 SCRA 419, 428 (1984).
9. Dai-ichi Electronics Manufacturing Corp. vs. Villarama, Jr., 238 SCRA 267, 271 (1994).
10. Pepsi Cola Distributors of the Phils., Inc. vs. Gal-lang, 201 SCRA 695, 699 (1991).
11. Underscoring supplied.
12. Supra, note 9.
13. Rollo, p. 52.
14. National Union of Bank Employees vs. Lazaro, 157 SCRA 123, 127 (1988).
15. 196 SCRA 404 (1991).

16. Id., at 407-408.

17. Rollo, p. 91.
18. See Art. 1338, Civil Code.

19. Art. 1330, Civil Code.

20. 178 SCRA 509 (1989).

21. Id., at 514.

22. Art. 1391, Civil Code; Bael vs. Intermediate Appellate Court, 169 SCRA 617, 624 (1989).

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