Jurisprudential standards for equal protection challenges indubitably show that the classification created by the questioned proviso, on its face and in its operation, bears no constitutional infirmities.It is settled in constitutional law that the "equal protection" clause does not prevent the Legislature from establishing classes of individuals or objects upon which different rules shall operate - so long as the classification is not unreasonable. As held in Victoriano v. Elizalde Rope Workers Union,[13] and reiterated in a long line of cases:[14]

The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all citizens of the state. It is not, therefore, a requirement, in order to avoid the constitutional prohibition against inequality, that every man, woman and child should be affected alike by a statute. Equality of operation of statutes does not mean indiscriminate operation on persons merely as such, but on persons according to the circumstances surrounding them. It guarantees equality, not identity of rights. The Constitution does not require that things which are different in fact be treated in law as though they were the same. The equal protection clause does not forbid discrimination as to things that are different. It does not prohibit legislation which is limited either in the object to which it is directed or by the territory within which it is to operate.The equal protection of the laws clause of the Constitution allows classification. Classification in law, as in the other departments of knowledge or practice, is the grouping of things in speculation or practice because they agree with one another in certain particulars. A law is not invalid because of simple inequality. The very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality in no manner determines the matter of constitutionality. All that is required of a valid classification is that it be reasonable, which means that the classification should be based on substantial distinctions which make for real differences, that it must be germane to the purpose of the law; that it must not be limited to existing conditions only; and that it must apply equally to each member of the class. This Court has held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary.In the exercise of its power to make classifications for the purpose of enacting laws over matters within its jurisdiction, the state is recognized as enjoying a wide range of discretion. It is not necessary that the classification be based on scientific or marked differences of things or in their relation. Neither is it necessary that the classification be made with mathematical nicety. Hence, legislative classification may in many cases properly rest on narrow distinctions, for the equal protection guaranty does not preclude the legislature from recognizing degrees of evil or harm, and legislation is addressed to evils as they may appear. (citations omitted)Congress is allowed a wide leeway in providing for a valid classification.[15] The equal protection clause is not infringed by legislation which applies only to those persons falling within a specified class.[16] If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another.[17] The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class.[18]

In the case at bar, it is clear in the legislative deliberations that the exemption of officers (SG 20 and above) from the SSL was intended to address the BSPs lack of competitiveness in terms of attracting competent officers and executives. It was not intended to discriminate against the rank-and-file. If the end-result did in fact lead to a disparity of treatment between the officers and the rank-and-file in terms of salaries and benefits, the discrimination or distinction has a rational basis and is not palpably, purely, and entirely arbitrary in the legislative sense. [19]

That the provision was a product of amendments introduced during the deliberation of the Senate Bill does not detract from its validity. As early as 1947 and reiterated in subsequent cases,[20] this Court has subscribed to the conclusiveness of an enrolled bill to refuse invalidating a provision of law, on the ground that the bill from which it originated contained no such provision and was merely inserted by the bicameral conference committee of both Houses.Moreover, it is a fundamental and familiar teaching that all reasonable doubts should be resolved in favor of the constitutionality of a statute.[21] An act of the legislature, approved by the executive, is presumed to be within constitutional limitations.[22] To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and equivocal breach.[23]

B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEESOF GFIs FROM THE SSL - RENDERS THE CONTINUEDAPPLICATION OF THE CHALLENGED PROVISIONA VIOLATION OF THE EQUAL PROTECTION CLAUSE.While R.A. No. 7653 started as a valid measure well within the legislatures power, we hold that the enactment of subsequent laws exempting all rank-and-file employees of other GFIs leeched all validity out of the challenged proviso.1. The concept of relative constitutionality.The constitutionality of a statute cannot, in every instance, be determined by a mere comparison of its provisions with applicable provisions of the Constitution, since the statute may be constitutionally valid as applied to one set of facts and invalid in its application to another.[24]

A statute valid at one time may become void at another time because of altered circumstances.[25] Thus, if a statute in its practical operation becomes arbitrary or confiscatory, its validity, even though affirmed by a former adjudication, is open to inquiry and investigation in the light of changed conditions.[26]

Demonstrative of this doctrine is Vernon Park Realty v. City of Mount Vernon,[27] where the Court of Appeals of New York declared as unreasonable and arbitrary a zoning ordinance which placed the plaintiff's property in a residential district, although it was located in the center of a business area. Later amendments to the ordinance then prohibited the use of the property except for parking and storage of automobiles, and service station within a parking area. The Court found the ordinance to constitute an invasion of property rights which was contrary to constitutional due process. It ruled:While the common council has the unquestioned right to enact zoning laws respecting the use of property in accordance with a well-considered and comprehensive plan designed to promote public health, safety and general welfare, such power is subject to the constitutional limitation that it may not be exerted arbitrarily or unreasonably and this is so whenever the zoning ordinance precludes the use of the property for any purpose for which it is reasonably adapted. By the same token, an ordinance valid when adopted will nevertheless be stricken down as invalid when, at a later time, its operation under changed conditions proves confiscatory such, for instance, as when the greater part of its value is destroyed, for which the courts will afford relief in an appropriate case.[28] (citations omitted, emphasis supplied)In the Philippine setting, this Court declared the continued enforcement of a valid law as unconstitutional as a consequence of significant changes in circumstances. Rutter v. Esteban[29] upheld the constitutionality of the moratorium law - its enactment and operation being a valid exercise by the State of its police power[30] - but also ruled that the continued enforcement of the otherwise valid law would be unreasonable and oppressive. It noted

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the subsequent changes in the countrys business, industry and agriculture. Thus, the law was set aside because its continued operation would be grossly discriminatory and lead to the oppression of the creditors. The landmark ruling states:[31]

The question now to be determined is, is the period of eight (8) years which Republic Act No. 342 grants to debtors of a monetary obligation contracted before the last global war and who is a war sufferer with a claim duly approved by the Philippine War Damage Commission reasonable under the present circumstances?It should be noted that Republic Act No. 342 only extends relief to debtors of prewar obligations who suffered from the ravages of the last war and who filed a claim for their losses with the Philippine War Damage Commission. It is therein provided that said obligation shall not be due and demandable for a period of eight (8) years from and after settlement of the claim filed by the debtor with said Commission. The purpose of the law is to afford to prewar debtors an opportunity to rehabilitate themselves by giving them a reasonable time within which to pay their prewar debts so as to prevent them from being victimized by their creditors. While it is admitted in said law that since liberation conditions have gradually returned to normal, this is not so with regard to those who have suffered the ravages of war and so it was therein declared as a policy that as to them the debt moratorium should be continued in force (Section 1).But we should not lose sight of the fact that these obligations had been pending since 1945 as a result of the issuance of Executive Orders Nos. 25 and 32 and at present their enforcement is still inhibited because of the enactment of Republic Act No. 342 and would continue to be unenforceable during the eight-year period granted to prewar debtors to afford them an opportunity to rehabilitate themselves, which in plain language means that the creditors would have to observe a vigil of at least twelve (12) years before they could effect a liquidation of their investment dating as far back as 1941. his period seems to us unreasonable, if not oppressive. While the purpose of Congress is plausible, and should be commended, the relief accorded works injustice to creditors who are practically left at the mercy of the debtors. Their hope to effect collection becomes extremely remote, more so if the credits are unsecured. And the injustice is more patent when, under the law, the debtor is not even required to pay interest during the operation of the relief, unlike similar statutes in the United States.xxx xxx xxxIn the face of the foregoing observations, and consistent with what we believe to be as the only course dictated by justice, fairness and righteousness, we feel that the only way open to us under the present circumstances is to declare that the continued operation and enforcement of Republic Act No. 342 at the present time is unreasonable and oppressive, and should not be prolonged a minute longer, and, therefore, the same should be declared null and void and without effect. (emphasis supplied, citations omitted)2. Applicability of the equal protection clause.In the realm of equal protection, the U.S. case of Atlantic Coast Line R. Co. v. Ivey[32] is illuminating. The Supreme Court of Florida ruled against the continued application of statutes authorizing the recovery of double damages plus attorney's fees against railroad companies, for animals killed on unfenced railroad right of way without proof of negligence. Competitive motor carriers, though creating greater hazards, were not subjected to similar liability because they were not yet in existence when the statutes were enacted. The Court ruled that the statutes became invalid as denying equal protection of the law, in view of changed conditions since their enactment.In another U.S. case, Louisville & N.R. Co. v. Faulkner,[33] the Court of Appeals of Kentucky declared unconstitutional a provision of a statute which imposed a duty upon a railroad company of proving that it was free from negligence in the killing or injury of cattle by its

engine or cars. This, notwithstanding that the constitutionality of the statute, enacted in 1893, had been previously sustained. Ruled the Court:The constitutionality of such legislation was sustained because it applied to all similar corporations and had for its object the safety of persons on a train and the protection of property. Of course, there were no automobiles in those days. The subsequent inauguration and development of transportation by motor vehicles on the public highways by common carriers of freight and passengers created even greater risks to the safety of occupants of the vehicles and of danger of injury and death of domestic animals. Yet, under the law the operators of that mode of competitive transportation are not subject to the same extraordinary legal responsibility for killing such animals on the public roads as are railroad companies for killing them on their private rights of way.The Supreme Court, speaking through Justice Brandeis in Nashville, C. & St. L. Ry. Co. v. Walters, 294 U.S. 405, 55 S.Ct. 486, 488, 79 L.Ed. 949, stated, A statute valid when enacted may become invalid by change in the conditions to which it is applied. The police power is subject to the constitutional limitation that it may not be exerted arbitrarily or unreasonably. A number of prior opinions of that court are cited in support of the statement. The State of Florida for many years had a statute, F.S.A. 356.01 et seq. imposing extraordinary and special duties upon railroad companies, among which was that a railroad company was liable for double damages and an attorney's fee for killing livestock by a train without the owner having to prove any act of negligence on the part of the carrier in the operation of its train. In Atlantic Coast Line Railroad Co. v. Ivey, it was held that the changed conditions brought about by motor vehicle transportation rendered the statute unconstitutional since if a common carrier by motor vehicle had killed the same animal, the owner would have been required to prove negligence in the operation of its equipment. Said the court, This certainly is not equal protection of the law.[34] (emphasis supplied)Echoes of these rulings resonate in our case law, viz:[C]ourts are not confined to the language of the statute under challenge in determining whether that statute has any discriminatory effect. A statute nondiscriminatory on its face may be grossly discriminatory in its operation. Though the law itself be fair on its face and impartial in appearance, yet, if it is applied and administered by public authority with an evil eye and unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the Constitution.[35] (emphasis supplied, citations omitted)[W]e see no difference between a law which denies equal protection and a law which permits of such denial. A law may appear to be fair on its face and impartial in appearance, yet, if it permits of unjust and illegal discrimination, it is within the constitutional prohibition.. In other words, statutes may be adjudged unconstitutional because of their effect in operation. If a law has the effect of denying the equal protection of the law it is unconstitutional. .[36] (emphasis supplied, citations omitted3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291 + 8523 + 8763+ 9302 = consequential unconstitutionality of challenged proviso.According to petitioner, the last proviso of Section 15(c), Article II of R.A. No. 7653 is also violative of the equal protection clause because after it was enacted, the charters of the GSIS, LBP, DBP and SSS were also amended, but the personnel of the latter GFIs were all exempted from the coverage of the SSL.[37] Thus, within the class of rank-and-file personnel of GFIs, the BSP rank-and-file are also discriminated upon.Indeed, we take judicial notice that after the new BSP charter was enacted in 1993, Congress also undertook the amendment of the charters of the GSIS, LBP, DBP and SSS, and three other GFIs, from 1995 to 2004, viz:

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1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);2. R.A. No. 8282 (1997) for Social Security System (SSS);3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation, (SBGFC);4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC);[38] and7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).It is noteworthy, as petitioner points out, that the subsequent charters of the seven other GFIs share this common proviso: a blanket exemption of all their employees from the coverage of the SSL, expressly or impliedly, as illustrated below:1. LBP (R.A. No. 7907)Section 10. Section 90 of [R.A. No. 3844] is hereby amended to read as follows:Section 90. Personnel. -xxx xxx xxxAll positions in the Bank shall be governed by a compensation, position classification system and qualification standards approved by the Banks Board of Directors based on a comprehensive job analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with the prevailing compensation plans in the private sector and shall be subject to periodic review by the Board no more than once every two (2) years without prejudice to yearly merit reviews or increases based on productivity and profitability. The Bank shall therefore be exempt from existing laws, rules and regulations on compensation, position classification and qualification standards. It shall however endeavor to make its system conform as closely as possible with the principles under Republic Act No. 6758. (emphasis supplied)xxx xxx xxx2. SSS (R.A. No. 8282)Section 1. [Amending R.A. No. 1161, Section 3(c)]:xxx xxx xxx(c)The Commission, upon the recommendation of the SSS President, shall appoint an actuary and such other personnel as may [be] deemed necessary; fix their reasonable compensation, allowances and other benefits; prescribe their duties and establish such methods and procedures as may be necessary to insure the efficient, honest and economical administration of the provisions and purposes of this Act: Provided, however, That the personnel of the SSS below the rank of Vice President shall be appointed by the SSS President: Provided, further, That the personnel appointed by the SSS President, except those below the rank of assistant manager, shall be subject to the confirmation by the Commission; Provided further, That the personnel of the SSS shall be selected only from civil service eligibles and be subject to civil service rules and regulations: Provided, finally, That the SSS shall be exempt from the provisions of Republic Act No. 6758 and Republic Act No. 7430. (emphasis supplied)3. SBGFC (R.A. No. 8289)Section 8. [Amending R.A. No. 6977, Section 11]:xxx xxx xxxThe Small Business Guarantee and Finance Corporation shall:xxx xxx xxx(e) notwithstanding the provisions of Republic Act No. 6758, and Compensation Circular No. 10, series of 1989 issued by the Department of Budget and Management, the Board of Directors of SBGFC shall have the authority to extend to the employees and personnel thereof the allowance and fringe benefits similar to those extended to and currently enjoyed by the employees and personnel of other government financial institutions. (emphases supplied)

4. GSIS (R.A. No. 8291)Section 1. [Amending Section 43(d)].xxx xxx xxxSec. 43. Powers and Functions of the Board of Trustees. - The Board of Trustees shall have the following powers and functions:xxx xxx xxx(d) upon the recommendation of the President and General Manager, to approve the GSIS organizational and administrative structures and staffing pattern, and to establish, fix, review, revise and adjust the appropriate compensation package for the officers and employees of the GSIS with reasonable allowances, incentives, bonuses, privileges and other benefits as may be necessary or proper for the effective management, operation and administration of the GSIS, which shall be exempt from Republic Act No. 6758, otherwise known as the Salary Standardization Law and Republic Act No. 7430, otherwise known as the Attrition Law. (emphasis supplied)xxx xxx xxx5. DBP (R.A. No. 8523)Section 6. [Amending E.O. No. 81, Section 13]:Section 13. Other Officers and Employees. - The Board of Directors shall provide for an organization and staff of officers and employees of the Bank and upon recommendation of the President of the Bank, fix their remunerations and other emoluments. All positions in the Bank shall be governed by the compensation, position classification system and qualification standards approved by the Board of Directors based on a comprehensive job analysis of actual duties and responsibilities. The compensation plan shall be comparable with the prevailing compensation plans in the private sector and shall be subject to periodic review by the Board of Directors once every two (2) years, without prejudice to yearly merit or increases based on the Banks productivity and profitability. The Bank shall, therefore, be exempt from existing laws, rules, and regulations on compensation, position classification and qualification standards. The Bank shall however, endeavor to make its system conform as closely as possible with the principles under Compensation and Position Classification Act of 1989 (Republic Act No. 6758, as amended). (emphasis supplied)6. HGC (R.A. No. 8763)Section 9. Powers, Functions and Duties of the Board of Directors. - The Board shall have the following powers, functions and duties:xxx xxx xxx(e) To create offices or positions necessary for the efficient management, operation and administration of the Corporation: Provided, That all positions in the Home Guaranty Corporation (HGC) shall be governed by a compensation and position classification system and qualifications standards approved by the Corporations Board of Directors based on a comprehensive job analysis and audit of actual duties and responsibilities: Provided, further, That the compensation plan shall be comparable with the prevailing compensation plans in the private sector and which shall be exempt from Republic Act No. 6758, otherwise known as the Salary Standardization Law, and from other laws, rules and regulations on salaries and compensations; and to establish a Provident Fund and determine the Corporations and the employees contributions to the Fund; (emphasis supplied)xxx xxx xxx7. PDIC (R.A. No. 9302)Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further amended to read:xxx xxx xxx

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3.xxx xxx xxxA compensation structure, based on job evaluation studies and wage surveys and subject to the Boards approval, shall be instituted as an integral component of the Corporations human resource development program: Provided, That all positions in the Corporation shall be governed by a compensation, position classification system and qualification standards approved by the Board based on a comprehensive job analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with the prevailing compensation plans of other government financial institutions and shall be subject to review by the Board no more than once every two (2) years without prejudice to yearly merit reviews or increases based on productivity and profitability. The Corporation shall therefore be exempt from existing laws, rules and regulations on compensation, position classification and qualification standards. It shall however endeavor to make its system conform as closely as possible with the principles under Republic Act No. 6758, as amended. (emphases supplied)Thus, eleven years after the amendment of the BSP charter, the rank-and-file of seven other GFIs were granted the exemption that was specifically denied to the rank-and-file of the BSP. And as if to add insult to petitioners injury, even the Securities and Exchange Commission (SEC) was granted the same blanket exemption from the SSL in 2000![39]

The prior view on the constitutionality of R.A. No. 7653 was confined to an evaluation of its classification between the rank-and-file and the officers of the BSP, found reasonable because there were substantial distinctions that made real differences between the two classes.The above-mentioned subsequent enactments, however, constitute significant changes in circumstance that considerably alter the reasonability of the continued operation of the last proviso of Section 15(c), Article II of Republic Act No. 7653, thereby exposing the proviso to more serious scrutiny. This time, the scrutiny relates to the constitutionality of the classification - albeit made indirectly as a consequence of the passage of eight other laws - between the rank-and-file of the BSP and the seven other GFIs. The classification must not only be reasonable, but must also apply equally to all members of the class. The proviso may be fair on its face and impartial in appearance but it cannot be grossly discriminatory in its operation, so as practically to make unjust distinctions between persons who are without differences.[40]

Stated differently, the second level of inquiry deals with the following questions: Given that Congress chose to exempt other GFIs (aside the BSP) from the coverage of the SSL, can the exclusion of the rank-and-file employees of the BSP stand constitutional scrutiny in the light of the fact that Congress did not exclude the rank-and-file employees of the other GFIs? Is Congress power to classify so unbridled as to sanction unequal and discriminatory treatment, simply because the inequity manifested itself, not instantly through a single overt act, but gradually and progressively, through seven separate acts of Congress? Is the right to equal protection of the law bounded in time and space that: (a) the right can only be invoked against a classification made directly and deliberately, as opposed to a discrimination that arises indirectly, or as a consequence of several other acts; and (b) is the legal analysis confined to determining the validity within the parameters of the statute or ordinance (where the inclusion or exclusion is articulated), thereby proscribing any evaluation vis--vis the grouping, or the lack thereof, among several similar enactments made over a period of time?In this second level of scrutiny, the inequality of treatment cannot be justified on the mere assertion that each exemption (granted to the seven other GFIs) rests on a policy determination by the legislature. All legislative enactments necessarily rest on a policy determination - even those that have been declared to contravene the Constitution. Verily, if this could serve as a magic wand to sustain the validity of a statute, then no due process and equal protection

challenges would ever prosper. There is nothing inherently sacrosanct in a policy determination made by Congress or by the Executive; it cannot run riot and overrun the ramparts of protection of the Constitution.In fine, the policy determination argument may support the inequality of treatment between the rank-and-file and the officers of the BSP, but it cannot justify the inequality of treatment between BSP rank-and-file and other GFIs who are similarly situated. It fails to appreciate that what is at issue in the second level of scrutiny is not the declared policy of each law per se, but the oppressive results of Congress inconsistent and unequal policytowards the BSP rank-and-file and those of the seven other GFIs. At bottom, the second challenge to the constitutionality of Section 15(c), Article II of Republic Act No. 7653 is premised precisely on the irrational discriminatory policy adopted by Congress in its treatment of persons similarly situated. In the field of equal protection, the guarantee that "no person shall be denied the equal protection of the laws includes the prohibition against enacting laws that allow invidious discrimination, directly or indirectly. If a law has the effect of denying the equal protection of the law, or permits such denial, it is unconstitutional.[41]

It is against this standard that the disparate treatment of the BSP rank-and-file from the other GFIs cannot stand judicial scrutiny. For as regards the exemption from the coverage of the SSL, there exist no substantial distinctions so as to differentiate, the BSP rank-and-file from the other rank-and-file of the seven GFIs. On the contrary, our legal history shows that GFIs have long been recognized as comprising one distinct class, separate from other governmental entities.Before the SSL, Presidential Decree (P.D.) No. 985 (1976) declared it as a State policy (1) to provide equal pay for substantially equal work, and (2) to base differences in pay upon substantive differences in duties and responsibilities, and qualification requirements of the positions. P.D. No. 985 was passed to address disparities in pay among similar or comparable positions which had given rise to dissension among government employees.But even then, GFIs and government-owned and/or controlled corporations (GOCCs) were already identified as a distinct class among government employees. Thus, Section 2 also provided, [t]hat notwithstanding a standardized salary system established for all employees, additional financial incentives may be established by government corporation and financial institutions for their employees to be supported fully from their corporate funds and for such technical positions as may be approved by the President in critical government agencies.[42]

The same favored treatment is made for the GFIs and the GOCCs under the SSL. Section 3(b) provides that one of the principles governing the Compensation and Position Classification System of the Government is that: [b]asic compensation for all personnel in the government and government-owned or controlled corporations and financial institutions shall generally be comparable with those in the private sector doing comparable work, and must be in accordance with prevailing laws on minimum wages.Thus, the BSP and all other GFIs and GOCCs were under the unified Compensation and Position Classification System of the SSL,[43] but rates of pay under the SSL were determined on the basis of, among others, prevailing rates in the private sector for comparable work. Notably, the Compensation and Position Classification System was to be governed by the following principles: (a) just and equitable wages, with the ratio of compensation between pay distinctions maintained at equitable levels;[44] and (b) basic compensation generally comparable with the private sector, in accordance with prevailing laws on minimum wages.[45] Also, the Department of Budget and Management was directed to use, as guide for preparing the Index of Occupational Services, the Benchmark Position Schedule, and the following factors:[46]

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(1) the education and experience required to perform the duties and responsibilities of the positions;(2) the nature and complexity of the work to be performed;(3) the kind of supervision received;(4) mental and/or physical strain required in the completion of the work;(5) nature and extent of internal and external relationships;(6) kind of supervision exercised;(7) decision-making responsibility;(8) responsibility for accuracy of records and reports;(9) accountability for funds, properties and equipment; and(10) hardship, hazard and personal risk involved in the job.The Benchmark Position Schedule enumerates the position titles that fall within Salary Grades 1 to 20.Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were similarly situated in all aspects pertaining to compensation and position classification, in consonance with Section 5, Article IX-B of the 1997 Constitution.[47]

Then came the enactment of the amended charter of the BSP, implicitly exempting the Monetary Board from the SSL by giving it express authority to determine and institute its own compensation and wage structure. However, employees whose positions fall under SG 19 and below were specifically limited to the rates prescribed under the SSL.Subsequent amendments to the charters of other GFIs followed. Significantly, each government financial institution (GFI) was not only expressly authorized to determine and institute its own compensation and wage structure, but also explicitly exempted - without distinction as to salary grade or position - all employees of the GFI from the SSL.It has been proffered that legislative deliberations justify the grant or withdrawal of exemption from the SSL, based on the perceived need to fulfill the mandate of the institution concerned considering, among others, that: (1) the GOCC or GFI is essentially proprietary in character; (2) the GOCC or GFI is in direct competition with their [sic] counterparts in the private sector, not only in terms of the provisions of goods or services, but also in terms of hiring and retaining competent personnel; and (3) the GOCC or GFI are or were [sic] experiencing difficulties filling up plantilla positions with competent personnel and/or retaining these personnel. The need for the scope of exemption necessarily varies with the particular circumstances of each institution, and the corresponding variance in the benefits received by the employees is merely incidental.The fragility of this argument is manifest. First, the BSP is the central monetary authority,[48] and the banker of the government and all its political subdivisions.[49] It has the sole power and authority to issue currency;[50] provide policy directions in the areas of money, banking, and credit; and supervise banks and regulate finance companies and non-bank financial institutions performing quasi-banking functions, including the exempted GFIs.[51] Hence, the argument that the rank-and-file employees of the seven GFIs were exempted because of the importance of their institutions mandate cannot stand any more than an empty sack can stand.Second, it is certainly misleading to say that the need for the scope of exemption necessarily varies with the particular circumstances of each institution. Nowhere in the deliberations is there a cogent basis for the exclusion of the BSP rank-and-file from the exemption which was granted to the rank-and-file of the other GFIs and the SEC. As point in fact, the BSP and the seven GFIs are similarly situated in so far as Congress deemed it necessary for these institutions to be exempted from the SSL. True, the SSL-exemption of the BSP and the seven GFIs was granted in the amended charters of each GFI, enacted separately and over a period of time. But it bears emphasis that, while each GFI has a mandate different and distinct from

that of another, the deliberations show that the raison dtre of the SSL-exemption was inextricably linked to and for the most part based on factors common to the eight GFIs, i.e., (1) the pivotal role they play in the economy; (2) the necessity of hiring and retaining qualified and effective personnel to carry out the GFIs mandate; and (3) the recognition that the compensation package of these GFIs is not competitive, and fall substantially below industry standards. Considering further that (a) the BSP was the first GFI granted SSL exemption; and (b) the subsequent exemptions of other GFIs did not distinguish between the officers and the rank-and-file; it is patent that the classification made between the BSP rank-and-file and those of the other seven GFIs was inadvertent, and NOT intended, i.e., it was not based on any substantial distinction vis--vis the particular circumstances of each GFI. Moreover, the exemption granted to two GFIs makes express reference to allowance and fringe benefits similar to those extended to and currently enjoyed by the employees and personnel of other GFIs,[52] underscoring that GFIs are a particular class within the realm of government entities.It is precisely this unpremeditated discrepancy in treatment of the rank-and-file of the BSP - made manifest and glaring with each and every consequential grant of blanket exemption from the SSL to the other GFIs - that cannot be rationalized or justified. Even more so, when the SEC - which is not a GFI - was given leave to have a compensation plan that shall be comparable with the prevailing compensation plan in the [BSP] and other [GFIs],[53] then granted a blanket exemption from the SSL, and its rank-and-file endowed a more preferred treatment than the rank-and-file of the BSP.The violation to the equal protection clause becomes even more pronounced when we are faced with this undeniable truth: that if Congress had enacted a law for the sole purpose of exempting the eight GFIs from the coverage of the SSL, the exclusion of the BSP rank-and-file employees would have been devoid of any substantial or material basis. It bears no moment, therefore, that the unlawful discrimination was not a direct result arising from one law. Nemo potest facere per alium quod non potest facere per directum. No one is allowed to do indirectly what he is prohibited to do directly.It has also been proffered that similarities alone are not sufficient to support the conclusion that rank-and-file employees of the BSP may be lumped together with similar employees of the other GOCCs for purposes of compensation, position classification and qualification standards. The fact that certain persons have some attributes in common does not automatically make them members of the same class with respect to a legislative classification. Cited is the ruling in Johnson v. Robinson:[54] this finding of similarity ignores that a common characteristic shared by beneficiaries and nonbeneficiaries alike, is not sufficient to invalidate a statute when other characteristics peculiar to only one group rationally explain the statutes different treatment of the two groups.The reference to Johnson is inapropos. In Johnson, the US Court sustained the validity of the classification as there were quantitative and qualitative distinctions, expressly recognized by Congress, which formed a rational basis for the classification limiting educational benefits to military service veterans as a means of helping them readjust to civilian life. The Court listed the peculiar characteristics as follows:First, the disruption caused by military service is quantitatively greater than that caused by alternative civilian service. A conscientious objector performing alternative service is obligated to work for two years. Service in the Armed Forces, on the other hand, involves a six-year commitmentxxx xxx xxxSecond, the disruptions suffered by military veterans and alternative service performers are qualitatively different. Military veterans suffer a far greater loss of personal freedom during

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their service careers. Uprooted from civilian life, the military veteran becomes part of the military establishment, subject to its discipline and potentially hazardous duty. Congress was acutely aware of the peculiar disabilities caused by military service, in consequence of which military servicemen have a special need for readjustment benefits[55] (citations omitted)In the case at bar, it is precisely the fact that as regards the exemption from the SSL, there are no characteristics peculiar only to the seven GFIs or their rank-and-file so as to justify the exemption which BSP rank-and-file employees were denied (not to mention the anomaly of the SEC getting one). The distinction made by the law is not only superficial,[56] but also arbitrary. It is not based on substantial distinctions that make real differences between the BSP rank-and-file and the seven other GFIs.Moreover, the issue in this case is not - as the dissenting opinion of Mme. Justice Carpio-Morales would put it - whether being an employee of a GOCC or GFI is reasonable and sufficient basis for exemption from R.A. No. 6758. It is Congress itself that distinguished the GFIs from other government agencies, not once but eight times, through the enactment of R.A. Nos. 7653, 7907, 8282, 8289, 8291, 8523, 8763, and 9302. These laws may have created a preferred sub-class within government employees, but the present challenge is not directed at the wisdom of these laws. Rather, it is a legal conundrum involving the exercise of legislative power, the validity of which must be measured not only by looking at the specific exercise in and by itself (R.A. No. 7653), but also as to the legal effects brought about by seven separate exercises - albeit indirectly and without intent.Thus, even if petitioner had not alleged a comparable change in the factual milieu as regards the compensation, position classification and qualification standards of the employees of the BSP (whether of the executive level or of the rank-and-file) since the enactment of the new Central Bank Act is of no moment. In GSIS v. Montesclaros,[57] this Court resolved the issue of constitutionality notwithstanding that claimant had manifested that she was no longer interested in pursuing the case, and even when the constitutionality of the said provision was not squarely raised as an issue, because the issue involved not only the claimant but also others similarly situated and whose claims GSIS would also deny based on the challenged proviso. The Court held that social justice and public interest demanded the resolution of the constitutionality of the proviso. And so it is with the challenged proviso in the case at bar.It bears stressing that the exemption from the SSL is a privilege fully within the legislative prerogative to give or deny. However, its subsequent grant to the rank-and-file of the seven other GFIs and continued denial to the BSP rank-and-file employees breached the latters right to equal protection. In other words, while the granting of a privilege per se is a matter of policy exclusively within the domain and prerogative of Congress, the validity or legality of the exercise of this prerogative is subject to judicial review.[58] So when the distinction made is superficial, and not based on substantial distinctions that make real differences between those included and excluded, it becomes a matter of arbitrariness that this Court has the duty and the power to correct.[59] As held in the United Kingdom case of Hooper v. Secretary of State for Work and Pensions,[60] once the State has chosen to confer benefits, discrimination contrary to law may occur where favorable treatment already afforded to one group is refused to another, even though the State is under no obligation to provide that favorable treatment. [61]

The disparity of treatment between BSP rank-and-file and the rank-and-file of the other seven GFIs definitely bears the unmistakable badge of invidious discrimination - no one can, with candor and fairness, deny the discriminatory character of the subsequent blanket and total exemption of the seven other GFIs from the SSL when such was withheld from the BSP. Alikes are being treated as unalikes without any rational basis.

Again, it must be emphasized that the equal protection clause does not demand absolute equality but it requires that all persons shall be treated alike, under like circumstances and conditions both as to privileges conferred and liabilities enforced. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances which, if not identical, are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion; whatever restrictions cast on some in the group is equally binding on the rest.[62]

In light of the lack of real and substantial distinctions that would justify the unequal treatment between the rank-and-file of BSP from the seven other GFIs, it is clear that the enactment of the seven subsequent charters has rendered the continued application of the challenged proviso anathema to the equal protection of the law, and the same should be declared as an outlaw.IV.Equal Protection UnderInternational LensIn our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the rational basis test, coupled with a deferential attitude to legislative classifications[63] and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution. [64]

A. Equal Protectionin the United StatesIn contrast, jurisprudence in the U.S. has gone beyond the static rational basis test. Professor Gunther highlights the development in equal protection jurisprudential analysis, to wit: [65]

Traditionally, equal protection supported only minimal judicial intervention in most contexts. Ordinarily, the command of equal protection was only that government must not impose differences in treatment except upon some reasonable differentiation fairly related to the object of regulation. The old variety of equal protection scrutiny focused solely on the means used by the legislature: it insisted merely that the classification in the statutereasonably relates to the legislative purpose. Unlike substantive due process, equal protection scrutiny was not typically concerned with identifying fundamental values and restraining legislative ends. And usually the rational classification requirement was readily satisfied: the courts did not demand a tight fit between classification and purpose; perfect congruence between means and ends was not required.xxx xxx xxx[From marginal intervention to major cutting edge: The Warren Courts new equal protection and the two-tier approach.]From its traditional modest role, equal protection burgeoned into a major intervention tool during the Warren era, especially in the 1960s. The Warren Court did not abandon the deferential ingredients of the old equal protection: in most areas of economic and social legislation, the demands imposed by equal protection remained as minimal as everBut the Court launched an equal protection revolution by finding large new areas for strict rather than deferential scrutiny. A sharply differentiated two-tier approach evolved by the late 1960s: in addition to the deferential old equal protection, a new equal protection, connoting strict scrutiny, arose. The intensive review associated with the new equal protection imposed two demands - a demand not only as to means but also one as to ends. Legislation qualifying for strict scrutiny required a far closer fit between classification and statutory purpose than the rough and ready flexibility traditionally tolerated by the old equal protection: means had to be shown necessary to achieve statutory ends, not merely reasonably related ones. Moreover,

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equal protection became a source of ends scrutiny as well: legislation in the areas of the new equal protection had to be justified by compelling state interests, not merely the wide spectrum of legitimate state ends.The Warren Court identified the areas appropriate for strict scrutiny by searching for two characteristics: the presence of a suspect classification; or an impact on fundamental rights or interests. In the category of suspect classifications, the Warren Courts major contribution was to intensify the strict scrutiny in the traditionally interventionist area of racial classifications. But other cases also suggested that there might be more other suspect categories as well: illegitimacy and wealth for example. But it was the fundamental interests ingredient of the new equal protection that proved particularly dynamic, open-ended, and amorphous.. [Other fundamental interests included voting, criminal appeals, and the right of interstate travel .]xxx xxx xxxThe Burger Court and Equal Protection.The Burger Court was reluctant to expand the scope of the new equal protection, although its best established ingredient retains vitality. There was also mounting discontent with the rigid two-tier formulations of the Warren Courts equal protection doctrine. It was prepared to use the clause as an interventionist tool without resorting to the strict language of the new equal protection. [Among the fundamental interests identified during this time were voting and access to the ballot, while suspect classifications included sex, alienage and illegitimacy.]xxx xxx xxxEven while the two-tier scheme has often been adhered to in form, there has also been an increasingly noticeable resistance to the sharp difference between deferential old and interventionist new equal protection. A number of justices sought formulations that would blur the sharp distinctions of the two-tiered approach or that would narrow the gap between strict scrutiny and deferential review. The most elaborate attack came from Justice Marshall, whose frequently stated position was developed most elaborately in his dissent in the Rodriguez case: [66]

The Court apparently seeks to establish [that] equal protection cases fall into one of two neat categories which dictate the appropriate standard of review - strict scrutiny or mere rationality. But this (sic) Courts [decisions] defy such easy categorization. A principled reading of what this Court has done reveals that it has applied a spectrum of standards in reviewing discrimination allegedly violative of the equal protection clause. This spectrum clearly comprehends variations in the degree of care with which Court will scrutinize particular classification, depending, I believe, on the constitutional and societal importance of the interests adversely affected and the recognized invidiousness of the basis upon which the particular classification is drawn.Justice Marshalls sliding scale approach describes many of the modern decisions, although it is a formulation that the majority refused to embrace. But the Burger Courts results indicate at least two significant changes in equal protection law: First, invocation of the old equal protection formula no longer signals, as it did with the Warren Court, an extreme deference to legislative classifications and a virtually automatic validation of challenged statutes. Instead, several cases, even while voicing the minimal rationality hands-off standards of the old equal protection, proceed to find the statute unconstitutional. Second, in some areas the modern Court has put forth standards for equal protection review that, while clearly more intensive than the deference of the old equal protection, are less demanding than the strictness of the new equal protection. Sex discrimination is the best established example of an intermediate level of review. Thus, in one case, the Court said that classifications by gender must serve important governmental objectives and must be substantially related to achievement of those objectives. That standard is intermediate with respect to both ends and means: where

ends must be compelling to survive strict scrutiny and merely legitimate under the old mode, important objectives are required here; and where means must be necessary under the new equal protection, and merely rationally related under the old equal protection, they must be substantially related to survive the intermediate level of review. (emphasis supplied, citations omitted)B. Equal Protectionin EuropeThe United Kingdom and other members of the European Community have also gone forward in discriminatory legislation and jurisprudence. Within the United Kingdom domestic law, the most extensive list of protected grounds can be found in Article 14 of the European Convention on Human Rights (ECHR). It prohibits discrimination on grounds such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status. This list is illustrative and not exhaustive. Discrimination on the basis of race, sex and religion is regarded as grounds that require strict scrutiny. A further indication that certain forms of discrimination are regarded as particularly suspect under the Covenant can be gleaned from Article 4, which, while allowing states to derogate from certain Covenant articles in times of national emergency, prohibits derogation by measures that discriminate solely on the grounds of race, colour, language, religion or social origin.[67]

Moreover, the European Court of Human Rights has developed a test of justification which varies with the ground of discrimination. In the Belgian Linguistics case[68] the European Court set the standard of justification at a low level: discrimination would contravene the Convention only if it had no legitimate aim, or there was no reasonable relationship of proportionality between the means employed and the aim sought to be realised.[69] But over the years, the European Court has developed a hierarchy of grounds covered by Article 14 of the ECHR, a much higher level of justification being required in respect of those regarded as suspect (sex, race, nationality, illegitimacy, or sexual orientation) than of others. Thus, in Abdulaziz, [70] the European Court declared that:. . . [t]he advancement of the equality of the sexes is today a major goal in the member States of the Council of Europe. This means that very weighty reasons would have to be advanced before a difference of treatment on the ground of sex could be regarded as compatible with the Convention.And in Gaygusuz v. Austria,[71] the European Court held that very weighty reasons would have to be put forward before the Court could regard a difference of treatment based exclusively on the ground of nationality as compatible with the Convention.[72] The European Court will then permit States a very much narrower margin of appreciation in relation to discrimination on grounds of sex, race, etc., in the application of the Convention rights than it will in relation to distinctions drawn by states between, for example, large and small land-owners. [73]

C. Equality underInternational LawThe principle of equality has long been recognized under international law. Article 1 of the Universal Declaration of Human Rights proclaims that all human beings are born free and equal in dignity and rights. Non-discrimination, together with equality before the law and equal protection of the law without any discrimination, constitutes basic principles in the protection of human rights. [74]

Most, if not all, international human rights instruments include some prohibition on discrimination and/or provisions about equality.[75] The general international provisions pertinent to discrimination and/or equality are the International Covenant on Civil and Political Rights (ICCPR);[76] the International Covenant on Economic, Social and Cultural

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Rights (ICESCR); the International Convention on the Elimination of all Forms of Racial Discrimination (CERD);[77] the Convention on the Elimination of all Forms of Discrimination against Women (CEDAW); and the Convention on the Rights of the Child (CRC).In the broader international context, equality is also enshrined in regional instruments such as the American Convention on Human Rights;[78] the African Charter on Human and People's Rights;[79] the European Convention on Human Rights;[80] the European Social Charter of 1961 and revised Social Charter of 1996; and the European Union Charter of Rights (of particular importance to European states). Even the Council of the League of Arab States has adopted the Arab Charter on Human Rights in 1994, although it has yet to be ratified by the Member States of the League.[81]

The equality provisions in these instruments do not merely function as traditional "first generation" rights, commonly viewed as concerned only with constraining rather than requiring State action. Article 26 of the ICCPR requires guarantee[s] of equal and effective protection against discrimination while Articles 1 and 14 of the American and European Conventions oblige States Parties to ensure ... the full and free exercise of [the rights guaranteed] ... without any discrimination and to secure without discrimination the enjoyment of the rights guaranteed.[82] These provisions impose a measure of positive obligation on States Parties to take steps to eradicate discrimination.In the employment field, basic detailed minimum standards ensuring equality and prevention of discrimination, are laid down in the ICESCR[83] and in a very large number of Conventions administered by the International Labour Organisation, a United Nations body. [84] Additionally, many of the other international and regional human rights instruments have specific provisions relating to employment.[85]

The United Nations Human Rights Committee has also gone beyond the earlier tendency to view the prohibition against discrimination (Article 26) as confined to the ICCPR rights.[86] In Broeks[87] and Zwaan-de Vries,[88] the issue before the Committee was whether discriminatory provisions in the Dutch Unemployment Benefits Act (WWV) fell within the scope of Article 26. The Dutch government submitted that discrimination in social security benefit provision was not within the scope of Article 26, as the right was contained in the ICESCR and not the ICCPR. They accepted that Article 26 could go beyond the rights contained in the Covenant to other civil and political rights, such as discrimination in the field of taxation, but contended that Article 26 did not extend to the social, economic, and cultural rights contained in ICESCR. The Committee rejected this argument. In its view, Article 26 applied to rights beyond the Covenant including the rights in other international treaties such as the right to social security found in ICESCR:Although Article 26 requires that legislation should prohibit discrimination, it does not of itself contain any obligation with respect to the matters that may be provided for by legislation. Thus it does not, for example, require any state to enact legislation to provide for social security. However, when such legislation is adopted in the exercise of a State's sovereign power, then such legislation must comply with Article 26 of the Covenant.[89]

Breaches of the right to equal protection occur directly or indirectly. A classification may be struck down if it has the purpose or effect of violating the right to equal protection. International law recognizes that discrimination may occur indirectly, as the Human Rights Committee[90] took into account the definitions of discrimination adopted by CERD and CEDAW in declaring that:. . . discrimination as used in the [ICCPR] should be understood to imply any distinction, exclusion, restriction or preference which is based on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status, and which has the purpose or effect of nullifying or impairing the recognition,

enjoyment or exercise by all persons, on an equal footing, of all rights and freedoms.[91] (emphasis supplied)Thus, the two-tier analysis made in the case at bar of the challenged provision, and its conclusion of unconstitutionality by subsequent operation, are in cadence and in consonance with the progressive trend of other jurisdictions and in international law. There should be no hesitation in using the equal protection clause as a major cutting edge to eliminate every conceivable irrational discrimination in our society. Indeed, the social justice imperatives in the Constitution, coupled with the special status and protection afforded to labor, compel this approach.[92]

Apropos the special protection afforded to labor under our Constitution and international law, we held in International School Alliance of Educators v. Quisumbing: [93]

That public policy abhors inequality and discrimination is beyond contention. Our Constitution and laws reflect the policy against these evils. The Constitution in the Article on Social Justice and Human Rights exhorts Congress to "give highest priority to the enactment of measures that protect and enhance the right of all people to human dignity, reduce social, economic, and political inequalities." The very broad Article 19 of the Civil Code requires every person, "in the exercise of his rights and in the performance of his duties, [to] act with justice, give everyone his due, and observe honesty and good faith."International law, which springs from general principles of law, likewise proscribes discrimination. General principles of law include principles of equity, i.e., the general principles of fairness and justice, based on the test of what is reasonable. The Universal Declaration of Human Rights, the International Covenant on Economic, Social, and Cultural Rights, the International Convention on the Elimination of All Forms of Racial Discrimination, the Convention against Discrimination in Education, the Convention (No. 111) Concerning Discrimination in Respect of Employment and Occupation - all embody the general principle against discrimination, the very antithesis of fairness and justice. The Philippines, through its Constitution, has incorporated this principle as part of its national laws.In the workplace, where the relations between capital and labor are often skewed in favor of capital, inequality and discrimination by the employer are all the more reprehensible.The Constitution specifically provides that labor is entitled to "humane conditions of work." These conditions are not restricted to the physical workplace - the factory, the office or the field - but include as well the manner by which employers treat their employees.The Constitution also directs the State to promote "equality of employment opportunities for all." Similarly, the Labor Code provides that the State shall "ensure equal work opportunities regardless of sex, race or creed." It would be an affront to both the spirit and letter of these provisions if the State, in spite of its primordial obligation to promote and ensure equal employment opportunities, closes its eyes to unequal and discriminatory terms and conditions of employment.xxx xxx xxxNotably, the International Covenant on Economic, Social, and Cultural Rights, in Article 7 thereof, provides:The States Parties to the present Covenant recognize the right of everyone to the enjoyment of just and [favorable] conditions of work, which ensure, in particular:a. Remuneration which provides all workers, as a minimum, with:i. Fair wages and equal remuneration for work of equal value without distinction of any kind, in particular women being guaranteed conditions of work not inferior to those enjoyed by men, with equal pay for equal work;xxx xxx xxx

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The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal truism of "equal pay for equal work." Persons who work with substantially equal qualifications, skill, effort and responsibility, under similar conditions, should be paid similar salaries. (citations omitted)Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition and respect by the courts of justice except when they run afoul of the Constitution.[94] The deference stops where the classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution. When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice.Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial scrutiny finds no support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities are not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our decisions.[95] We should not place undue and fawning reliance upon them and regard them as indispensable mental crutches without which we cannot come to our own decisions through the employment of our own endowments. We live in a different ambience and must decide our own problems in the light of our own interests and needs, and of our qualities and even idiosyncrasies as a people, and always with our own concept of law and justice.[96] Our laws must be construed in accordance with the intention of our own lawmakers and such intent may be deduced from the language of each law and the context of other local legislation related thereto. More importantly, they must be construed to serve our own public interest which is the be-all and the end-all of all our laws. And it need not be stressed that our public interest is distinct and different from others.[97]

In the 2003 case of Francisco v. House of Representatives, this Court has stated that: [A]merican jurisprudence and authorities, much less the American Constitution, are of dubious application for these are no longer controlling within our jurisdiction and have only limited persuasive merit insofar as Philippine constitutional law is concerned....[I]n resolving constitutional disputes, [this Court] should not be beguiled by foreign jurisprudence some of which are hardly applicable because they have been dictated by different constitutional settings and needs.[98] Indeed, although the Philippine Constitution can trace its origins to that of the United States, their paths of development have long since diverged. [99]

Further, the quest for a better and more equal world calls for the use of equal protection as a tool of effective judicial intervention.Equality is one ideal which cries out for bold attention and action in the Constitution. The Preamble proclaims equality as an ideal precisely in protest against crushing inequities in Philippine society. The command to promote social justice in Article II, Section 10, in all phases of national development, further explicitated in Article XIII, are clear commands to the State to take affirmative action in the direction of greater equality. [T]here is thus in the Philippine Constitution no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality.[100]

Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of society, including labor.[101] Under the policy of social justice, the law bends over backward to accommodate the interests of the working class on the humane justification that those with less privilege in life should have more in law.[102] And the obligation to afford protection to labor is incumbent not only on the legislative and executive branches but also on the judiciary to translate this pledge into a living reality.[103] Social justice calls for the humanization of laws and the equalization of social and economic forces by the

State so that justice in its rational and objectively secular conception may at least be approximated.[104]

V.A Final WordFinally, concerns have been raised as to the propriety of a ruling voiding the challenged provision. It has been proffered that the remedy of petitioner is not with this Court, but with Congress, which alone has the power to erase any inequity perpetrated by R.A. No. 7653. Indeed, a bill proposing the exemption of the BSP rank-and-file from the SSL has supposedly been filed.Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing the broad discretion given to Congress in exercising its legislative power. Judicial scrutiny would be based on the rational basis test, and the legislative discretion would be given deferential treatment. [105]

But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice against persons favored by the Constitution with special protection, judicial scrutiny ought to be more strict. A weak and watered down view would call for the abdication of this Courts solemn duty to strike down any law repugnant to the Constitution and the rights it enshrines. This is true whether the actor committing the unconstitutional act is a private person or the government itself or one of its instrumentalities. Oppressive acts will be struck down regardless of the character or nature of the actor. [106]

Accordingly, when the grant of power is qualified, conditional or subject to limitations, the issue on whether or not the prescribed qualifications or conditions have been met, or the limitations respected, is justiciable or non-political, the crux of the problem being one of legality or validity of the contested act, not its wisdom. Otherwise, said qualifications, conditions or limitations - particularly those prescribed or imposed by the Constitution - would be set at naught. What is more, the judicial inquiry into such issue and the settlement thereof are the main functions of courts of justice under the Presidential form of government adopted in our 1935 Constitution, and the system of checks and balances, one of its basic predicates. As a consequence, We have neither the authority nor the discretion to decline passing upon said issue, but are under the ineluctable obligation - made particularly more exacting and peremptory by our oath, as members of the highest Court of the land, to support and defend the Constitution - to settle it. This explains why, in Miller v. Johnson, it was held that courts have a "duty, rather than a power", to determine whether another branch of the government has "kept within constitutional limits." Not satisfied with this postulate, the court went farther and stressed that, if the Constitution provides how it may be amended - as it is in our 1935 Constitution - "then, unless the manner is followed, the judiciary as the interpreter of that constitution, will declare the amendment invalid." In fact, this very Court - speaking through Justice Laurel, an outstanding authority on Philippine Constitutional Law, as well as one of the highly respected and foremost leaders of the Convention that drafted the 1935 Constitution - declared, as early as July 15, 1936, that "(i)n times of social disquietude or political excitement, the great landmarks of the Constitution are apt to be forgotten or marred, if not entirely obliterated. In cases of conflict, the judicial department is the only constitutional organ which can be called upon to determine the proper allocation of powers between the several departments" of the government.[107] (citations omitted; emphasis supplied)In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status. It is akin to a distinction based on economic class and status, with the higher grades as recipients of a benefit specifically withheld from the lower grades. Officers of the BSP now receive higher compensation packages that are competitive with the industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The

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implications are quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher in rank - possessing higher and better education and opportunities for career advancement - are given higher compensation packages to entice them to stay. Considering that majority, if not all, the rank-and-file employees consist of people whose status and rank in life are less and limited, especially in terms of job marketability, it is they - and not the officers - who have the real economic and financial need for the adjustment This is in accord with the policy of the Constitution "to free the people from poverty, provide adequate social services, extend to them a decent standard of living, and improve the quality of life for all.[108] Any act of Congress that runs counter to this constitutional desideratumdeserves strict scrutiny by this Court before it can pass muster.To be sure, the BSP rank-and-file employees merit greater concern from this Court. They represent the more impotent rank-and-file government employees who, unlike employees in the private sector, have no specific right to organize as a collective bargaining unit and negotiate for better terms and conditions of employment, nor the power to hold a strike to protest unfair labor practices. Not only are they impotent as a labor unit, but their efficacy to lobby in Congress is almost nil as R.A. No. 7653 effectively isolated them from the other GFI rank-and-file in compensation. These BSP rank-and-file employees represent the politically powerless and they should not be compelled to seek a political solution to their unequal and iniquitous treatment. Indeed, they have waited for many years for the legislature to act. They cannot be asked to wait some more for discrimination cannot be given any waiting time. Unless the equal protection clause of the Constitution is a mere platitude, it is the Courts duty to save them from reasonless discrimination.IN VIEW WHEREOF, we hold that the continued operation and implementation of the last proviso of Section 15(c), Article II of Republic Act No. 7653 is unconstitutional.Davide, Jr., C.J., Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Azcuna, Tinga, and Chico-Nazario, JJ., concur.Panganiban, Carpio, Carpio-Morales, and Garcia, JJ., see dissenting.Corona, and Callejo, Sr., JJ., on leave.

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[G.R. No. 103525. March 29, 1996]MARCOPPER MINING CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and NATIONAL MINES AND ALLIED WORKERS UNION (NAMAWU-MIF),respondents.D E C I S I O NKAPUNAN, J.:Social justice and full protection to labor guaranteed by the fundamental law of this land is not some romantic notion, high in rhetoric but low in substance. The case at bench provides yet another example of harmonizing and balancing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth.[1]

In this petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, Marcopper Mining Corporation impugns the decision rendered by the National Labor Relations Commission (NLRC) on 18 November 1991 in RAB-IV-12-2588-88 dismissing petitioners appeal, and the resolution issued by the said tribunal dated 20 December 1991 denying petitioners motion for reconsideration.There is no disagreement as to the following facts:On 23 August 1984, Marcopper Mining Corporation, a corporation duly organized and existing under the laws of the Philippines, engaged in the business of mineral prospecting, exploration and extraction, and private respondent NAMAWU-MIF, a labor federation duly organized and registered with the Department of Labor and Employment (DOLE), to which the Marcopper Employees Union (the exclusive bargaining agent of all rank-and-file workers of petitioner) is affiliated, entered into a Collective Bargaining Agreement (CBA) effective from 1 May 1984 until 30 April 1987.Sec. 1, Art. V of the said Collective Bargaining Agreement provides:Section 1. The COMPANY agrees to grant general wage increase to all employees within the bargaining unit as follows:Effectivity Increase per day onthe Basic WageMay 1,1985 5%May 1,1986 5%It is expressly understood that this wage increase shall be exclusive of any increase in the minimum wage and/or mandatory living allowance that may be promulgated during the life of this Agreement.[2]

Prior to the expiration of the aforestated Agreement, on 25 July 1986, petitioner and private respondent executed a Memorandum of Agreement (MOA) wherein the terms of the CBA, specifically on matters of wage increase and facilities allowance, were modified as follows:1. The COMPANY hereby grants a wage increase of 10% of the basic rate to all employees and workers within the bargaining units (sic) as follows:(a) 5% effective May 1,1986.This will mean that the members of the bargaining unit will get an effective increase of 10% from May 1, 1986.(b) 5% effective May 1,1987.2. The COMPANY hereby grants an increase of the facilities allowance from P50.00 to P100.00 per month effective May 1, 1986.[3]

In compliance with the amended CBA, petitioner implemented the initial 5% wage increase due on 1 May 1986.[4]

On 1 June 1987, Executive Order (E.O.) No. 178 was promulgated mandating the integration of the cost of living allowance under Wage Orders Nos. 1, 2, 3, 5 and 6 into the basic wage of

workers, its effectivity retroactive to 1 May 1987.[5] Consequently, effective on 1 May 1987, the basic wage rate of petitioners laborers categorized as non-agricultural workers was increased by P9.00 per day.[6]

Petitioner implemented the second five percent (5%) wage increase due on 1 May 1987 and thereafter added the integrated COLA.[7]

Private respondent, however, assailed the manner in which the second wage increase was effected. It argued that the COLA should first be integrated into the basic wage before the 5% wage increase is computed.[8]

Consequently, on 15 December 1988, the union filed a complaint for underpayment of wages before the Regional Arbitration Branch IV, Quezon City.On 24 July 1989, the Labor Arbiter promulgated a decision in favor of the union. The dispositive part reads, thus:WHEREFORE, consistent with the tenor hereof, judgment is rendered directing respondent company to pay the wage differentials due its rank-and-file workers retroactive to 1 May 1987.SO ORDERED.[9]

The Labor Arbiter ruled in this wise:First and foremost, the written instrument and the intention of the parties must be brought to the fore. And talking of intention, we conjure to sharp focus the provision embossed in Section 1, Article V of the collective agreement, viz:xxx xxx xxx.It is expressly understood that this wage increase shall be exclusive of increase in the minimum wage and/or mandatory living allowance that may be promulgated during the life of this Agreement. (Italics ours.)The foregoing phrase albeit innocuously framed offers the cue. This ushers us to the inner sanctum of what really was the intention of the parties to the contract. Treading along its lines, it becomes readily discernible that this portion of the contract is the stop-lock gate or known in its technical term as the non-chargeability clause. There can be no quibbling that on the strength of this provision, the wage/allowance granted under this accord cannot be credited to similar form of benefit that may be thereafter ordained by the government through legislation. That the parties therefore were consciously aware at the time of the conclusion of the agreement of the never-ending rise in the cost of living is a logical corollary. And while this upward trend may not be a welcome phenomenon, there was the intention to yield and comply in the event of an imposition. Of course, there cannot likewise be any rivalry that if the Executive Order were to retroact to 2 May 1987 or a day after the last contractual increase, this question will not arise. It is in this sense of fairness that we cannot allow this one (1) day to be an insulating medium to deny the workers the benediction endowed by Executive Order No. 178.[10]

Petitioner appealed the Labor Arbiters decision and on 18 November 1991 the NLRC rendered its decision sustaining the Labor Arbiters ruling. The dispositive portion states:WHEREFORE, in view of the foregoing, the Decision of the Labor Arbiter is hereby AFFIRMED and the appeal filed is hereby DISMISSED for lack of merit.SO ORDERED.[11]

The NLRC declared:x x x Increments to the laborers financial gratification, be they in the form of salary increases or changes in the salary scale are aimed at one thing -improvement of the economic predicament of the laborers. As such, they should be viewed in the light of the States avowed policy to protect labor. Thus, having entered into an agreement with its employees, an employer may not be allowed to renege on its obligation under a collective bargaining

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agreement should, at the same time, the law grants the employees the same or better terms and conditions of employment. Employee benefits derived from law are exclusive of benefits arrived at through negotiation and agreement unless otherwise provided by the agreement itself or by law. (Meycauayan College v. Hon. Franklin N. Drilon, 185 SCRA 50).[12]

Petitioners motion for reconsideration was denied by the NLRC in its resolution dated 20 December 1991.In the present petition, Marcopper challenges the NLRC decision on the following grounds:IPUBLIC RESPONDENT NLRC ACTED WITH GRAVE ABUSE OF DISCRETION IN AFFIRMING THE DECISION OF LABOR ARBITER JOAQUIN TANODRA DIRECTING MARCOPPER TO PAY WAGE DIFFERENTIALS DUE ITS RANK-AND-FILE EMPLOYEES RETROACTIVE TO 1 MAY 1987 CONSIDERING THAT SANS EO 178, THE FUNDAMENTAL MEANING OF THE BASIC WAGE IS CLEARLY DIFFERENT FROM, AND DOES NOT INCLUDE THE COLA AT THE TIME THE CBA WAS ENTERED INTO. THUS, PUBLIC RESPONDENTS READING OF THE CBA, AS AMENDED BY THE MEMORANDUM OF AGREEMENT DATED 25 JULY 1986, ULTIMATELY DISREGARDED THE ORDINARY MEANING OF THE PHRASE BASIC WAGE, OTHERWISE INTENDED BY THE PARTIES DURING THE TIME THE CBA WAS EXECUTED.IITHE LABOR ARBITER AND PUBLIC RESPONDENT NLRCS RELIANCE ON THE LAST PARAGRAPH OF SECTION 1, ARTICLE V OF THE CBA WHICH STATES: IT IS EXPRESSLY UNDERSTOOD THAT THIS WAGE INCREASE SHALL BE EXCLUSIVE OF ANY INCREASE IN THE MINIMUM WAGE AND/OR MANDATORY LIVING ALLOWANCE THAT MAY BE PROMULGATED DURING THE LIFE OF THIS AGREEMENT IS MISPLACED AND WITHOUT BASIS BECAUSE SAID PROVISION HARDLY OFFERS A HINT AS TO WHAT BASIC WAGE THE PARTIES HAD IN MIND AT THE TIME THEY EXECUTED THE CBA AS AMENDED BY THE MEMORANDUM OF AGREEMENT.IIIPETITIONER COMPUTED THE 5% WAGE INCREASE BASED ON THE UNINTEGRATED BASIC WAGE IN ACCORDANCE WITH THE INTENT AND TERMS OF THE CBA, AS AMENDED BY THE MEMORANDUM OF AGREEMENT. THIS WAS IN FULL ACCORD AND IN FAITHFUL COMPLIANCE WITH EO 178. HENCE, PETITIONER DID NOT COMMIT ANY UNDERPAYMENT.IVTHE DOCTRINE OF LIBERAL INTERPRETATION IN FAVOR OF LABOR IN CASE OF DOUBT IS NOT APPLICABLE TO THE INSTANT CASE.[13]

Stripped of the non-essentials, the question for our resolution is what should be the basis for the computation of the CBA increase, the basic wage without the COLA or the so-called integrated basic wage which, by mandate of E.O. No. 178, includes the COLA.It is petitioners contention that the basic wage referred to in the CBA pertains to the unintegrated basic wage. Petitioner maintains that the rules on interpretation of contracts, particularly Art. 1371 of the New Civil Code which states that:Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.should govern. Accordingly, applying the aforequoted provision in the case at bench, petitioner concludes that it was clearly not the intention of the parties (petitioner and private respondent) to include the COLA in computing the CBA/MOA mandated increase since the

MOA was entered into a year before E.O. No. 178 was enacted even though their effectivity dates coincide. In other words, the situation contemporaneous to the execution of the amendatory MOA was that there was yet no law requiring the integration of the COLA into the basic wage.[14] Petitioner, therefore, cannot be compelled to undertake an obligation it never assumed or contemplated under the CBA or MOA.Siding with the petitioner, the Solicitor General opines that for the purpose of complying with the obligations imposed by the CBA, the integrated COLA should not be considered due to the exclusivity of the benefits under the said CBA and E.O. No. 178. He explains thus:A collective bargaining agreement is a contractual obligation. It is distinct from an obligation imposed by law. The terms and conditions of a CBA constitute the law between the parties. Thus, employee benefits derived from either the law or a contract should be treated as distinct and separate from each other. (Meycauayan College vs. Drilon, supra.)xxx xxx xxx.Very clearly, the CBA and E.O. 178 provided for the exclusiveness of the benefits to be given or awarded to the employees of petitioner. Thus, when petitioner computed the 5% wage increase based on the unintegrated basic wage, it complied with its contractual obligations under the CBA. When it thereafter integrated the COLA into the basic wage, it complied also with the mandate of E.O. 178. Petitioner, therefore, complied with its contractual obligations in the CBA as well as with the legal mandate of the law. Consequently, petitioner is not guilty of underpayment.To follow the theory of private respondent, that is - to integrate first the COLA into the basic wage and thereafter compute the 5% wage increase therefrom, would violate the exclusiveness of the benefits granted under the CBA and under E.O. 178.[15]

Private respondent counters by asserting that the purpose, nature and essence of CBA negotiation is to obtain wage increases and benefits over and above what the law provides and that the principle of non-diminution of benefits should prevail.The NLRC, which filed its own comment, likewise, made the following assertions:x x x However, to state outright that the parties intended the basic wage to remain invariable even after the advent of EO 178 is unfounded and presumptuous a claim as such inevitably works to the utmost disadvantage of the workers and runs counter to the constitutional guarantee of affording protection to labor. Evidently, the rationale for the integration of the COLA with the basic wage was primarily to increase the base wage for purposes of computation of such items as overtime and premium pay, fringe benefits, etc. To adopt the statement and claim of the petitioner would then redound to depriving the workers of the full benefits the law intended for them, which in the final analysis was solely for the purpose of alleviating their plight due to the continuous undue hardship they suffer caused by the ever escalating prices of prime commodities.[16]

We rule for the respondents.The principle that the CBA is the law between the contracting parties stands strong and true.[17] However, the present controversy involves not merely an interpretation of CBA provisions. More importantly, it requires a determination of the effect of an executive order on the terms and the conditions of the CBA. This is, and should be, the focus of the instant case.It is unnecessary to delve too much on the intention of the parties as to what they allegedly meant by the term basic wage at the time the CBA and MOA were executed because there is no question that as of 1 May 1987, as mandated by E.O. No. 178, the basic wage of workers, or the statutory minimum wage, was increased with the integration of the COLA. As of said date, then, the term basic wage includes the COLA. This is what the law ordains and to which the collective bargaining agreement of the parties must conform.

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Petitioners arguments eventually lose steam in the light of the fact that compliance with the law is mandatory and beyond contractual stipulation by and between the parties; consequently, whether or not petitioner intended the basic wage to include the COLA becomes immaterial. There is evidently nothing to construe and interpret because the law is clear and unambiguous. Unfortunately for petitioner, said law, by some uncanny coincidence, retroactively took effect on the same date the CBA increase became effective. Therefore, there cannot be any doubt that the computation of the CBA increase on the basis of the integrated wage does not constitute a violation of the CBA.Petitioners contention that under the Rules Implementing E.O. No. 178, the definition of the term -basic wage has remained unchanged is off the mark since said definition expressly allows integration of monetary benefits into the regular pay of employees:Chapter 1. Definition of Terms and Coverage.Section 1. Definition of Terms.xxx xxx xxx.(j) Basic Wage means all regular remuneration or earnings paid by an employer for services rendered on normal working days and hours but does not include cost-of- living allowances, profit-sharing payments, premium payments, 13th month pay, and other monetary benefits which are not considered as part of or integrated into the regular salary of the employee on the date the Order became effective. (Italics ours.)What E.O. No. 178 did was exactly to integrate the COLA under Wage Orders Nos. 1, 2, 3, 5 and 6 into the basic pay so as to increase the statutory daily minimum wage. Section 2 of the Rules is quite explicit:Section 2. Amount to be Integrated. - Effective on the dates specified, as a result of the integration, the basic wage rate of covered workers shall be increased by the following amounts: (Italics ours.)xxx xxx xxx.Integration of monetary benefits into the basic pay of workers is not a new method of increasing the minimum wage.[18] But even so, we are still guided by our ruling in Davao Integrated Port Stevedoring Services v. Abarquez,[19] which we herein reiterate:While the terms and conditions of the CBA constitute the law between the parties, it is not, however, an ordinary contract to which is applied the principles of law governing ordinary contracts. A CBA, as a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines which governs the relations between labor and capital, is not merely contractual in nature but impressed with public interest, thus, it must yield to the common good. As such, it must be construed liberally rather than narrowly and technically, and the courts must place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.Finally, petitioner misinterprets the declaration of the Labor Arbiter in the assailed decision that when the pendulum of judgment swings to and fro and the forces are equal on both sides, the same must be stilled in favor of labor. While petitioner acknowledges that all doubts in the interpretation of the Labor Code shall be resolved in favor of labor,[20] it insists that what is involved-here is the amended CBA which is essentially a contract between private persons. What petitioner has lost sight of is the avowed policy of the State, enshrined in our Constitution, to accord utmost protection and justice to labor, a policy, we are, likewise, sworn to uphold.In Philippine Telegraph & Telephone Corporation v. NLRC,[21] we categorically stated that:When conflicting interests of labor and capital are to be weighed on the scales of social justice, the heavier influence of the latter should be counter-balanced by sympathy and compassion the law must accord the underprivileged worker.

Likewise, in Terminal Facilities and Services Corporation v. NLRC,[22] we declared:Any doubt concerning the rights of labor should be resolved in its favor pursuant to the social justice policy.The purpose of E.O. No. 178 is to improve the lot of the workers covered by the said statute. We are bound to ensure its fruition.WHEREFORE, premises considered, the petition is hereby DISMISSED.SO ORDERED.Padilla, Bellosillo, Vitug, and Hermosisima, Jr., concur.

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EN BANC  JENNY M. AGABON and G.R. No. 158693VIRGILIO C. AGABON,Petitioners, Present: Davide, Jr., C.J.,Puno,Panganiban,Quisumbing,Ynares-Santiago,Sandoval-Gutierrez,- versus - Carpio,Austria-Martinez,Corona,Carpio-Morales,Callejo, Sr.,Azcuna,Tinga,Chico-Nazario, andGarcia, JJ.NATIONAL LABOR RELATIONSCOMMISSION (NLRC), RIVIERAHOME IMPROVEMENTS, INC. Promulgated:and VICENTE ANGELES,Respondents. November 17, 2004x ---------------------------------------------------------------------------------------- x DECISION  YNARES-SANTIAGO, J.: This petition for review seeks to reverse the decision[1] of the Court of Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, modifying the decision of National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 023442-00. Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling and installing ornamental and construction materials. It employed petitioners Virgilio Agabon and Jenny Agabon as gypsum board and cornice installers on January 2, 1992[2] until February 23, 1999 when they were dismissed for abandonment of work. Petitioners then filed a complaint for illegal dismissal and payment of money claims[3] and on December 28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal and ordered private respondent to pay the monetary claims. The dispositive portion of the decision states: 

WHEREFORE, premises considered, We find the termination of the complainants illegal. Accordingly, respondent is hereby ordered to pay them their backwages up to November 29, 1999 in the sum of: 1. Jenny M. Agabon - P56, 231.932. Virgilio C. Agabon - 56, 231.93 and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year of service from date of hiring up to November 29, 1999. Respondent is further ordered to pay the complainants their holiday pay and service incentive leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and rest days and Virgilio Agabons 13th month pay differential amounting to TWO THOUSAND ONE HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED TWENTY ONE THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for Jenny Agabon, and ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per attached computation of Julieta C. Nicolas, OIC, Research and Computation Unit, NCR. SO ORDERED.[4]

  On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had abandoned their work, and were not entitled to backwages and separation pay. The other money claims awarded by the Labor Arbiter were also denied for lack of evidence.[5]

Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with the Court of Appeals. The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because they had abandoned their employment but ordered the payment of money claims. The dispositive portion of the decision reads:WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only insofar as it dismissed petitioners money claims. Private respondents are ordered to pay petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their service incentive leave pay for said years, and to pay the balance of petitioner Virgilio Agabons 13th month pay for 1998 in the amount of P2,150.00. SO ORDERED.[6]

 Hence, this petition for review on the sole issue of whether petitioners were illegally dismissed.[7]

 Petitioners assert that they were dismissed because the private respondent refused to give them assignments unless they agreed to work on a pakyaw basis when they reported for duty on February 23, 1999. They did not agree on this arrangement because it would mean losing benefits as Social Security System (SSS) members. Petitioners also claim that private respondent did not comply with the twin requirements of notice and hearing.[8]

 

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Private respondent, on the other hand, maintained that petitioners were not dismissed but had abandoned their work.[9] In fact, private respondent sent two letters to the last known addresses of the petitioners advising them to report for work. Private respondents manager even talked to petitioner Virgilio Agabon by telephone sometime in June 1999 to tell him about the new assignment at Pacific Plaza Towers involving 40,000 square meters of cornice installation work. However, petitioners did not report for work because they had subcontracted to perform installation work for another company. Petitioners also demanded for an increase in their wage to P280.00 per day. When this was not granted, petitioners stopped reporting for work and filed the illegal dismissal case.[10]

It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not only respect but even finality if the findings are supported by substantial evidence. This is especially so when such findings were affirmed by the Court of Appeals.[11] However, if the factual findings of the NLRC and the Labor Arbiter are conflicting, as in this case, the reviewing court may delve into the records and examine for itself the questioned findings.[12]

 Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners dismissal was for a just cause. They had abandoned their employment and were already working for another employer.To dismiss an employee, the law requires not only the existence of a just and valid cause but also enjoins the employer to give the employee the opportunity to be heard and to defend himself.[13] Article 282 of the Labor Code enumerates the just causes for termination by the employer: (a) serious misconduct or willful disobedience by the employee of the lawful orders of his employer or the latters representative in connection with the employees work; (b) gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by his employer or his duly authorized representative; (d) commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and (e) other causes analogous to the foregoing.Abandonment is the deliberate and unjustified refusal of an employee to resume his employment.[14] It is a form of neglect of duty, hence, a just cause for termination of employment by the employer.[15] For a valid finding of abandonment, these two factors should be present: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention to sever employer-employee relationship, with the second as the more determinative factor which is manifested by overt acts from which it may be deduced that the employees has no more intention to work. The intent to discontinue the employment must be shown by clear proof that it was deliberate and unjustified.[16]

In February 1999, petitioners were frequently absent having subcontracted for an installation work for another company. Subcontracting for another company clearly showed the intention to sever the employer-employee relationship with private respondent. This was not the first time they did this. In January 1996, they did not report for work because they were working for another company. Private respondent at that time warned petitioners that they would be dismissed if this happened again. Petitioners disregarded the warning and exhibited a clear intention to sever their employer-employee relationship. The record of an employee is a relevant consideration in determining the penalty that should be meted out to him.[17]

 In Sandoval Shipyard v. Clave,[18] we held that an employee who deliberately absented from work without leave or permission from his employer, for the purpose of looking for a job elsewhere, is considered to have abandoned his job. We should apply that rule with more

reason here where petitioners were absent because they were already working in another company.The law imposes many obligations on the employer such as providing just compensation to workers, observance of the procedural requirements of notice and hearing in the termination of employment. On the other hand, the law also recognizes the right of the employer to expect from its workers not only good performance, adequate work and diligence, but also good conduct[19] and loyalty. The employer may not be compelled to continue to employ such persons whose continuance in the service will patently be inimical to his interests.[20]

 After establishing that the terminations were for a just and valid cause, we now determine if the procedures for dismissal were observed. The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of the Omnibus Rules Implementing the Labor Code: Standards of due process: requirements of notice. In all cases of termination of employment, the following standards of due process shall be substantially observed: I. For termination of employment based on just causes as defined in Article 282 of the Code: (a) A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to explain his side; (b) A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him; and (c) A written notice of termination served on the employee indicating that upon due consideration of all the circumstances, grounds have been established to justify his termination. In case of termination, the foregoing notices shall be served on the employees last known address. Dismissals based on just causes contemplate acts or omissions attributable to the employee while dismissals based on authorized causes involve grounds under the Labor Code which allow the employer to terminate employees. A termination for an authorized cause requires payment of separation pay. When the termination of employment is declared illegal, reinstatement and full backwages are mandated under Article 279. If reinstatement is no longer possible where the dismissal was unjust, separation pay may be granted. Procedurally, (1) if the dismissal is based on a just cause under Article 282, the employer must give the employee two written notices and a hearing or opportunity to be heard if requested by the employee before terminating the employment: a notice specifying the grounds for which dismissal is sought a hearing or an opportunity to be heard and after hearing or opportunity to be heard, a notice of the decision to dismiss; and (2) if the dismissal is based on authorized causes under Articles 283 and 284, the employer must give the employee and the Department of Labor and Employment written notices 30 days prior to the effectivity of his separation. 

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From the foregoing rules four possible situations may be derived: (1) the dismissal is for a just cause under Article 282 of the Labor Code, for an authorized cause under Article 283, or for health reasons under Article 284, and due process was observed; (2) the dismissal is without just or authorized cause but due process was observed; (3) the dismissal is without just or authorized cause and there was no due process; and (4) the dismissal is for just or authorized cause but due process was not observed. In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any liability. In the second and third situations where the dismissals are illegal, Article 279 mandates that the employee is entitled to reinstatement without loss of seniority rights and other privileges and full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time the compensation was not paid up to the time of actual reinstatement. In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot be cured, it should not invalidate the dismissal. However, the employer should be held liable for non-compliance with the procedural requirements of due process. The present case squarely falls under the fourth situation. The dismissal should be upheld because it was established that the petitioners abandoned their jobs to work for another company. Private respondent, however, did not follow the notice requirements and instead argued that sending notices to the last known addresses would have been useless because they did not reside there anymore. Unfortunately for the private respondent, this is not a valid excuse because the law mandates the twin notice requirements to the employees last known address.[21] Thus, it should be held liable for non-compliance with the procedural requirements of due process. A review and re-examination of the relevant legal principles is appropriate and timely to clarify the various rulings on employment termination in the light of Serrano v. National Labor Relations Commission.[22]

 Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not given any notice. In the 1989 case of Wenphil Corp. v. National Labor Relations Commission,[23] we reversed this long-standing rule and held that the dismissed employee, although not given any notice and hearing, was not entitled to reinstatement and backwages because the dismissal was for grave misconduct and insubordination, a just ground for termination under Article 282. The employee had a violent temper and caused trouble during office hours, defying superiors who tried to pacify him. We concluded that reinstating the employee and awarding backwages may encourage him to do even worse and will render a mockery of the rules of discipline that employees are required to observe.[24] We further held that: Under the circumstances, the dismissal of the private respondent for just cause should be maintained. He has no right to return to his former employment. However, the petitioner must nevertheless be held to account for failure to extend to private respondent his right to an investigation before causing his dismissal. The rule is explicit as above discussed. The dismissal of an employee must befor just or authorized cause and after due process. Petitioner committed an infraction of the second requirement. Thus, it must be

imposed a sanction for its failure to give a formal notice and conduct an investigation as required by law before dismissing petitioner from employment. Considering the circumstances of this case petitioner must indemnify the private respondent the amount of P1,000.00. The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer.[25]

 The rule thus evolved: where the employer had a valid reason to dismiss an employee but did not follow the due process requirement, the dismissal may be upheld but the employer will be penalized to pay an indemnity to the employee. This became known as the Wenphil or Belated Due Process Rule. On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We held that the violation by the employer of the notice requirement in termination for just or authorized causes was not a denial of due process that will nullify the termination. However, the dismissal is ineffectual and the employer must pay full backwages from the time of termination until it is judicially declared that the dismissal was for a just or authorized cause. The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant number of cases involving dismissals without requisite notices. We concluded that the imposition of penalty by way of damages for violation of the notice requirement was not serving as a deterrent. Hence, we now required payment of full backwages from the time of dismissal until the time the Court finds the dismissal was for a just or authorized cause. Serrano was confronting the practice of employers to dismiss now and pay later by imposing full backwages. We believe, however, that the ruling in Serrano did not consider the full meaning of Article 279 of the Labor Code which states: ART. 279. Security of Tenure. In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.  This means that the termination is illegal only if it is not for any of the justified or authorized causes provided by law. Payment of backwages and other benefits, including reinstatement, is justified only if the employee was unjustly dismissed. The fact that the Serrano ruling can cause unfairness and injustice which elicited strong dissent has prompted us to revisit the doctrine. To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a system of rights based on moral principles so deeply imbedded in the traditions and feelings of our people as to be deemed fundamental to a civilized society as conceived by our entire history. Due process is that which comports with the deepest notions of what is fair and right

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and just.[26] It is a constitutional restraint on the legislative as well as on the executive and judicial powers of the government provided by the Bill of Rights. Due process under the Labor Code, like Constitutional due process, has two aspects: substantive, i.e., the valid and authorized causes of employment termination under the Labor Code; and procedural,i.e., the manner of dismissal. Procedural due process requirements for dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as the Labor Code of the Philippines in Book VI, Rule I, Sec. 2, as amended by Department Order Nos. 9 and 10.[27] Breaches of these due process requirements violate the Labor Code. Therefore statutory due process should be differentiated from failure to comply with constitutional due process. Constitutional due process protects the individual from the government and assures him of his rights in criminal, civil or administrative proceedings; while statutory due process found in the Labor Code and Implementing Rules protects employees from being unjustly terminated without just cause after notice and hearing. In Sebuguero v. National Labor Relations Commission,[28] the dismissal was for a just and valid cause but the employee was not accorded due process. The dismissal was upheld by the Court but the employer was sanctioned. The sanction should be in the nature of indemnification or penalty, and depends on the facts of each case and the gravity of the omission committed by the employer. In Nath v. National Labor Relations Commission,[29] it was ruled that even if the employee was not given due process, the failure did not operate to eradicate the just causes for dismissal. The dismissal being for just cause, albeit without due process, did not entitle the employee to reinstatement, backwages, damages and attorneys fees. Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National Labor Relations Commission,[30] which opinion he reiterated in Serrano, stated: C. Where there is just cause for dismissal but due process has not been properly observed by an employer, it would not be right to order either the reinstatement of the dismissed employee or the payment of backwages to him. In failing, however, to comply with the procedure prescribed by law in terminating the services of the employee, the employer must be deemed to have opted or, in any case, should be made liable, for the payment of separation pay. It might be pointed out that the notice to be given and the hearing to be conducted generally constitute the two-part due process requirement of law to be accorded to the employee by the employer. Nevertheless, peculiar circumstances might obtain in certain situations where to undertake the above steps would be no more than a useless formality and where, accordingly, it would not be imprudent to apply the res ipsa loquitur rule and award, in lieu of separation pay, nominal damages to the employee. x x x.[31]

 After carefully analyzing the consequences of the divergent doctrines in the law on employment termination, we believe that in cases involving dismissals for cause but without observance of the twin requirements of notice and hearing, the better rule is to abandon the Serrano doctrine and to follow Wenphil by holding that the dismissal was for just cause but imposing sanctions on the employer. Such sanctions, however, must be stiffer than that

imposed in Wenphil. By doing so, this Court would be able to achieve a fair result by dispensing justice not just to employees, but to employers as well. The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but not complying with statutory due process may have far-reaching consequences. This would encourage frivolous suits, where even the most notorious violators of company policy are rewarded by invoking due process. This also creates absurd situations where there is a just or authorized cause for dismissal but a procedural infirmity invalidates the termination. Let us take for example a case where the employee is caught stealing or threatens the lives of his co-employees or has become a criminal, who has fled and cannot be found, or where serious business losses demand that operations be ceased in less than a month. Invalidating the dismissal would not serve public interest. It could also discourage investments that can generate employment in the local economy. The constitutional policy to provide full protection to labor is not meant to be a sword to oppress employers. The commitment of this Court to the cause of labor does not prevent us from sustaining the employer when it is in the right, as in this case.[32] Certainly, an employer should not be compelled to pay employees for work not actually performed and in fact abandoned. The employer should not be compelled to continue employing a person who is admittedly guilty of misfeasance or malfeasance and whose continued employment is patently inimical to the employer. The law protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer.[33]

 It must be stressed that in the present case, the petitioners committed a grave offense, i.e., abandonment, which, if the requirements of due process were complied with, would undoubtedly result in a valid dismissal. An employee who is clearly guilty of conduct violative of Article 282 should not be protected by the Social Justice Clause of the Constitution. Social justice, as the term suggests, should be used only to correct an injustice. As the eminent Justice Jose P. Laurel observed, social justice must be founded on the recognition of the necessity of interdependence among diverse units of a society and of the protection that should be equally and evenly extended to all groups as a combined force in our social and economic life, consistent with the fundamental and paramount objective of the state of promoting the health, comfort, and quiet of all persons, and of bringing about the greatest good to the greatest number.[34]

 This is not to say that the Court was wrong when it ruled the way it did in Wenphil, Serrano and related cases. Social justice is not based on rigid formulas set in stone. It has to allow for changing times and circumstances. Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labor-management relations and dispense justice with an even hand in every case: We have repeatedly stressed that social justice or any justice for that matter is for the deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that, in case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the

17

Constitution fittingly extends its sympathy and compassion. But never is it justified to give preference to the poor simply because they are poor, or reject the rich simply because they are rich, for justice must always be served for the poor and the rich alike, according to the mandate of the law.[35]

 Justice in every case should only be for the deserving party. It should not be presumed that every case of illegal dismissal would automatically be decided in favor of labor, as management has rights that should be fully respected and enforced by this Court. As interdependent and indispensable partners in nation-building, labor and management need each other to foster productivity and economic growth; hence, the need to weigh and balance the rights and welfare of both the employee and employer. Where the dismissal is for a just cause, as in the instant case, the lack of statutory due process should not nullify the dismissal, or render it illegal, or ineffectual. However, the employer should indemnify the employee for the violation of his statutory rights, as ruled in Reta v. National Labor Relations Commission.[36] The indemnity to be imposed should be stiffer to discourage the abhorrent practice of dismiss now, pay later, which we sought to deter in the Serrano ruling. The sanction should be in the nature of indemnification or penalty and should depend on the facts of each case, taking into special consideration the gravity of the due process violation of the employer. Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[37]

 As enunciated by this Court in Viernes v. National Labor Relations Commissions,[38] an employer is liable to pay indemnity in the form of nominal damages to an employee who has been dismissed if, in effecting such dismissal, the employer fails to comply with the requirements of due process. The Court, after considering the circumstances therein, fixed the indemnity at P2,590.50, which was equivalent to the employees one month salary. This indemnity is intended not to penalize the employer but to vindicate or recognize the employees right to statutory due process which was violated by the employer.[39]

 The violation of the petitioners right to statutory due process by the private respondent warrants the payment of indemnity in the form of nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances.[40] Considering the prevailing circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We believe this form of damages would serve to deter employers from future violations of the statutory due process rights of employees. At the very least, it provides a vindication or recognition of this fundamental right granted to the latter under the Labor Code and its Implementing Rules. Private respondent claims that the Court of Appeals erred in holding that it failed to pay petitioners holiday pay, service incentive leave pay and 13th month pay. We are not persuaded. 

We affirm the ruling of the appellate court on petitioners money claims. Private respondent is liable for petitioners holiday pay, service incentive leave pay and 13th month pay without deductions. As a general rule, one who pleads payment has the burden of proving it. Even where the employee must allege non-payment, the general rule is that the burden rests on the employer to prove payment, rather than on the employee to prove non-payment. The reason for the rule is that the pertinent personnel files, payrolls, records, remittances and other similar documents which will show that overtime, differentials, service incentive leave and other claims of workers have been paid are not in the possession of the worker but in the custody and absolute control of the employer.[41]

 In the case at bar, if private respondent indeed paid petitioners holiday pay and service incentive leave pay, it could have easily presented documentary proofs of such monetary benefits to disprove the claims of the petitioners. But it did not, except with respect to the 13th month pay wherein it presented cash vouchers showing payments of the benefit in the years disputed.[42] Allegations by private respondent that it does not operate during holidays and that it allows its employees 10 days leave with pay, other than being self-serving, do not constitute proof of payment. Consequently, it failed to discharge the onus probandithereby making it liable for such claims to the petitioners.Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabons 13th month pay, we find the same to be unauthorized. The evident intention of Presidential Decree No. 851 is to grant an additional income in the form of the 13th month pay to employees not already receiving the same[43] so as to further protect the level of real wages from the ravages of world-wide inflation.[44] Clearly, as additional income, the 13th month pay is included in the definition of wage under Article 97(f) of the Labor Code, to wit: (f) Wage paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece , or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee from which an employer is prohibited under Article 113[45] of the same Code from making any deductions without the employees knowledge and consent. In the instant case, private respondent failed to show that the deduction of the SSS loan and the value of the shoes from petitioner Virgilio Agabons 13th month pay was authorized by the latter. The lack of authority to deduct is further bolstered by the fact that petitioner Virgilio Agabon included the same as one of his money claims against private respondent. The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter ordering the private respondent to pay each of the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and the balance of Virgilio Agabons thirteenth month pay for 1998 in the amount of P2,150.00. 

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WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners Jenny and Virgilio Agabon abandoned their work, and ordering private respondent to pay each of the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and the balance of Virgilio Agabons thirteenth month pay for 1998 in the amount of P2,150.00 is AFFIRMED with the MODIFICATION that private respondent Riviera Home Improvements, Inc. is further ORDERED to pay each of the petitioners the amount of P30,000.00 as nominal damages for non-compliance with statutory due process. No costs. SO ORDERED

19

THIRD DIVISION  PHIMCO INDUSTRIES, INC., G.R. No. 170830Petitioner,Present:-         versus -CARPIO MORALES, J., ChairpersonPHIMCO INDUSTRIES LABOR BRION,ASSOCIATION (PILA), and BERSAMIN,ERLINDA VAZQUEZ, RICARDO ABAD, andSACRISTAN, LEONIDA CATALAN, VILLARAMA, JR., JJ.MAXIMO PEDRO, NATHANIELADIMACULANGAN,* RODOLFOMOJICO, ROMEO CARAMANZA, Promulgated:REYNALDO GANITANO, ALBERTOBASCONCILLO,** and RAMON August 11, 2010FALCIS, in their capacity as officersof PILA, and ANGELITA BALOSA,***

DANILO BANAAG, ABRAHAMCADAY, ALFONSO CLAUDIO,FRANCISCO DALISAY,****

ANGELITO DEJAN,***** PHILIPGARCES, NICANOR ILAGAN,FLORENCIO LIBONGCOGON,******

NEMESIO MAMONONG, TEOFILOMANALILI, ALFREDO PEARSON,*******

MARIO PEREA,******** RENATORAMOS, MARIANO ROSALES,PABLO SARMIENTO, RODOLFOTOLENTINO, FELIPE VILLAREAL,ARSENIO ZAMORA, DANILOBALTAZAR, ROGER CABER,*********

REYNALDO CAMARIN, BERNARDOCUADRA,********** ANGELITO DEGUZMAN, GERARDO FELICIANO,***********

ALEX IBAEZ, BENJAMIN JUAN, SR.,RAMON MACAALAY, GONZALOMANALILI, RAUL MICIANO,HILARIO PEA, TERESAPERMOCILLO,************ ERNESTO RIO,RODOLFO SANIDAD, RAFAELSTA. ANA, JULIAN TUGUIN and AMELIAZAMORA, as members of PILA,Respondents.x-----------------------------------------------------------------------------------------x

D E C I S I O N

BRION, J.:

Before us is the petition for review on certiorari[1] filed by petitioner Phimco Industries, Inc. (PHIMCO), seeking to reverse and set aside the decision,[2] dated February 10, 2004, and the resolution,[3]dated December 12, 2005, of the Court of Appeals (CA) in CA-G.R. SP No. 70336. The assailed CA decision dismissed PHIMCOs petition for certiorari that challenged the resolution, dated December 29, 1998, and the decision, dated February 20, 2002, of the National Labor Relations Commission (NLRC); the assailed CA resolution denied PHIMCOs subsequent motion for reconsideration. FACTUAL BACKGROUND The facts of the case, gathered from the records, are briefly summarized below. PHIMCO is a corporation engaged in the production of matches, with principal address at Phimco Compound, Felix Manalo St., Sta. Ana, Manila. Respondent Phimco Industries Labor Association (PILA) is the duly authorized bargaining representative of PHIMCOs daily-paid workers. The 47 individually named respondents are PILA officers and members. When the last collective bargaining agreement was about to expire on December 31, 1994, PHIMCO and PILA negotiated for its renewal. The negotiation resulted in a deadlock on economic issues, mainly due to disagreements on salary increases and benefits. On March 9, 1995, PILA filed with the National Conciliation and Mediation Board (NCMB) a Notice of Strike on the ground of the bargaining deadlock. Seven (7) days later, or on March 16, 1995, the union conducted a strike vote; a majority of the union members voted for a strike as its response to the bargaining impasse. On March 17, 1995, PILA filed the strike vote results with the NCMB. Thirty-five (35) days later, or on April 21, 1995, PILA staged a strike. On May 3, 1995, PHIMCO filed with the NLRC a petition for preliminary injunction and temporary restraining order (TRO), to enjoin the strikers from preventing through force, intimidation and coercion the ingress and egress of non-striking employees into and from the company premises. On May 15, 1995, the NLRC issued an ex-parte TRO, effective for a period of twenty (20) days, or until June 5, 1995. On June 23, 1995, PHIMCO sent a letter to thirty-six (36) union members, directing them to explain within twenty-four (24) hours why they should not be dismissed for the illegal acts they committed during the strike. Three days later, or on June 26, 1995, the thirty-six (36) union members were informed of their dismissal. On July 6, 1995, PILA filed a complaint for unfair labor practice and illegal dismissal (illegal dismissal case) with the NLRC. The case was docketed as NLRC NCR Case No. 00-07-04705-95, and raffled to Labor Arbiter (LA) Pablo C. Espiritu, Jr. On July 7, 1995, then Acting Labor Secretary Jose S. Brillantes assumed jurisdiction over the labor dispute, and ordered all the striking employees (except those who were handed

20

termination papers on June 26, 1995) to return to work within twenty-four (24) hours from receipt of the order. The Secretary ordered PHIMCO to accept the striking employees, under the same terms and conditions prevailing prior to the strike.[4] On the same day, PILA ended its strike. On August 28, 1995, PHIMCO filed a Petition to Declare the Strike Illegal (illegal strike case) with the NLRC, with a prayer for the dismissal of PILA officers and members who knowingly participated in the illegal strike. PHIMCO claimed that the strikers prevented ingress to and egress from the PHIMCO compound, thereby paralyzing PHIMCOs operations. The case was docketed as NLRC NCR Case No. 00-08-06031-95, and raffled to LA Jovencio Ll. Mayor. On March 14, 1996, the respondents filed their Position Paper in the illegal strike case. They countered that they complied with all the legal requirements for the staging of the strike, they put up no barricade, and conducted their strike peacefully, in an orderly and lawful manner, without incident. LA Mayor decided the case on February 4, 1998,[5] and found the strike illegal; the respondents committed prohibited acts during the strike by blocking the ingress to and egress from PHIMCOs premises and preventing the non-striking employees from reporting for work. He observed that it was not enough that the picket of the strikers was a moving picket, since the strikers should allow the free passage to the entrance and exit points of the company premises. Thus, LA Mayor declared that the respondent employees, PILA officers and members, have lost their employment status. On March 5, 1998, PILA and its officers and members appealed LA Mayors decision to the NLRC. THE NLRC RULING The NLRC decided the appeal on December 29, 1998, and set aside LA Mayors decision.[6] The NLRC did not give weight to PHIMCOs evidence, and relied instead on the respondents evidence showing that the union conducted a peaceful moving picket. On January 28, 1999, PHIMCO filed a motion for reconsideration in the illegal strike case.[7]

 In a parallel development, LA Espiritu decided the unions illegal dismissal case on March 2, 1999. He ruled the respondents dismissal as illegal, and ordered their reinstatement with payment of backwages. PHIMCO appealed LA Espiritus decision to the NLRC. Pending the resolution of PHIMCOs motion for reconsideration in the illegal strike case and the appeal of the illegal dismissal case, PHIMCO moved for the consolidation of the two (2) cases. The NLRC acted favorably on the motion and consolidated the two (2) cases in its Order dated August 5, 1999. On February 20, 2002, the NLRC rendered its Decision in the consolidated cases, ruling totally in the unions favor.[8] It dismissed the appeal of the illegal dismissal case, and denied PHIMCOs motion for reconsideration in the illegal strike case. The NLRC found that the picket conducted by the striking employees was not an illegal blockade and did not obstruct the points of entry to and exit from the companys premises; the pictures submitted by the

respondents revealed that the picket was moving, not stationary. With respect to the illegal dismissal charge, the NLRC observed that the striking employees were not given ample opportunity to explain their side after receipt of the June 23, 1995 letter. Thus, the NLRC affirmed the Decision of LA Espiritu with respect to the payment of backwages until the promulgation of the decision, plus separation pay at one (1) month salary per year of service in lieu of reinstatement, and 10% of the monetary award as attorneys fees. It ruled out reinstatement because of the damages sustained by the company brought about by the strike. On March 14, 2002, PHIMCO filed a motion for reconsideration of the consolidated decision. On April 26, 2002, without waiting for the result of its motion for reconsideration, PHIMCO elevated its case to the CA through a petition for certiorari under Rule 65 of the Rules of Court.[9]

 THE CA RULING In a Decision[10] promulgated on February 10, 2004, the CA dismissed PHIMCOs petition for certiorari. The CA noted that the NLRC findings, that the picket was peaceful and that PHIMCOs evidence failed to show that the picket constituted an illegal blockade or that it obstructed the points of entry to and exit from the company premises, were supported by substantial evidence. PHIMCO came to us through the present petition after the CA denied[11] PHIMCOs motion for reconsideration.[12]

 THE PETITION The petitioner argues that the strike was illegal because the respondents committed the prohibited acts under Article 264(e) of the Labor Code, such as blocking the ingress and egress of the company premises, threat, coercion, and intimidation, as established by the evidence on record. THE CASE FOR THE RESPONDENTS The respondents, on the other hand, submit that the issues raised in this case are factual in nature that we cannot generally touch in a petition for review, unless compelling reasons exist; the company has not shown any such compelling reason as the picket was peaceful and uneventful, and no human barricade blocked the company premises. THE ISSUE In Montoya v. Transmed Manila Corporation,[13] we laid down the basic approach that should be followed in the review of CA decisions in labor cases, thus:In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the review of questions of law raised against the assailed CA decision. In ruling for legal correctness, we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to it; we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion

21

in the NLRC decision before it, not on the basis of whether the NLRC decision on the merits of the case was correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before it. This is the approach that should be basic in a Rule 45 review of a CA ruling in a labor case. In question form, the question to ask is: Did the CA correctly determine whether the NLRC committed grave abuse of discretion in ruling on the case? In this light, the core issue in the present case is whether the CA correctly ruled that the NLRC did not act with grave abuse of discretion in ruling that the unions strike was legal. OUR RULING We find the petition partly meritorious. Requisites of a valid strike A strike is the most powerful weapon of workers in their struggle with management in the course of setting their terms and conditions of employment. Because it is premised on the concept of economic war between labor and management, it is a weapon that can either breathe life to or destroy the union and its members, and one that must also necessarily affect management and its members.[14]

 In light of these effects, the decision to declare a strike must be exercised responsibly and must always rest on rational basis, free from emotionalism, and unswayed by the tempers and tantrums of hot heads; it must focus on legitimate union interests. To be legitimate, a strike should not be antithetical to public welfare, and must be pursued within legal bounds. The right to strike as a means of attaining social justice is never meant to oppress or destroy anyone, least of all, the employer.[15]

Since strikes affect not only the relationship between labor and management but also the general peace and progress of the community, the law has provided limitations on the right to strike. Procedurally, for a strike to be valid, it must comply with Article 263[16] of the Labor Code, which requires that: (a) a notice of strike be filed with the Department of Labor and Employment (DOLE) 30 days before the intended date thereof, or 15 days in case of unfair labor practice; (b) a strike vote be approved by a majority of the total union membership in the bargaining unit concerned, obtained by secret ballot in a meeting called for that purpose; and (c) a notice be given to the DOLE of the results of the voting at least seven days before the intended strike. These requirements are mandatory, and the unions failure to comply renders the strike illegal.[17] The 15 to 30-day cooling-off period is designed to afford the parties the opportunity to amicably resolve the dispute with the assistance of the NCMB conciliator/mediator, while the seven-day strike ban is intended to give the DOLE an opportunity to verify whether the projected strike really carries the imprimatur of the majority of the union members.[18]

In the present case, the respondents fully satisfied the legal procedural requirements; a strike notice was filed on March 9, 1995; a strike vote was reached on March 16, 1995; notification of the strike vote was filed with the DOLE on March 17, 1995; and the actual strike was launched only on April 25, 1995. Strike may be illegal for commission of prohibited acts

 Despite the validity of the purpose of a strike and compliance with the procedural requirements, a strike may still be held illegal where the means employed are illegal.[19] The means become illegal when they come within the prohibitions under Article 264(e) of the Labor Code which provides: No person engaged in picketing shall commit any act of violence, coercion or intimidation or obstruct the free ingress to or egress from the employer's premises for lawful purposes, or obstruct public thoroughfares.  Based on our examination of the evidence which the LA viewed differently from the NLRC and the CA, we find the PILA strike illegal. We intervene and rule even on the evidentiary and factual issues of this case as both the NLRC and the CA grossly misread the evidence, leading them to inordinately incorrect conclusions, both factual and legal. While the strike undisputably had not been marred by actual violence and patent intimidation, the picketing that respondent PILA officers and members undertook as part of their strike activities effectively blocked the free ingress to and egress from PHIMCOs premises, thus preventing non-striking employees and company vehicles from entering the PHIMCO compound. In this manner, the picketers violated Article 264(e) of the Labor Code.    The Evidence We gather from the case record the following pieces of relevant evidence adduced in the compulsory arbitration proceedings.[20]

 For the Company 1.                              Pictures taken during the strike, showing that the respondents prevented free ingress to and egress from the company premises;[21]

2.           Affidavit of PHIMCO Human Resources Manager Francis Ferdinand Cinco, stating that he was one of the employees prevented by the strikers from entering the PHIMCO premises;[22]

3.                              Affidavit of Cinco, identifying Erlinda Vazquez, Ricardo Sacristan, Leonida Catalan, Maximo Pedro, Nathaniela R. Dimaculangan, Rodolfo Mojico, Romeo Caramanza, Reynaldo Ganitano, Alberto Basconcillo, and Ramon Falcis as PILA officers;[23]

4.                 Affidavit of Cinco identifying other members of PILA;[24]

5.                 Folder 1, containing pictures taken during the strike identifying and showing Leonida Catalan, Renato Ramos, Arsenio Zamora, Reynaldo Ganitano, Amelia Zamora, Angelito Dejan, Teresa Permocillo, and Francisco Dalisay as the persons preventing Cinco and his group from entering the company premises;[25]

6.                 Folder 2, with pictures taken on May 30, 1995, showing Cinco, together with non-striking PHIMCO employees, reporting for work but being refused entry by strikers Teofilo Manalili, Nathaniela Dimaculangan, Bernando Cuadra, Maximo Pedro, Nicanor Ilagan, Julian Tuguin, Nemesio Mamonong, Abraham Caday, Ernesto Rio, Benjamin Juan, Sr., Ramon Macaalay, Gerardo Feliciano, Alberto Basconcillo, Rodolfo Sanidad, Mariano Rosales, Roger

22

Caber, Angelito de Guzman, Angelito Balosa and Philip Garces who blocked the company gate;[26]

7.                 Folder 3, with pictures taken on May 30, 1995, showing the respondents denying free ingress to and egress from the company premises;[27]

8.                 Folder 4, with pictures taken during the strike, showing that non-striking employees failed to enter the company premises as a result of the respondents refusal to let them in;[28]

9.                 Affidavit of Joaquin Aguilar stating that the pictures presented by Cinco were taken during the strike;[29]

10.            Pictures taken by Aguilar during the strike, showing non-striking employees being refused entry by the respondents;[30]

11.                         Joint affidavit of Orlando Marfil and Rodolfo Digo, identifying the pictures they took during the strike, showing that the respondents blocked ingress to and egress from the company premises;[31] and,12.            Testimonies of PHIMCO employees Rodolfo Eva, Aguilar and Cinco, as well as those of PILA officers Maximo Pedro and Leonida Catalan. For the Respondents 1.      Affidavit of Leonida Catalan, stating that the PILA strike complied with all the legal requirements, and the strike/picket was conducted peacefully with no incident of any illegality;[32]

2.                 Affidavit of Maximo Pedro, stating that the strike/picket was conducted peacefully; the picket was always moving with no acts of illegality having been committed during the strike;[33]

3.                 Certification of Police Station Commander Bienvenido de los Reyes that during the strike there was no report of any untoward incident;[34]

4.                 Certification of Rev. Father Erick Adeviso of Dambanang Bayan Parish Church that the strike was peaceful and without any untoward incident;[35]

5.                 Certification of Priest-In-Charge Angelito Fausto of the Philippine Independent Church in Punta, Santa Ana, that the strike complied with all the requirements for a lawful strike, and the strikers conducted themselves in a peaceful manner;[36]

6.                 Clearance issued by Punong Barangay Mario O. dela Rosa and Barangay Secretary Pascual Gesmundo, Jr. that the strike from April 21 to July 7, 1995 was conducted in an orderly manner with no complaints filed;[37] and,7.      Testimonies at the compulsory arbitration proceedings. In its resolution of December 29, 1998,[38] the NLRC declared that the string of proofs the company presented was overwhelmingly counterbalanced by the numerous pieces of evidence adduced by respondents x x x all depicting a common story that respondents put up a peaceful moving picket, and did not commit any illegal acts x x x specifically obstructing the ingress to and egress from the company premises[.][39]

 We disagree with this finding as the purported peaceful moving picket upon which the NLRC resolution was anchored was not an innocuous picket, contrary to what the NLRC said it was; the picket, under the evidence presented, did effectively obstruct the entry and exit points of the company premises on various occasions. 

To strike is to withhold or to stop work by the concerted action of employees as a result of an industrial or labor dispute.[40] The work stoppage may be accompanied by picketing by the striking employees outside of the company compound. While a strike focuses on stoppage of work, picketing focuses on publicizing the labor dispute and its incidents to inform the public of what is happening in the company struck against. A picket simply means to march to and from the employers premises, usually accompanied by the display of placards and other signs making known the facts involved in a labor dispute.[41] It is a strike activity separate and different from the actual stoppage of work. While the right of employees to publicize their dispute falls within the protection of freedom of expression[42] and the right to peaceably assemble to air grievances,[43] these rights are by no means absolute. Protected picketing does not extend to blocking ingress to and egress from the company premises.[44] That the picket was moving, was peaceful and was not attended by actual violence may not free it from taints of illegality if the picket effectively blocked entry to and exit from the company premises. In this regard, PHIMCO employees Rodolfo Eva and Joaquin Aguilar, and the companys Human Resources Manager Francis Ferdinand Cinco testified during the compulsory arbitration hearings: ATTY. REYES: this incident on May 22, 1995, when a coaster or bus attempted to enter PHIMCO compound, you mentioned that it was refused entry. Why was this (sic) it refused entry? WITNESS: Because at that time, there was a moving picket at the gate that is why the bus was not able to enter.[45]

 x x x x Q: Despite this TRO, which was issued by the NLRC, were you allowed entry by the strikers? A: We made several attempts to enter the compound, I remember on May 7, 1995, we tried to enter the PHIMCO compound but we were not allowed entry. Q: Aside from May 27, 1995, were there any other instances wherein you were not allowed entry at PHIMCO compound? A: On May 29, I recall I was riding with our Production Manager with the Pick-up. We tried to enter but we were not allowed by the strikers.[46]

 x x x x ARBITER MAYOR: How did the strikers block the ingress of the company? A: They hold around, joining hands, moving picket.[47]

 x x x x 

23

ARBITER MAYOR: Reform the question, and because of that moving picket conducted by the strikers, no employees or vehicles can come in or go out of the premises? A: None, sir.[48]

 These accounts were confirmed by the admissions of respondent PILA officers Maximo Pedro and Leonida Catalan that the strikers prevented non-striking employees from entering the company premises. According to these union officers: ATTY. CHUA: Mr. witness, do you recall an incident when a group of managers of PHIMCO, with several of the monthly paid employees who tried to enter the PHIMCO compound during the strike? MR. PEDRO: Yes, sir. ATTY. CHUA: Can you tell us if these (sic) group of managers headed by Francis Cinco entered the compound of PHIMCO on that day, when they tried to enter? MR. PEDRO: No, sir. They were not able to enter.[49]

 x x x x ATTY. CHUA: Despite having been escorted by police Delos Reyes, you still did not give way, and instead proceeded with your moving picket? MR. PEDRO: Yes, sir. ATTY. CHUA: In short, these people were not able to enter the premises of PHIMCO, Yes or No. MR. PEDRO: Yes, sir. [50]

 x x x x ATTY. CHUA: Madam witness, even if Major Delos Reyes instructed you to give way so as to allow the employees and managers to enter the premises, you and your co-employees did not give way? MS. CATALAN: No sir. ATTY. CHUA: the managers and the employees were not able to enter the premises? MS. CATALAN: Yes, sir.[51]

 The NLRC resolution itself noted the above testimonial evidence, all building up a scenario that the moving picket put up by [the] respondents obstructed the ingress to and egress from the company premises[,][52] yet it ignored the clear import of the testimonies as to the true nature of the picket. Contrary to the NLRC characterization that it was a peaceful moving picket, it stood, in fact, as an obstruction to the companys points of ingress and egress.

 Significantly, the testimonies adduced were validated by the photographs taken of the strike area, capturing the strike in its various stages and showing how the strikers actually conducted the picket. While the picket was moving, it was maintained so close to the company gates that it virtually constituted an obstruction, especially when the strikers joined hands, as described by Aguilar, or were moving in circles, hand-to-shoulder, as shown by the photographs, that, for all intents and purposes, blocked the free ingress to and egress from the company premises. In fact, on closer examination, it could be seen that the respondents were conducting the picket right at the company gates.[53]

 The obstructive nature of the picket was aggravated by the placement of benches, with strikers standing on top, directly in front of the open wing of the company gates, clearly obstructing the entry and exit points of the company compound.[54]

 With a virtual human blockade and real physical obstructions (benches and makeshift structures both outside and inside the gates),[55] it was pure conjecture on the part of the NLRC to say that [t]he non-strikers and their vehicles were x x x free to get in and out of the company compound undisturbed by the picket line.[56] Notably, aside from non-strikers who wished to report for work, company vehicles likewise could not enter and get out of the factory because of the picket and the physical obstructions the respondents installed. The blockade went to the point of causing the build up of traffic in the immediate vicinity of the strike area, as shown by photographs.[57] This, by itself, renders the picket a prohibited activity. Pickets may not aggressively interfere with the right of peaceful ingress to and egress from the employers shop or obstruct public thoroughfares; picketing is not peaceful where the sidewalk or entrance to a place of business is obstructed by picketers parading around in a circle or lying on the sidewalk.[58]

 What the records reveal belies the NLRC observation that the evidence x x x tends to show that what respondents actually did was walking or patrolling to and fro within the company vicinity and by word of mouth, banner or placard, informing the public concerning the dispute.[59]

 The peaceful moving picket that the NLRC noted, influenced apparently by the certifications (Mayor delos Reyes, Fr. Adeviso, Fr. Fausto and Barangay Secretary Gesmundo presented in evidence by the respondents, was peaceful only because of the absence of violence during the strike, but the obstruction of the entry and exit points of the company premises caused by the respondents picket was by no means a petty blocking act or an insignificant obstructive act.[60]

 As we have stated, while the picket was moving, the movement was in circles, very close to the gates, with the strikers in a hand-to-shoulder formation without a break in their ranks, thus preventing non-striking workers and vehicles from coming in and getting out. Supported by actual blocking benches and obstructions, what the union demonstrated was a very persuasive and quietly intimidating strategy whose chief aim was to paralyze the operations of the company, not solely by the work stoppage of the participating workers, but by excluding the company officials and non-striking employees from access to and exit from the company premises. No doubt, the strike caused the company operations considerable damage, as the NLRC itself recognized when it ruled out the reinstatement of the dismissed strikers.[61]

 Intimidation

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 Article 264(e) of the Labor Code tells us that picketing carried on with violence, coercion or intimidation is unlawful.[62] According to American jurisprudence, what constitutes unlawful intimidation depends on the totality of the circumstances.[63] Force threatened is the equivalent of force exercised. There may be unlawful intimidation without direct threats or overt acts of violence. Words or acts which are calculated and intended to cause an ordinary person to fear an injury to his person, business or property are equivalent to threats.[64]

 The manner in which the respondent union officers and members conducted the picket in the present case had created such an intimidating atmosphere that non-striking employees and even company vehicles did not dare cross the picket line, even with police intervention. Those who dared cross the picket line were stopped. The compulsory arbitration hearings bear this out. Maximo Pedro, a PILA officer, testified, on July 30, 1997, that a group of PHIMCO managers led by Cinco, together with several monthly-paid employees, tried to enter the company premises on May 27, 1995 with police escort; even then, the picketers did not allow them to enter.[65]Leonida Catalan, another union officer, testified that she and the other picketers did not give way despite the instruction of Police Major de los Reyes to the picketers to allow the group to enter the company premises.[66] (To be sure, police intervention and participation are, as a rule, prohibited acts in a strike, but we note this intervention solely as indicators of how far the union and its members have gone to block ingress to and egress from the company premises.) Further, PHIMCO employee Rodolfo Eva testified that on May 22, 1995, a company coaster or bus attempted to enter the PHIMCO compound but it was refused entry by the moving picket.[67] Cinco, the company personnel manager, also testified that on May 27, 1995, when the NLRC TRO was in force, he and other employees tried to enter the PHIMCO compound, but they were not allowed entry; on May 29, 1995, Cinco was with the PHIMCO production manager in a pick-up and they tried to enter the company compound but, again, they were not allowed by the strikers.[68] Another employee, Joaquin Aguilar, when asked how the strikers blocked the ingress of the company, replied that the strikers hold around, joining hands, moving picket and, because of the moving picket, no employee or vehicle could come in and go out of the premises.[69]

 The evidence adduced in the present case cannot be ignored. On balance, it supports the companys submission that the respondent PILA officers and members committed acts during the strike prohibited under Article 264(e) of the Labor Code. The testimonies of non-striking employees, who were prevented from gaining entry into the company premises, and confirmed no less by two officers of the union, are on record. The photographs of the strike scene, also on record, depict the true character of the picket; while moving, it, in fact, constituted a human blockade, obstructing free ingress to and egress from the company premises, reinforced by benches planted directly in front of the company gates. The photographs do not lie these photographs clearly show that the picketers were going in circles, without any break in their ranks or closely bunched together, right in front of the gates. Thus, company vehicles were unable to enter the company compound, and were backed up several meters into the street leading to the company gates. 

Despite all these clear pieces of evidence of illegal obstruction, the NLRC looked the other way and chose not to see the unmistakable violations of the law on strikes by the union and its respondent officers and members. Needless to say, while the law protects the rights of the laborer, it authorizes neither the oppression nor the destruction of the employer.[70] For grossly ignoring the evidence before it, the NLRC committed grave abuse of discretion; for supporting these gross NLRC errors, the CA committed its own reversible error. Liabilities of unionofficers and members In the determination of the liabilities of the individual respondents, the applicable provision is Article 264(a) of the Labor Code: Art. 264. Prohibited activities. (a) x x x x x x x Any union officer who knowingly participates in an illegal strike and any worker or union officer who knowingly participates in the commission of illegal acts during a strike may be declared to have lost his employment status: Provided, That mere participation of a worker in a lawful strike shall not constitute sufficient ground for termination of his employment, even if a replacement had been hired by the employer during such lawful strike.  We explained in Samahang Manggagawa sa Sulpicio Lines, Inc.-NAFLU v. Sulpicio Lines, Inc.[71] that the effects of illegal strikes, outlined in Article 264 of the Labor Code, make a distinction between participating workers and union officers. The services of an ordinary striking worker cannot be terminated for mere participation in an illegal strike; proof must be adduced showing that he or she committed illegal acts during the strike. The services of a participating union officer, on the other hand, may be terminated, not only when he actually commits an illegal act during a strike, but also if he knowingly participates in an illegal strike.[72]

 In all cases, the striker must be identified. But proof beyond reasonable doubt is not required; substantial evidence, available under the attendant circumstances, suffices to justify the imposition of the penalty of dismissal on participating workers and union officers as above described.[73]

 In the present case, respondents Erlinda Vazquez, Ricardo Sacristan, Leonida Catalan, Maximo Pedro, Nathaniela Dimaculangan, Rodolfo Mojico, Romeo Caramanza, Reynaldo Ganitano, Alberto Basconcillo, and Ramon Falcis stand to be dismissed as participating union officers, pursuant to Article 264(a), paragraph 3, of the Labor Code. This provision imposes the penalty of dismissal on any union officer who knowingly participates in an illegal strike. The law grants the employer the option of declaring a union officer who participated in an illegal strike as having lost his employment.[74]

 PHIMCO was able to individually identify the participating union members thru the affidavits of PHIMCO employees Martimer Panis[75] and Rodrigo A. Ortiz,[76] and Personnel Manager Francis Ferdinand Cinco,[77] and the photographs[78] of Joaquin Aguilar. Identified were

25

respondents Angelita Balosa, Danilo Banaag, Abraham Caday, Alfonso Claudio, Francisco Dalisay, Angelito Dejan, Philip Garces, Nicanor Ilagan, Florencio Libongcogon, Nemesio Mamonong, Teofilo Manalili, Alfredo Pearson, Mario Perea, Renato Ramos, Mariano Rosales, Pablo Sarmiento, Rodolfo Tolentino, Felipe Villareal, Arsenio Zamora, Danilo Baltazar, Roger Caber, Reynaldo Camarin, Bernardo Cuadra, Angelito de Guzman, Gerardo Feliciano, Alex Ibaez, Benjamin Juan, Sr., Ramon Macaalay, Gonzalo Manalili, Raul Miciano, Hilario Pea, Teresa Permocillo, Ernesto Rio, Rodolfo Sanidad, Rafael Sta. Ana, Julian Tuguin and Amelia Zamora as the union members who actively participated in the strike by blocking the ingress to and egress from the company premises and preventing the passage of non-striking employees. For participating in illegally blocking ingress to and egress from company premises, these union members stand to bedismissed for their illegal acts in the conduct of the unions strike. PHIMCO failed to observe due process We find, however, that PHIMCO violated the requirements of due process of the Labor Code when it dismissed the respondents. Under Article 277(b)[79] of the Labor Code, the employer must send the employee, who is about to be terminated, a written notice stating the cause/s for termination and must give the employee the opportunity to be heard and to defend himself. We explained in Suico v. National Labor Relations Commission,[80] that Article 277(b), in relation to Article 264(a) and (e) of the Labor Code recognizes the right to due process of all workers, without distinction as to the cause of their termination, even if the cause was their supposed involvement in strike-related violence prohibited under Article 264(a) and (e) of the Labor Code. To meet the requirements of due process in the dismissal of an employee, an employer must furnish him or her with two (2) written notices: (1) a written notice specifying the grounds for termination andgiving the employee a reasonable opportunity to explain his side and (2) another written notice indicating that, upon due consideration of all circumstances, grounds have been established to justify the employer's decision to dismiss the employee.[81]

 In the present case, PHIMCO sent a letter, on June 23, 1995, to thirty-six (36) union members, generally directing them to explain within twenty-four (24) hours why they should not be dismissed for the illegal acts they committed during the strike; three days later, or on June 26, 1995, the thirty-six (36) union members were informed of their dismissal from employment. We do not find this company procedure to be sufficient compliance with the due process requirements that the law guards zealously. It does not appear from the evidence that the union officers were specifically informed of the charges against them and given the chance to explain and present their side. Without the specifications they had to respond to, they were arbitrarily separated from work in total disregard of their rights to due process and security of tenure. As to the union members, only thirty-six (36) of the thirty-seven (37) union members included in this case were notified of the charges against them thru the letters dated June 23, 1995, but they were not given an ample opportunity to be heard and to defend themselves; the notice of

termination came on June 26, 1995, only three (3) days from the first notice - a perfunctory and superficial attempt to comply with the notice requirement under the Labor Code. The short interval of time between the first and second notice speaks for itself under the circumstances of this case; mere token recognition of the due process requirements was made, indicating the companys intent to dismiss the union members involved, without any meaningful resort to the guarantees accorded them by law. Under the circumstances, where evidence sufficient to justify the penalty of dismissal has been adduced but the workers concerned were not accorded their essential due process rights, our ruling inAgabon v. NLRC[82] finds full application; the employer, despite the just cause for dismissal, must pay the dismissed workers nominal damages as indemnity for the violation of the workers right to statutory due process. Prevailing jurisprudence sets the amount of nominal damages at P30,000.00, which same amount we find sufficient and appropriate in the present case.[83]

 WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the decision dated February 10, 2004 and the resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. SP No. 70336, upholding the rulings of the National Labor Relations Commission. The Decision, dated February 4, 1998, of Labor Arbiter Jovencio Ll. Mayor should prevail and is REINSTATED with the MODIFICATION that Erlinda Vazquez, Ricardo Sacristan, Leonida Catalan, Maximo Pedro, Nathaniela Dimaculangan, Rodolfo Mojico, Romeo Caramanza, Reynaldo Ganitano, Alberto Basconcillo, Ramon Falcis, Angelita Balosa, Danilo Banaag, Abraham Caday, Alfonso Claudio, Francisco Dalisay, Angelito Dejan, Philip Garces, Nicanor Ilagan, Florencio Libongcogon, Nemesio Mamonong, Teofilo Manalili, Alfredo Pearson, Mario Perea, Renato Ramos, Mariano Rosales, Pablo Sarmiento, Rodolfo Tolentino, Felipe Villareal, Arsenio Zamora, Danilo Baltazar, Roger Caber, Reynaldo Camarin, Bernardo Cuadra, Angelito de Guzman, Gerardo Feliciano, Alex Ibaez, Benjamin Juan, Sr., Ramon Macaalay, Gonzalo Manalili, Raul Miciano, Hilario Pea, Teresa Permocillo, Ernesto Rio, Rodolfo Sanidad, Rafael Sta. Ana, Julian Tuguin, and Amelia Zamora are each awarded nominal damages in the amount of P30,000.00. No pronouncement as to costs.  SO ORDERED.

26

SUPREME COURTManila

EN BANC

G.R. No. 171101 July 5, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING CORPORATION, Petitioners-in-Intervention, vs.PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC. and WINDSOR ANDAYA, Respondents.

D E C I S I O N

VELASCO, JR., J.:

"Land for the landless," a shibboleth the landed gentry doubtless has received with much misgiving, if not resistance, even if only the number of agrarian suits filed serves to be the norm. Through the years, this battle cry and root of discord continues to reflect the seemingly ceaseless discourse on, and great disparity in, the distribution of land among the people, "dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth as their place in the sun."2 As administrations and political alignments change, policies advanced, and agrarian reform laws enacted, the latest being what is considered a comprehensive piece, the face of land reform varies and is masked in myriads of ways. The stated goal, however, remains the same: clear the way for the true freedom of the farmer.3

Land reform, or the broader term "agrarian reform," has been a government policy even before the Commonwealth era. In fact, at the onset of the American regime, initial steps toward land reform were already taken to address social unrest.4 Then, under the 1935 Constitution, specific provisions on social justice and expropriation of landed estates for distribution to tenants as a solution to land ownership and tenancy issues were incorporated.

In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the expropriation of all tenanted estates.5

On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted,6 abolishing share tenancy and converting all instances of share tenancy into leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines (LBP) to provide support in all phases of agrarian reform.

As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and corn, supposedly to be accomplished by expropriating lands in excess of 75 hectares for their eventual resale to tenants. The law, however, had this restricting feature: its operations were

confined mainly to areas in Central Luzon, and its implementation at any level of intensity limited to the pilot project in Nueva Ecija.8

Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire country a land reform area, and providing for the automatic conversion of tenancy to leasehold tenancy in all areas. From 75 hectares, the retention limit was cut down to seven hectares.9

Barely a month after declaring martial law in September 1972, then President Ferdinand Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation of the tiller from the bondage of the soil."10 Based on this issuance, tenant-farmers, depending on the size of the landholding worked on, can either purchase the land they tilled or shift from share to fixed-rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands.12

Then came the revolutionary government of then President Corazon C. Aquino and the drafting and eventual ratification of the 1987 Constitution. Its provisions foreshadowed the establishment of a legal framework for the formulation of an expansive approach to land reform, affecting all agricultural lands and covering both tenant-farmers and regular farmworkers.13

So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive agrarian reform program (CARP) to cover all agricultural lands, regardless of tenurial arrangement and commodity produced, as provided in the Constitution.

On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its title14 indicates, the mechanisms for CARP implementation. It created the Presidential Agrarian Reform Council (PARC) as the highest policy-making body that formulates all policies, rules, and regulations necessary for the implementation of CARP.

On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also known as CARL or the CARP Law, took effect, ushering in a new process of land classification, acquisition, and distribution. As to be expected, RA 6657 met stiff opposition, its validity or some of its provisions challenged at every possible turn. Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the observation that the assault was inevitable, the CARP being an untried and untested project, "an experiment [even], as all life is an experiment," the Court said, borrowing from Justice Holmes.

The Case

In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on December 22, 2005 and May 3, 2006, respectively, as well as the implementing Notice of Coverage dated January 2, 2006 (Notice of Coverage).18

The Facts

At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-hectare mixed agricultural-industrial-residential expanse straddling several municipalities of Tarlac

27

and owned by Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their controlling interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco undertook to pay the purchase price for Hacienda Luisita in pesos, while that for the controlling interest in CAT, in US dollars.19

To facilitate the adverted sale-and-purchase package, the Philippine government, through the then Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a US bank.20 Also, the Government Service Insurance System (GSIS) Board of Trustees extended on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the peso price component of the sale. One of the conditions contained in the approving GSIS Resolution No. 3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:

That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation and sold at cost to the tenants, should there be any, and whenever conditions should exist warranting such action under the provisions of the Land Tenure Act;21

As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of Hacienda Luisita and Tabacalera’s interest in CAT.22

The details of the events that happened next involving the hacienda and the political color some of the parties embossed are of minimal significance to this narration and need no belaboring. Suffice it to state that on May 7, 1980, the martial law administration filed a suit before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to surrender Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding, Tadeco or its owners alleged that Hacienda Luisita does not have tenants, besides which sugar lands––of which the hacienda consisted––are not covered by existing agrarian reform legislations. As perceived then, the government commenced the case against Tadeco as a political message to the family of the late Benigno Aquino, Jr.23

Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals (CA).

On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the government’s case against Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed the case the Marcos government initially instituted and won against Tadeco, et al. The dismissal action was, however, made subject to the obtention by Tadeco of the PARC’s approval of a stock distribution plan (SDP) that must initially be implemented after such approval shall have been secured.24 The appellate court wrote:

The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x governmental agencies concerned in moving for the dismissal of the case subject, however, to the following conditions embodied in the letter dated April 8, 1988 (Annex 2) of the Secretary of the [DAR] quoted, as follows:

1. Should TADECO fail to obtain approval of the stock distribution plan for failure to comply with all the requirements for corporate landowners set forth in the guidelines issued by the [PARC]: or

2. If such stock distribution plan is approved by PARC, but TADECO fails to initially implement it.

x x x x

WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should be revived if any of the conditions as above set forth is not duly complied with by the TADECO.25

Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the actual land transfer scheme of CARP, to give qualified beneficiaries the right to purchase shares of stocks of the corporation under a stock ownership arrangement and/or land-to-share ratio.

Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative modalities, i.e., land or stock transfer, pursuant to either of which the corporate landowner can comply with CARP, but subject to well-defined conditions and timeline requirements. Sec. 31 of RA 6657 provides:

SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries x x x.

Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed be reduced. x x x

Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of this Act: Provided, That the following conditions are complied with:

(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial benefits, the books of the corporation or association shall be subject to periodic audit by certified public accountants chosen by the beneficiaries;

(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the corporation or association;

(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all other shares; and

28

(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction is in favor of a qualified and registered beneficiary within the same corporation.

If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not made or realized or the plan for such stock distribution approved by the PARC within the same period, the agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Emphasis added.)

Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative Order No. 10, Series of 1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock Distribution Plan under Section 31 of RA 6657.

From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, for, on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate stock acquisition by the farmworkers. For this purpose, Tadeco assigned and conveyed to HLI the agricultural land portion (4,915.75 hectares) and other farm-related properties of Hacienda Luisita in exchange for HLI shares of stock.29

Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C. Teopaco were the incorporators of HLI.30

To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and Exchange Commission’s (SEC’s) approval, increased its capital stock on May 10, 1989 from PhP 1,500,000 divided into 1,500,000 shares with a par value of PhP 1/share to PhP 400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share, 150,000,000 of which were to be issued only to qualified and registered beneficiaries of the CARP, and the remaining 250,000,000 to any stockholder of the corporation.31

As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the capital stock of HLI, as appraised and approved by the SEC, have an aggregate value of PhP 590,554,220, or after deducting the total liabilities of the farm amounting to PhP 235,422,758, a net value of PhP 355,531,462. This translated to 355,531,462 shares with a par value of PhP 1/share.32

On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock Distribution Option Plan. On May 11, 1989, the Stock Distribution Option Agreement (SDOA), styled as a Memorandum of Agreement (MOA),33 was entered into by Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA embodied the basis and mechanics of the SDP, which would eventually be submitted to the PARC for approval. In the SDOA, the parties agreed to the following:

1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is the proportion of the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that has to be distributed to the THIRD PARTY [FWBs] under the

stock distribution plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.

2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers who appear in the annual payroll, inclusive of the permanent and seasonal employees, who are regularly or periodically employed by the SECOND PARTY.

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY shall arrange with the FIRST PARTY [Tadeco] the acquisition and distribution to the THIRD PARTY on the basis of number of days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.

4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP] that every year they will receive on top of their regular compensation, an amount that approximates the equivalent of three (3%) of the total gross sales from the production of the agricultural land, whether it be in the form of cash dividends or incentive bonuses or both.

5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at the start of said year which will empower the THIRD PARTY or their representative to vote in stockholders’ and board of directors’ meetings of the SECOND PARTY convened during the year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked for distribution and thus be able to gain such number of seats in the board of directors of the SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.

6. In addition, the SECOND PARTY shall within a reasonable time subdivide and allocate for free and without charge among the qualified family-beneficiaries residing in the place where the agricultural land is situated, residential or homelots of not more than 240 sq.m. each, with each family-beneficiary being assured of receiving and owning a homelot in the barangay where it actually resides on the date of the execution of this Agreement.

7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the government and with the supervision of the [DAR], with the end in view of improving the lot of the qualified beneficiaries of the [SDP] and obtaining for them greater benefits. (Emphasis added.)

As may be gleaned from the SDOA, included as part of the distribution plan are: (a) production-sharing equivalent to three percent (3%) of gross sales from the production of the agricultural land payable to the FWBs in cash dividends or incentive bonus; and (b) distribution of free homelots of not more than 240 square meters each to family-beneficiaries. The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI] makes money or not," implying that the benefits do not partake the nature of dividends, as the term is ordinarily understood under corporation law.

29

While a little bit hard to follow, given that, during the period material, the assigned value of the agricultural land in the hacienda was PhP 196.63 million, while the total assets of HLI was PhP 590.55 million with net assets of PhP 355.53 million, Tadeco/HLI would admit that the ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding capital stock of the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.

Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution under C.A.R.P.,"35 which was substantially based on the SDOA.

Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs, out of 5,315 who participated, opted to receive shares in HLI.36 One hundred thirty-two (132) chose actual land distribution.37

After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-Santiago) addressed a letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco president, proposing that the SDP be revised, along the following lines:

1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that there will be no dilution in the shares of stocks of individual [FWBs];

2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the percentage shareholdings of the [FWBs], i.e., that the 33% shareholdings of the [FWBs] will be maintained at any given time;

3. That the mechanics for distributing the stocks be explicitly stated in the [MOA] signed between the [Tadeco], HLI and its [FWBs] prior to the implementation of the stock plan;

4. That the stock distribution plan provide for clear and definite terms for determining the actual number of seats to be allocated for the [FWBs] in the HLI Board;

5. That HLI provide guidelines and a timetable for the distribution of homelots to qualified [FWBs]; and

6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in] the MOA.

In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that the proposed revisions of the SDP are already embodied in both the SDP and MOA.39 Following that exchange, the PARC, under then Sec. Defensor-Santiago, by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI.41

At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or less, composed of permanent, seasonal and casual master list/payroll and non-master list members.

From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:

(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits

(b) 59 million shares of stock distributed for free to the FWBs;

(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;

(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares of converted agricultural land of Hacienda Luisita;

(e) 240-square meter homelots distributed for free;

(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80 million pesos (P80,000,000) for the SCTEX;

(g) Social service benefits, such as but not limited to free hospitalization/medical/maternity services, old age/death benefits and no interest bearing salary/educational loans and rice sugar accounts. 42

Two separate groups subsequently contested this claim of HLI.

On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda from agricultural to industrial use,43 pursuant to Sec. 65 of RA 6657, providing:

SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award, when the land ceases to be economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes, the DAR, upon application of the beneficiary or the landowner, with due notice to the affected parties, and subject to existing laws, may authorize the reclassification, or conversion of the land and its disposition: Provided, That the beneficiary shall have fully paid its obligation.

The application, according to HLI, had the backing of 5,000 or so FWBs, including respondent Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of Support they signed and which was submitted to the DAR.44 After the usual processing, the DAR, thru then Sec. Ernesto Garilao, approved the application on August 14, 1996, per DAR Conversion Order No. 030601074-764-(95), Series of 1996,45 subject to payment of three percent (3%) of the gross selling price to the FWBs and to HLI’s continued compliance with its undertakings under the SDP, among other conditions.

On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 28791047 was canceled and TCT No. 29209148 was issued in the name of Centennary. HLI transferred the remaining 200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC)49 in two separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250 million each.50

Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into 12,100,000 shares and wholly-owned by HLI, had the following incorporators: Pedro

30

Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R. Lahoz.

Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of developing an industrial complex.52 As a result, Centennary’s TCT No. 292091 was canceled to be replaced by TCT No. 31098653 in the name of LIPCO.

From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2) separate titles were issued in the name of LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No. 365801,55 covering 180 and four hectares, respectively. TCT No. 310986 was, accordingly, partially canceled.

Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial Banking Corporation (RCBC) by way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10 loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos. 391051 and 391052, were issued to RCBC.

Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the area coverage of Hacienda Luisita which had been acquired by the government as part of the Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares remained of the original 4,915 hectares Tadeco ceded to HLI.56

Such, in short, was the state of things when two separate petitions, both undated, reached the DAR in the latter part of 2003. In the first, denominated as Petition/Protest,57 respondents Jose Julio Suniga and Windsor Andaya, identifying themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60 other supervisors sought to revoke the SDOA, alleging that HLI had failed to give them their dividends and the one percent (1%) share in gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the converted 500 hectares of land. They further claimed that their lives have not improved contrary to the promise and rationale for the adoption of the SDOA. They also cited violations by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in the alternative, its revocation.

Revocation and nullification of the SDOA and the distribution of the lands in the hacienda were the call in the second petition, styled as Petisyon (Petition).59 The Petisyon was ostensibly filed on December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene Galang as "Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As alleged, the petition was filed on behalf of AMBALA’s members purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.

HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other hand, HLI’s answer62 to the AMBALA petition was contained in its letter dated January 21, 2005 also filed with DAR.

Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP of HLI. Among other duties, the Special Task Force was mandated to review the terms and

conditions of the SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP; evaluate HLI’s compliance reports; evaluate the merits of the petitions for the revocation of the SDP; conduct ocular inspections or field investigations; and recommend appropriate remedial measures for approval of the Secretary.63

After investigation and evaluation, the Special Task Force submitted its "Terminal Report: Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict"64 dated September 22, 2005 (Terminal Report), finding that HLI has not complied with its obligations under RA 6657 despite the implementation of the SDP.65 The Terminal Report and the Special Task Force’s recommendations were adopted by then DAR Sec. Nasser Pangandaman (Sec. Pangandaman).66

Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee (Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989 approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through the compulsory acquisition scheme. Following review, the PARC Validation Committee favorably endorsed the DAR Secretary’s recommendation afore-stated.67

On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing as follows:

NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED, to approve and confirm the recommendation of the PARC Executive Committee adopting in toto the report of the PARC ExCom Validation Committee affirming the recommendation of the DAR to recall/revoke the SDO plan of Tarlac Development Corporation/Hacienda Luisita Incorporated.

RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be forthwith placed under the compulsory coverage or mandated land acquisition scheme of the [CARP].

APPROVED.68

A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23, without any copy of the documents adverted to in the resolution attached. A letter-request dated December 28, 200569 for certified copies of said documents was sent to, but was not acted upon by, the PARC secretariat.

Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the same day, the DAR Tarlac provincial office issued the Notice of Coverage71 which HLI received on January 4, 2006.

Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as the DAR’s hasty placing of Hacienda Luisita under CARP even before PARC could rule or even read the motion for reconsideration.72 As HLI later rued, it "can not know from the above-quoted resolution the facts and the law upon which it is based."73

PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.

31

By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary restraining order,75 enjoining the implementation of Resolution No. 2005-32-01 and the notice of coverage.

On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its Comment76 on the petition.

On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated December 4, 2006 (Manifestation and Motion).77 In it, Mallari stated that he has broken away from AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed that FARM be allowed to intervene.

As events would later develop, Mallari had a parting of ways with other FARM members, particularly would-be intervenors Renato Lalic, et al. As things stand, Mallari returned to the AMBALA fold, creating the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as the remaining members of FARM who sought to intervene.

On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction submitted their Comment/Opposition dated December 17, 2006.80

On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit Attached Petition-In-Intervention dated October 18, 2007.81 LIPCO later followed with a similar motion.82 In both motions, RCBC and LIPCO contended that the assailed resolution effectively nullified the TCTs under their respective names as the properties covered in the TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they claimed that the revocation of the SDP cannot legally affect their rights as innocent purchasers for value. Both motions for leave to intervene were granted and the corresponding petitions-in-intervention admitted.

On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments. On the other hand, the Court, on August 24, 2010, heard public respondents as well as the respective counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-Galang faction, and the FARM and its 27 members83 argue their case.

Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory Group, represented by Suniga and Andaya; and the United Luisita Workers Union, represented by Eldifonso Pingol, filed with the Court a joint submission and motion for approval of a Compromise Agreement (English and Tagalog versions) dated August 6, 2010.

On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable settlement, issued a Resolution84 creating a Mediation Panel composed of then Associate Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA Justices Hector Hofileña and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and painstaking efforts on the part of the panel, mediation had to be discontinued when no acceptable agreement could be reached.

The Issues

HLI raises the following issues for our consideration:

I.

WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.

II.

[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW AND THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE 1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED TO NULLIFY, RECALL, REVOKE, OR RESCIND THE SDOA?

III.

WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND WHETHER THE PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE SAID PETITIONS.

IV.

WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO THE SDOA ARE NOW GOVERNED BY THE CORPORATION CODE (BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.

On the other hand, RCBC submits the following issues:

I.

RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID NOT EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS ACQUIRED VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY AS AN INNOCENT PURCHASER FOR VALUE.

A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY 2006 HAVE THE EFFECT OF NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF PETITIONER-INTERVENOR RCBC.

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B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT REVOCATION OR RESCISSION OF THE SDOA.

II.

THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY 2006 WERE ISSUED WITHOUT AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN INNOCENT PURCHASER FOR VALUE.

LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain portions of the converted property, and, hence, would ascribe on PARC the commission of grave abuse of discretion when it included those portions in the notice of coverage. And apart from raising issues identical with those of HLI, such as but not limited to the absence of valid grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the assailed resolution and the notice of coverage were issued without affording it the right to due process as an innocent purchaser for value. The government, LIPCO also argues, is estopped from recovering properties which have since passed to innocent parties.

Simply formulated, the principal determinative issues tendered in the main petition and to which all other related questions must yield boil down to the following: (1) matters of standing; (2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall or revoke HLI’s SDP; (4) the validity or propriety of such recall or revocatory action; and (5) corollary to (4), the validity of the terms and conditions of the SDP, as embodied in the SDOA.

Our Ruling

I.

We first proceed to the examination of the preliminary issues before delving on the more serious challenges bearing on the validity of PARC’s assailed issuance and the grounds for it.

Supervisory Group, AMBALA and theirrespective leaders are real parties-in-interest

HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory petitions before the DAR. As HLI would have it, Galang, the self-styled head of AMBALA, gained HLI employment in June 1990 and, thus, could not have been a party to the SDOA executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors are not regular farmworkers, but the company nonetheless considered them FWBs under the SDOA as a mere concession to enable them to enjoy the same benefits given qualified regular farmworkers. However, if the SDOA would be canceled and land distribution effected, so HLI claims, citing Fortich v. Corona,86 the supervisors would be excluded from receiving lands as farmworkers other than the regular farmworkers who are merely entitled to the "fruits of the land."87

The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who appear in the annual payroll, inclusive of the permanent and seasonal employees, who are regularly or periodically employed by [HLI]."88 Galang, per HLI’s own admission, is employed by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the definition of a real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to be benefited or injured by the judgment in the suit or is the party entitled to the avails of the suit.

The same holds true with respect to the Supervisory Group whose members were admittedly employed by HLI and whose names and signatures even appeared in the annex of the SDOA. Being qualified beneficiaries of the SDP, Suniga and the other 61 supervisors are certainly parties who would benefit or be prejudiced by the judgment recalling the SDP or replacing it with some other modality to comply with RA 6657.

Even assuming that members of the Supervisory Group are not regular farmworkers, but are in the category of "other farmworkers" mentioned in Sec. 4, Article XIII of the Constitution,89 thus only entitled to a share of the fruits of the land, as indeed Fortich teaches, this does not detract from the fact that they are still identified as being among the "SDP qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP.90 At any rate, the following admission made by Atty. Gener Asuncion, counsel of HLI, during the oral arguments should put to rest any lingering doubt as to the status of protesters Galang, Suniga, and Andaya:

Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer beneficiaries of Hacienda Luisita were real parties in interest?

Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the complaints of protest initiated before the DAR and the real party in interest there be considered as possessed by the farmer beneficiaries who initiated the protest.91

Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to represent themselves, their fellow farmers or their organizations in any proceedings before the DAR. Specifically:

SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x

x x x x

Responsible farmer leaders shall be allowed to represent themselves, their fellow farmers or their organizations in any proceedings before the DAR: Provided, however, that when there are two or more representatives for any individual or group, the representatives should choose only one among themselves to represent such party or group before any DAR proceedings. (Emphasis supplied.)

Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real parties-in-interest allowed by law to file a petition before the DAR or PARC.

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This is not necessarily to say, however, that Galang represents AMBALA, for as records show and as HLI aptly noted,92 his "petisyon" filed with DAR did not carry the usual authorization of the individuals in whose behalf it was supposed to have been instituted. To date, such authorization document, which would logically include a list of the names of the authorizing FWBs, has yet to be submitted to be part of the records.

PARC’s Authority to Revoke a Stock Distribution Plan

On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is without authority to revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC with such authority. While, as HLI argued, EO 229 empowers PARC to approve the plan for stock distribution in appropriate cases, the empowerment only includes the power to disapprove, but not to recall its previous approval of the SDP after it has been implemented by the parties.93 To HLI, it is the court which has jurisdiction and authority to order the revocation or rescission of the PARC-approved SDP.

We disagree.

Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock distribution of the corporate landowner belongs to PARC. However, contrary to petitioner HLI’s posture, PARC also has the power to revoke the SDP which it previously approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such power or authority, however, is deemed possessed by PARC under the principle of necessary implication, a basic postulate that what is implied in a statute is as much a part of it as that which is expressed.94

We have explained that "every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms."95 Further, "every statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege.96

Gordon v. Veridiano II is instructive:

The power to approve a license includes by implication, even if not expressly granted, the power to revoke it. By extension, the power to revoke is limited by the authority to grant the license, from which it is derived in the first place. Thus, if the FDA grants a license upon its finding that the applicant drug store has complied with the requirements of the general laws and the implementing administrative rules and regulations, it is only for their violation that the FDA may revoke the said license. By the same token, having granted the permit upon his ascertainment that the conditions thereof as applied x x x have been complied with, it is only for the violation of such conditions that the mayor may revoke the said permit.97 (Emphasis supplied.)

Following the doctrine of necessary implication, it may be stated that the conferment of express power to approve a plan for stock distribution of the agricultural land of corporate owners necessarily includes the power to revoke or recall the approval of the plan.

As public respondents aptly observe, to deny PARC such revocatory power would reduce it into a toothless agency of CARP, because the very same agency tasked to ensure compliance by the corporate landowner with the approved SDP would be without authority to impose sanctions for non-compliance with it.98 With the view We take of the case, only PARC can effect such revocation. The DAR Secretary, by his own authority as such, cannot plausibly do so, as the acceptance and/or approval of the SDP sought to be taken back or undone is the act of PARC whose official composition includes, no less, the President as chair, the DAR Secretary as vice-chair, and at least eleven (11) other department heads.99

On another but related issue, the HLI foists on the Court the argument that subjecting its landholdings to compulsory distribution after its approved SDP has been implemented would impair the contractual obligations created under the SDOA.

The broad sweep of HLI’s argument ignores certain established legal precepts and must, therefore, be rejected.

A law authorizing interference, when appropriate, in the contractual relations between or among parties is deemed read into the contract and its implementation cannot successfully be resisted by force of the non-impairment guarantee. There is, in that instance, no impingement of the impairment clause, the non-impairment protection being applicable only to laws that derogate prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties. Impairment, in fine, obtains if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws existing remedies for the enforcement of the rights of the parties.100 Necessarily, the constitutional proscription would not apply to laws already in effect at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:

The prohibition [against impairment of the obligation of contracts] is aligned with the general principle that laws newly enacted have only a prospective operation, and cannot affect acts or contracts already perfected; however, as to laws already in existence, their provisions are read into contracts and deemed a part thereof. Thus, the non-impairment clause under Section 10, Article II [of the Constitution] is limited in application to laws about to be enacted that would in any way derogate from existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties thereto.101 (Emphasis supplied.)

Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o law impairing the obligation of contracts shall be passed."

Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of its terms and conditions is not a PARC administrative matter, but one that gives rise to a cause of action cognizable by regular courts.102 This contention has little to commend itself. The SDOA is a special contract imbued with public interest, entered into and crafted pursuant to the provisions of RA 6657. It embodies the SDP, which requires for its validity, or at least its enforceability, PARC’s approval. And the fact that the certificate of compliance103––to be issued by agrarian authorities upon completion of the distribution of stocks––is revocable by

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the same issuing authority supports the idea that everything about the implementation of the SDP is, at the first instance, subject to administrative adjudication.

HLI also parlays the notion that the parties to the SDOA should now look to the Corporation Code, instead of to RA 6657, in determining their rights, obligations and remedies. The Code, it adds, should be the applicable law on the disposition of the agricultural land of HLI.

Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear that HLI was precisely created in order to comply with RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP.104 It is, thus, paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation Code under the guise of being a corporate entity.

Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders, its applicability is limited as the rights of the parties arising from the SDP should not be made to supplant or circumvent the agrarian reform program.

Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall prevail—generalia specialibus non derogant.105 Besides, the present impasse between HLI and the private respondents is not an intra-corporate dispute which necessitates the application of the Corporation Code. What private respondents questioned before the DAR is the proper implementation of the SDP and HLI’s compliance with RA 6657. Evidently, RA 6657 should be the applicable law to the instant case.

HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and the eventual distribution of the land to the FWBs would amount to a disposition of all or practically all of the corporate assets of HLI. HLI would add that this contingency, if ever it comes to pass, requires the applicability of the Corporation Code provisions on corporate dissolution.

We are not persuaded.

Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar as the winding up of HLI’s affairs or liquidation of the assets is concerned. However, the mere inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and the land’s eventual distribution to the FWBs will not, without more, automatically trigger the dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the agricultural land of Hacienda Luisita in relation to the total assets transferred and conveyed by Tadeco to HLI comprises only 33.296%, following this equation: value of the agricultural lands divided by total corporate assets. By no stretch of imagination would said percentage amount to a disposition of all or practically all of HLI’s corporate assets should compulsory land acquisition and distribution ensue.

This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years after its execution pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal

Report of the Special Task Force, as endorsed by PARC Excom. But first, the matter of the constitutionality of said section.

Constitutional Issue

FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as a mode of CARP compliance, to resort to stock distribution, an arrangement which, to FARM, impairs the fundamental right of farmers and farmworkers under Sec. 4, Art. XIII of the Constitution.106

To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock transfer in lieu of outright agricultural land transfer; in fine, there is stock certificate ownership of the farmers or farmworkers instead of them owning the land, as envisaged in the Constitution. For FARM, this modality of distribution is an anomaly to be annulled for being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the Constitution.107

Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to farmers and other qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of RA 6657 on the concept and scope of the term "agrarian reform." The constitutionality of a law, HLI added, cannot, as here, be attacked collaterally.

The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its counterpart provision in EO 229 must fail as explained below.

When the Court is called upon to exercise its power of judicial review over, and pass upon the constitutionality of, acts of the executive or legislative departments, it does so only when the following essential requirements are first met, to wit:

(1) there is an actual case or controversy;

(2) that the constitutional question is raised at the earliest possible opportunity by a proper party or one with locus standi; and

(3) the issue of constitutionality must be the very lis mota of the case.108

Not all the foregoing requirements are satisfied in the case at bar.

While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers, has yet to explain its failure to challenge the constitutionality of Sec. 3l of RA 6657, since as early as November 21, l989 when PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its members received benefits from the SDP without so much of a protest. It was only on December 4, 2003 or 14 years after approval of the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and approving resolution were sought to be revoked, but not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657, but concentrated on the purported flaws and gaps in the subsequent implementation of the SDP. Even the public respondents, as represented by the Solicitor General, did not question the constitutionality of

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the provision. On the other hand, FARM, whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657 which is quite too late in the day. The FARM members slept on their rights and even accepted benefits from the SDP with nary a complaint on the alleged unconstitutionality of Sec. 31 upon which the benefits were derived. The Court cannot now be goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long period of time and the occurrence of numerous events and activities which resulted from the application of an alleged unconstitutional legal provision.

It has been emphasized in a number of cases that the question of constitutionality will not be passed upon by the Court unless it is properly raised and presented in an appropriate case at the first opportunity.109 FARM is, therefore, remiss in belatedly questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional question should be raised at the earliest possible opportunity is clearly wanting.

The last but the most important requisite that the constitutional issue must be the very lis mota of the case does not likewise obtain. The lis mota aspect is not present, the constitutional issue tendered not being critical to the resolution of the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a statute or governmental act.110 If some other grounds exist by which judgment can be made without touching the constitutionality of a law, such recourse is favored.111 Garcia v. Executive Secretary explains why:

Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial review — means that the Court will not pass upon a question of unconstitutionality, although properly presented, if the case can be disposed of on some other ground, such as the application of the statute or the general law. The petitioner must be able to show that the case cannot be legally resolved unless the constitutional question raised is determined. This requirement is based on the rule that every law has in its favor the presumption of constitutionality; to justify its nullification, there must be a clear and unequivocal breach of the Constitution, and not one that is doubtful, speculative, or argumentative.112 (Italics in the original.)

The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM members previously belonged) and the Supervisory Group, is the alleged non-compliance by HLI with the conditions of the SDP to support a plea for its revocation. And before the Court, the lis mota is whether or not PARC acted in grave abuse of discretion when it ordered the recall of the SDP for such non-compliance and the fact that the SDP, as couched and implemented, offends certain constitutional and statutory provisions. To be sure, any of these key issues may be resolved without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply into the underlying petitions of AMBALA, et al., it is not the said section per se that is invalid, but rather it is the alleged application of the said provision in the SDP that is flawed.

It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA 6657, has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution component of said Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition."

Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657 is no longer an available option under existing law. The question of whether or not it is unconstitutional should be a moot issue.

It is true that the Court, in some cases, has proceeded to resolve constitutional issues otherwise already moot and academic114 provided the following requisites are present:

x x x first, there is a grave violation of the Constitution; second, the exceptional character of the situation and the paramount public interest is involved; third, when the constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the public; fourth, the case is capable of repetition yet evading review.

These requisites do not obtain in the case at bar.

For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the Constitution reads:

The State shall, by law, undertake an agrarian reform program founded on the right of the farmers and regular farmworkers, who are landless, to OWN directly or COLLECTIVELY THE LANDS THEY TILL or, in the case of other farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress may prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment of just compensation. In determining retention limits, the State shall respect the right of small landowners. The State shall further provide incentives for voluntary land-sharing. (Emphasis supplied.)

The wording of the provision is unequivocal––the farmers and regular farmworkers have a right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law allows two (2) modes of land distribution—direct and indirect ownership. Direct transfer to individual farmers is the most commonly used method by DAR and widely accepted. Indirect transfer through collective ownership of the agricultural land is the alternative to direct ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY authorizes collective ownership by farmers. No language can be found in the 1987 Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being the legal entity through which collective ownership can be exercised. The word "collective" is defined as "indicating a number of persons or things considered as constituting one group or aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or body."116 By using the word "collectively," the Constitution allows for indirect ownership of land and not just outright agricultural land transfer. This is in recognition of the fact that land reform may become successful even if it is done through the medium of juridical entities composed of farmers.

Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows workers’ cooperatives or associations to collectively own the land, while the second paragraph of Sec. 31 allows corporations or associations to own agricultural land with the farmers becoming stockholders or members. Said provisions read:

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SEC. 29. Farms owned or operated by corporations or other business associations.—In the case of farms owned or operated by corporations or other business associations, the following rules shall be observed by the PARC.

In general, lands shall be distributed directly to the individual worker-beneficiaries.

In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker beneficiaries who shall form a workers’ cooperative or association which will deal with the corporation or business association. x x x (Emphasis supplied.)

SEC. 31. Corporate Landowners.— x x x

x x x x

Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed be reduced. The same principle shall be applied to associations, with respect to their equity or participation. x x x (Emphasis supplied.)

Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations or associations under the succeeding Sec. 31, as differentiated from individual farmers, are authorized vehicles for the collective ownership of agricultural land. Cooperatives can be registered with the Cooperative Development Authority and acquire legal personality of their own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be owned COLLECTIVELY by farmers. Even the framers of the l987 Constitution are in unison with respect to the two (2) modes of ownership of agricultural lands tilled by farmers––DIRECT and COLLECTIVE, thus:

MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of direct ownership by the tiller?

MR. MONSOD. Yes.

MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership, stewardship or State ownership?

MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives owning the land, not the State.

MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the farmers own specific areas of land where they only unite in their efforts?

MS. NIEVA. That is one way.

MR. NOLLEDO. Because I understand that there are two basic systems involved: the "moshave" type of agriculture and the "kibbutz." So are both contemplated in the report?

MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na pagmamay-ari – directly – at ang tinatawag na sama-samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig sabihin ay sama-sama nilang sasakahin.

x x x x

MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they till," is this land for the tillers rather than land for the landless? Before, we used to hear "land for the landless," but now the slogan is "land for the tillers." Is that right?

MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng "directly" ay tulad sa implementasyon sa rice and corn lands kung saan inaari na ng mga magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama-samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa Negros.117 (Emphasis supplied.)

As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-sama" or collectively. Thus, the main requisite for collective ownership of land is collective or group work by farmers of the agricultural land. Irrespective of whether the landowner is a cooperative, association or corporation composed of farmers, as long as concerted group work by the farmers on the land is present, then it falls within the ambit of collective ownership scheme.

Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of the State to pursue, by law, an agrarian reform program founded on the policy of land for the landless, but subject to such priorities as Congress may prescribe, taking into account such abstract variable as "equity considerations." The textual reference to a law and Congress necessarily implies that the above constitutional provision is not self-executory and that legislation is needed to implement the urgently needed program of agrarian reform. And RA 6657 has been enacted precisely pursuant to and as a mechanism to carry out the constitutional directives. This piece of legislation, in fact, restates118 the agrarian reform policy established in the aforementioned provision of the Constitution of promoting the welfare of landless farmers and farmworkers. RA 6657 thus defines "agrarian reform" as "the redistribution of lands … to farmers and regular farmworkers who are landless … to lift the economic status of the beneficiaries and all other arrangements alternative to the physical redistribution of lands, such as production or profit sharing, labor administration and the distribution of shares of stock which will allow beneficiaries to receive a just share of the fruits of the lands they work."

With the view We take of this case, the stock distribution option devised under Sec. 31 of RA 6657 hews with the agrarian reform policy, as instrument of social justice under Sec. 4 of Article XIII of the Constitution. Albeit land ownership for the landless appears to be the dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, as couched, does not constrict Congress to passing an agrarian reform law planted on direct land

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transfer to and ownership by farmers and no other, or else the enactment suffers from the vice of unconstitutionality. If the intention were otherwise, the framers of the Constitution would have worded said section in a manner mandatory in character.

For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not inconsistent with the State’s commitment to farmers and farmworkers to advance their interests under the policy of social justice. The legislature, thru Sec. 31 of RA 6657, has chosen a modality for collective ownership by which the imperatives of social justice may, in its estimation, be approximated, if not achieved. The Court should be bound by such policy choice.

FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own the agricultural land but are merely given stock certificates. Thus, the farmers lose control over the land to the board of directors and executive officials of the corporation who actually manage the land. They conclude that such arrangement runs counter to the mandate of the Constitution that any agrarian reform must preserve the control over the land in the hands of the tiller.

This contention has no merit.

While it is true that the farmer is issued stock certificates and does not directly own the land, still, the Corporation Code is clear that the FWB becomes a stockholder who acquires an equitable interest in the assets of the corporation, which include the agricultural lands. It was explained that the "equitable interest of the shareholder in the property of the corporation is represented by the term stock, and the extent of his interest is described by the term shares. The expression shares of stock when qualified by words indicating number and ownership expresses the extent of the owner’s interest in the corporate property."119 A share of stock typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity and that its holder is not the owner of any part of the capital of the corporation.120 However, the FWBs will ultimately own the agricultural lands owned by the corporation when the corporation is eventually dissolved and liquidated.

Anent the alleged loss of control of the farmers over the agricultural land operated and managed by the corporation, a reading of the second paragraph of Sec. 31 shows otherwise. Said provision provides that qualified beneficiaries have "the right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets." The wording of the formula in the computation of the number of shares that can be bought by the farmers does not mean loss of control on the part of the farmers. It must be remembered that the determination of the percentage of the capital stock that can be bought by the farmers depends on the value of the agricultural land and the value of the total assets of the corporation.

There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that control over the agricultural land must always be in the hands of the farmers. Then it falls on the shoulders of DAR and PARC to see to it the farmers should always own majority of the common shares entitled to elect the members of the board of directors to ensure that the farmers will have a clear majority in the board. Before the SDP is approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and

PARC, such that the value of the agricultural land contributed to the corporation must always be more than 50% of the total assets of the corporation to ensure that the majority of the members of the board of directors are composed of the farmers. The PARC composed of the President of the Philippines and cabinet secretaries must see to it that control over the board of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which will yield the majority in the board of directors to non-farmers. Any deviation, however, by PARC or DAR from the correct application of the formula prescribed by the second paragraph of Sec. 31 of RA 6675 does not make said provision constitutionally infirm. Rather, it is the application of said provision that can be challenged. Ergo, Sec. 31 of RA 6657 does not trench on the constitutional policy of ensuring control by the farmers.

A view has been advanced that there can be no agrarian reform unless there is land distribution and that actual land distribution is the essential characteristic of a constitutional agrarian reform program. On the contrary, there have been so many instances where, despite actual land distribution, the implementation of agrarian reform was still unsuccessful. As a matter of fact, this Court may take judicial notice of cases where FWBs sold the awarded land even to non-qualified persons and in violation of the prohibition period provided under the law. This only proves to show that the mere fact that there is land distribution does not guarantee a successful implementation of agrarian reform.

As it were, the principle of "land to the tiller" and the old pastoral model of land ownership where non-human juridical persons, such as corporations, were prohibited from owning agricultural lands are no longer realistic under existing conditions. Practically, an individual farmer will often face greater disadvantages and difficulties than those who exercise ownership in a collective manner through a cooperative or corporation. The former is too often left to his own devices when faced with failing crops and bad weather, or compelled to obtain usurious loans in order to purchase costly fertilizers or farming equipment. The experiences learned from failed land reform activities in various parts of the country are lack of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce, lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no successful implementation of agrarian reform to speak of in such a case.

Although success is not guaranteed, a cooperative or a corporation stands in a better position to secure funding and competently maintain the agri-business than the individual farmer. While direct singular ownership over farmland does offer advantages, such as the ability to make quick decisions unhampered by interference from others, yet at best, these advantages only but offset the disadvantages that are often associated with such ownership arrangement. Thus, government must be flexible and creative in its mode of implementation to better its chances of success. One such option is collective ownership through juridical persons composed of farmers.

Aside from the fact that there appears to be no violation of the Constitution, the requirement that the instant case be capable of repetition yet evading review is also wanting. It would be speculative for this Court to assume that the legislature will enact another law providing for a similar stock option.

As a matter of sound practice, the Court will not interfere inordinately with the exercise by Congress of its official functions, the heavy presumption being that a law is the product of earnest studies by Congress to ensure that no constitutional prescription or concept is

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infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and justice of legislation or its provisions. Towards this end, all reasonable doubts should be resolved in favor of the constitutionality of a law and the validity of the acts and processes taken pursuant thereof.122

Consequently, before a statute or its provisions duly challenged are voided, an unequivocal breach of, or a clear conflict with the Constitution, not merely a doubtful or argumentative one, must be demonstrated in such a manner as to leave no doubt in the mind of the Court. In other words, the grounds for nullity must be beyond reasonable doubt.123 FARM has not presented compelling arguments to overcome the presumption of constitutionality of Sec. 31 of RA 6657.

The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of implementing agrarian reform is not for judicial determination. Established jurisprudence tells us that it is not within the province of the Court to inquire into the wisdom of the law, for, indeed, We are bound by words of the statute.124

II.

The stage is now set for the determination of the propriety under the premises of the revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be: whether or not PARC gravely abused its discretion in revoking or recalling the subject SDP and placing the hacienda under CARP’s compulsory acquisition and distribution scheme.

The findings, analysis and recommendation of the DAR’s Special Task Force contained and summarized in its Terminal Report provided the bases for the assailed PARC revocatory/recalling Resolution. The findings may be grouped into two: (1) the SDP is contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2) the alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the following are essentially the reasons underpinning PARC’s revocatory or recall action:

(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the FWBs have hardly improved and the promised increased income has not materialized;

(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;

(3) The issuance of HLI shares of stock on the basis of number of hours worked––or the so-called "man days"––is grossly onerous to the FWBs, as HLI, in the guise of rotation, can unilaterally deny work to anyone. In elaboration of this ground, PARC’s Resolution No. 2006-34-01, denying HLI’s motion for reconsideration of Resolution No. 2005-32-01, stated that the man days criterion worked to dilute the entitlement of the original share beneficiaries;125

(4) The distribution/transfer of shares was not in accordance with the timelines fixed by law;

(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every year as production-sharing benefit on top of the workers’ salary; and

(6) Several homelot awardees have yet to receive their individual titles.

Petitioner HLI claims having complied with, at least substantially, all its obligations under the SDP, as approved by PARC itself, and tags the reasons given for the revocation of the SDP as unfounded.

Public respondents, on the other hand, aver that the assailed resolution rests on solid grounds set forth in the Terminal Report, a position shared by AMBALA, which, in some pleadings, is represented by the same counsel as that appearing for the Supervisory Group.

FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP, because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on the resulting dilution of the equity of the FWBs appearing in HLI’s masterlist, FARM would state that the SDP, as couched and implemented, spawned disparity when there should be none; parity when there should have been differentiation.126

The petition is not impressed with merit.

In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and improve the quality of lives of the FWBs through greater productivity of agricultural lands. We disagree.

Sec. 2 of RA 6657 states:

SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue a Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and farm workers will receive the highest consideration to promote social justice and to move the nation towards sound rural development and industrialization, and the establishment of owner cultivatorship of economic-sized farms as the basis of Philippine agriculture.

To this end, a more equitable distribution and ownership of land, with due regard to the rights of landowners to just compensation and to the ecological needs of the nation, shall be undertaken to provide farmers and farm workers with the opportunity to enhance their dignity and improve the quality of their lives through greater productivity of agricultural lands.

The agrarian reform program is founded on the right of farmers and regular farm workers, who are landless, to own directly or collectively the lands they till or, in the case of other farm workers, to receive a share of the fruits thereof. To this end, the State shall encourage the just distribution of all agricultural lands, subject to the priorities and retention limits set forth in this Act, having taken into account ecological, developmental, and equity considerations, and subject to the payment of just compensation. The State shall respect the right of small landowners and shall provide incentives for voluntary land-sharing. (Emphasis supplied.)

Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution and ownership of land x x x shall be undertaken to provide farmers and farm workers with the opportunity to enhance their dignity and improve the quality of their lives through greater productivity of agricultural lands." Of note is the term "opportunity" which is defined as a favorable chance or opening offered by circumstances.127 Considering this, by no stretch of imagination can said provision be construed as a guarantee in improving the lives of the FWBs. At best, it merely provides for a possibility or favorable chance of uplifting the economic status of the FWBs, which may or may not be attained.

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Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock distribution option. Nothing in that option agreement, law or department order indicates otherwise.

Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits exclusive of free hospital and medical benefits to their immediate family. And attached as Annex "G" to HLI’s Memorandum is the certified true report of the finance manager of Jose Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA, INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option was Approved by PARC/CARP," detailing what HLI gave their workers from 1989 to 2005. The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out (Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out (Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report, include the cost of homelots; the PhP 150 million or so representing 3% of the gross produce of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of the 500-hectare converted lands. While not included in the report, HLI manifests having given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by the SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by HLI to the FWBs for free. Verily, the FWBs have benefited from the SDP.

To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not anyway earned profits through the years, it cannot be over-emphasized that, as a matter of common business sense, no corporation could guarantee a profitable run all the time. As has been suggested, one of the key features of an SDP of a corporate landowner is the likelihood of the corporate vehicle not earning, or, worse still, losing money.129

The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the advisability of approving a stock distribution plan is the likelihood that the plan "would result in increased income and greater benefits to [qualified beneficiaries] than if the lands were divided and distributed to them individually."130 But as aptly noted during the oral arguments, DAO 10 ought to have not, as it cannot, actually exact assurance of success on something that is subject to the will of man, the forces of nature or the inherent risky nature of business.131 Just like in actual land distribution, an SDP cannot guarantee, as indeed the SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial notice of the fact that there were many instances wherein after a farmworker beneficiary has been awarded with an agricultural land, he just subsequently sells it and is eventually left with nothing in the end.

In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if that really be the case, can hardly be attributed to HLI and its SDP and provide a valid ground for the plan’s revocation.

Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit public respondents erroneously submit otherwise.

The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the issue on the propriety of the assailed order revoking HLI’s SDP, for the paragraph deals with the transfer of agricultural lands to the government, as a mode of CARP compliance, thus:

SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries under such terms and conditions, consistent with this Act, as they may agree, subject to confirmation by the DAR.

The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:

Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed be reduced. x x x

Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of this Act: Provided, That the following conditions are complied with:

(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial benefits, the books of the corporation or association shall be subject to periodic audit by certified public accountants chosen by the beneficiaries;

(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the corporation or association;

(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all other shares; and

(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction is in favor of a qualified and registered beneficiary within the same corporation.

The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets" had been observed.

Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA 6657. The stipulation reads:

1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY is 33.296% that, under the law, is the proportion of the outstanding capital stock of

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the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.

The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220.132 The percentage of the value of the agricultural lands (PhP 196,630,000) in relation to the total assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296 original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by getting 33.296% of the 355,531,462 shares which is the outstanding capital stock of HLI with a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296 FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are to be given to FWBs for free.

The Court finds that the determination of the shares to be distributed to the 6,296 FWBs strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.

Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be assured of at least one (1) representative in the board of directors or in a management or executive committee irrespective of the value of the equity of the FWBs in HLI, the Court finds that the SDOA contained provisions making certain the FWBs’ representation in HLI’s governing board, thus:

5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at the start of said year which will empower the THIRD PARTY or their representative to vote in stockholders’ and board of directors’ meetings of the SECOND PARTY convened during the year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked for distribution and thus be able to gain such number of seats in the board of directors of the SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.

Also, no allegations have been made against HLI restricting the inspection of its books by accountants chosen by the FWBs; hence, the assumption may be made that there has been no violation of the statutory prescription under sub-paragraph (a) on the auditing of HLI’s accounts.

Public respondents, however, submit that the distribution of the mandatory minimum ratio of land-to-shares of stock, referring to the 118,391,976.85 shares with par value of PhP 1 each, should have been made in full within two (2) years from the approval of RA 6657, in line with the last paragraph of Sec. 31 of said law.133

Public respondents’ submission is palpably erroneous. We have closely examined the last paragraph alluded to, with particular focus on the two-year period mentioned, and nothing in it remotely supports the public respondents’ posture. In its pertinent part, said Sec. 31 provides:

SEC. 31. Corporate Landowners x x x

If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not made or realized or the plan for such stock distribution approved by the PARC within the same period, the agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Word in bracket and emphasis added.)

Properly viewed, the words "two (2) years" clearly refer to the period within which the corporate landowner, to avoid land transfer as a mode of CARP coverage under RA 6657, is to avail of the stock distribution option or to have the SDP approved. The HLI secured approval of its SDP in November 1989, well within the two-year period reckoned from June 1988 when RA 6657 took effect.

Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as well as the statutory issues, We shall now delve into what PARC and respondents deem to be other instances of violation of DAO 10 and the SDP.

On the Conversion of Lands

Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita unfragmented is also not among the imperative impositions by the SDP, RA 6657, and DAO 10.

The Terminal Report states that the proposed distribution plan submitted in 1989 to the PARC effectively assured the intended stock beneficiaries that the physical integrity of the farm shall remain inviolate. Accordingly, the Terminal Report and the PARC-assailed resolution would take HLI to task for securing approval of the conversion to non-agricultural uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution view the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the continued operation of the corporation with its agricultural land intact and unfragmented is viable with potential for growth and increased profitability."

The PARC is wrong.

In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased income and greater benefits to qualified beneficiaries––is but one of the stated criteria to guide PARC in deciding on whether or not to accept an SDP. Said Sec. 5(a) does not exact from the corporate landowner-applicant the undertaking to keep the farm intact and unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key phrase in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is not the agricultural land remaining intact x x x but the viability of the corporate operations with its agricultural land being intact and unfragmented. Corporate operation may be viable even if the corporate agricultural land does not remain intact or [un]fragmented."134

It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of any issuance, let alone undermining the viability of Hacienda Luisita’s operation, as the DAR Secretary approved the land conversion applied for and its disposition via his Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:

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Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the land ceases to be economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes, the DAR upon application of the beneficiary or landowner with due notice to the affected parties, and subject to existing laws, may authorize the x x x conversion of the land and its dispositions. x x x

On the 3% Production Share

On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross production sales of the hacienda and pay dividends from profit, the entries in its financial books tend to indicate compliance by HLI of the profit-sharing equivalent to 3% of the gross sales from the production of the agricultural land on top of (a) the salaries and wages due FWBs as employees of the company and (b) the 3% of the gross selling price of the converted land and that portion used for the SCTEX. A plausible evidence of compliance or non-compliance, as the case may be, could be the books of account of HLI. Evidently, the cry of some groups of not having received their share from the gross production sales has not adequately been validated on the ground by the Special Task Force.

Indeed, factual findings of administrative agencies are conclusive when supported by substantial evidence and are accorded due respect and weight, especially when they are affirmed by the CA.135 However, such rule is not absolute. One such exception is when the findings of an administrative agency are conclusions without citation of specific evidence on which they are based,136 such as in this particular instance. As culled from its Terminal Report, it would appear that the Special Task Force rejected HLI’s claim of compliance on the basis of this ratiocination:

The Task Force position: Though, allegedly, the Supervisory Group receives the 3% gross production share and that others alleged that they received 30 million pesos still others maintain that they have not received anything yet. Item No. 4 of the MOA is clear and must be followed. There is a distinction between the total gross sales from the production of the land and the proceeds from the sale of the land. The former refers to the fruits/yield of the agricultural land while the latter is the land itself. The phrase "the beneficiaries are entitled every year to an amount approximately equivalent to 3% would only be feasible if the subject is the produce since there is at least one harvest per year, while such is not the case in the sale of the agricultural land. This negates then the claim of HLI that, all that the FWBs can be entitled to, if any, is only 3% of the purchase price of the converted land.

Besides, the Conversion Order dated 14 August 1996 provides that "the benefits, wages and the like, presently received by the FWBs shall not in any way be reduced or adversely affected. Three percent of the gross selling price of the sale of the converted land shall be awarded to the beneficiaries of the SDO." The 3% gross production share then is different from the 3% proceeds of the sale of the converted land and, with more reason, the 33% share being claimed by the FWBs as part owners of the Hacienda, should have been given the FWBs, as stockholders, and to which they could have been entitled if only the land were acquired and redistributed to them under the CARP.

x x x x

The FWBs do not receive any other benefits under the MOA except the aforementioned [(viz: shares of stocks (partial), 3% gross production sale (not all) and homelots (not all)].

Judging from the above statements, the Special Task Force is at best silent on whether HLI has failed to comply with the 3% production-sharing obligation or the 3% of the gross selling price of the converted land and the SCTEX lot. In fact, it admits that the FWBs, though not all, have received their share of the gross production sales and in the sale of the lot to SCTEX. At most, then, HLI had complied substantially with this SDP undertaking and the conversion order. To be sure, this slight breach would not justify the setting to naught by PARC of the approval action of the earlier PARC. Even in contract law, rescission, predicated on violation of reciprocity, will not be permitted for a slight or casual breach of contract; rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement.137

Despite the foregoing findings, the revocation of the approval of the SDP is not without basis as shown below.

On Titles to Homelots

Under RA 6657, the distribution of homelots is required only for corporations or business associations owning or operating farms which opted for land distribution. Sec. 30 of RA 6657 states:

SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members of the cooperatives or corporations mentioned in the preceding section shall be provided with homelots and small farmlots for their family use, to be taken from the land owned by the cooperative or corporation.

The "preceding section" referred to in the above-quoted provision is as follows:

SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In the case of farms owned or operated by corporations or other business associations, the following rules shall be observed by the PARC.

In general, lands shall be distributed directly to the individual worker-beneficiaries.

In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker-beneficiaries who shall form a workers’ cooperative or association which will deal with the corporation or business association. Until a new agreement is entered into by and between the workers’ cooperative or association and the corporation or business association, any agreement existing at the time this Act takes effect between the former and the previous landowner shall be respected by both the workers’ cooperative or association and the corporation or business association.

Noticeably, the foregoing provisions do not make reference to corporations which opted for stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not obliged to provide for it except by stipulation, as in this case.

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Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among the qualified family-beneficiaries x x x residential or homelots of not more than 240 sq. m. each, with each family beneficiary being assured of receiving and owning a homelot in the barrio or barangay where it actually resides," "within a reasonable time."

More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet, it is still the contention of the FWBs that not all was given the 240-square meter homelots and, of those who were already given, some still do not have the corresponding titles.

During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by submitting proof that the FWBs were already given the said homelots:

Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified family beneficiaries were not given the 240 square meters each. So, can you also [prove] that the qualified family beneficiaries were already provided the 240 square meter homelots.

Atty. Asuncion: We will, your Honor please.138

Other than the financial report, however, no other substantial proof showing that all the qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is constrained to rule that HLI has not yet fully complied with its undertaking to distribute homelots to the FWBs under the SDP.

On "Man Days" and the Mechanics of Stock Distribution

In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD PARTY [FWBs] on the basis of number of days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.

Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, albeit not entailing a cash out from them, is contingent on the number of "man days," that is, the number of days that the FWBs have worked during the year. This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the FWBs as the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As stated in Sec. 4 of DAO 10:

Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-applicant shall provide for the distribution of an equal number of shares of the same class and value, with the same rights and features as all other shares, to each of the qualified beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for purposes of compliance with Section 31 of R.A. No. 6657.

On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the corporate landowner-applicant may adopt additional stock distribution schemes taking into account factors such as rank, seniority, salary, position and other circumstances which may be deemed desirable as a matter of sound company policy. (Emphasis supplied.)

The above proviso gives two (2) sets or categories of shares of stock which a qualified beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier explained, to the mandatory minimum ratio of shares of stock to be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets."139 It is this set of shares of stock which, in line with Sec. 4 of DAO 10, is supposed to be allocated "for the distribution of an equal number of shares of stock of the same class and value, with the same rights and features as all other shares, to each of the qualified beneficiaries."

On the other hand, the second set or category of shares partakes of a gratuitous extra grant, meaning that this set or category constitutes an augmentation share/s that the corporate landowner may give under an additional stock distribution scheme, taking into account such variables as rank, seniority, salary, position and like factors which the management, in the exercise of its sound discretion, may deem desirable.140

Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP, HLI recognized 6,296 individuals as qualified FWBs. And under the 30-year stock distribution program envisaged under the plan, FWBs who came in after 1989, new FWBs in fine, may be accommodated, as they appear to have in fact been accommodated as evidenced by their receipt of HLI shares.

Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man days," HLI violated the afore-quoted rule on stock distribution and effectively deprived the FWBs of equal shares of stock in the corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights to the land that could have been distributed to them, suffered a dilution of their due share entitlement. As has been observed during the oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward system chips to water down the shares of the original 6,296 FWBs.141 Particularly:

Justice Abad: If the SDOA did not take place, the other thing that would have happened is that there would be CARP?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter SDOA instead of placing the land under CARP. And for that reason those who would have gotten their shares of the land actually gave up their rights to this land in place of the shares of the stock, is that correct?

Atty. Dela Merced: It would be that way, Your Honor.

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Justice Abad: Right now, also the government, in a way, gave up its right to own the land because that way the government takes own [sic] the land and distribute it to the farmers and pay for the land, is that correct?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the farmers at that time that numbered x x x those who signed five thousand four hundred ninety eight (5,498) beneficiaries, is that correct?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: But later on, after assigning them their shares, some workers came in from 1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who were not in the original list of owners?

Atty. Dela Merced: Yes, Your Honor.

Justice Abad: Did those new workers give up any right that would have belong to them in 1989 when the land was supposed to have been placed under CARP?

Atty. Dela Merced: If you are talking or referring… (interrupted)

Justice Abad: None! You tell me. None. They gave up no rights to land?

Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.

Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they become workers later on.

Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original… (interrupted)

Justice Abad: So why is it that the rights of those who gave up their lands would be diluted, because the company has chosen to use the shares as reward system for new workers who come in? It is not that the new workers, in effect, become just workers of the corporation whose stockholders were already fixed. The TADECO who has shares there about sixty six percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right to use this shares, to water down the shares of those who should have been benefited, and to use it as a reward system decided by the company?142

From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the time of the approval of the SDP, suffered from watering down of shares. As determined earlier, each original FWB is entitled to 18,804.32 HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the acquisition and distribution of the HLI shares were based on "man days" or "number of days worked" by the FWB in a year’s time. As explained by HLI, a beneficiary needs to work for at least 37 days in a fiscal year before he or she becomes entitled to HLI shares. If it falls below

37 days, the FWB, unfortunately, does not get any share at year end. The number of HLI shares distributed varies depending on the number of days the FWBs were allowed to work in one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs, such that, as indicated in the Compliance dated August 2, 2010 submitted by HLI to the Court, the total number of farmworkers of HLI as of said date stood at 10,502. All these farmworkers, which include the original 6,296 FWBs, were given shares out of the 118,931,976.85 HLI shares representing the 33.296% of the total outstanding capital stock of HLI. Clearly, the minimum individual allocation of each original FWB of 18,804.32 shares was diluted as a result of the use of "man days" and the hiring of additional farmworkers.

Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for the implementation of the approved stock distribution plan within three (3) months from receipt by the corporate landowner of the approval of the plan by PARC. In fact, based on the said provision, the transfer of the shares of stock in the names of the qualified FWBs should be recorded in the stock and transfer books and must be submitted to the SEC within sixty (60) days from implementation. As stated:

Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall be implemented within three (3) months from receipt by the corporate landowner-applicant of the approval thereof by the PARC, and the transfer of the shares of stocks in the names of the qualified beneficiaries shall be recorded in stock and transfer books and submitted to the Securities and Exchange Commission (SEC) within sixty (60) days from the said implementation of the stock distribution plan. (Emphasis supplied.)

It is evident from the foregoing provision that the implementation, that is, the distribution of the shares of stock to the FWBs, must be made within three (3) months from receipt by HLI of the approval of the stock distribution plan by PARC. While neither of the clashing parties has made a compelling case of the thrust of this provision, the Court is of the view and so holds that the intent is to compel the corporate landowner to complete, not merely initiate, the transfer process of shares within that three-month timeframe. Reinforcing this conclusion is the 60-day stock transfer recording (with the SEC) requirement reckoned from the implementation of the SDP.

To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold. Remove this timeline and the corporate landowner can veritably evade compliance with agrarian reform by simply deferring to absurd limits the implementation of the stock distribution scheme.

The argument is urged that the thirty (30)-year distribution program is justified by the fact that, under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP shall be made in thirty (30) annual amortizations. To HLI, said section provides a justifying dimension to its 30-year stock distribution program.

HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the said provision clearly deals with land distribution.

SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for by the beneficiaries to the LBP in thirty (30) annual amortizations x x x.

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Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On the other hand, in the instant case, aside from the fact that what is involved is stock distribution, it is the corporate landowner who has the obligation to distribute the shares of stock among the FWBs.

Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the cost of the land thus awarded them to make it less cumbersome for them to pay the government. To be sure, the reason underpinning the 30-year accommodation does not apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, as the shares may be issued in a much shorter period of time.

Taking into account the above discussion, the revocation of the SDP by PARC should be upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC and the DAR have the power to issue rules and regulations, substantive or procedural. Being a product of such rule-making power, DAO 10 has the force and effect of law and must be duly complied with.143 The PARC is, therefore, correct in revoking the SDP. Consequently, the PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified and voided.

III.

We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion from the coverage of the assailed PARC resolution those portions of the converted land within Hacienda Luisita which RCBC and LIPCO acquired by purchase.

Both contend that they are innocent purchasers for value of portions of the converted farm land. Thus, their plea for the exclusion of that portion from PARC Resolution 2005-32-01, as implemented by a DAR-issued Notice of Coverage dated January 2, 2006, which called for mandatory CARP acquisition coverage of lands subject of the SDP.

To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda Luisita, HLI transferred the 300 hectares to Centennary, while ceding the remaining 200-hectare portion to LRC. Subsequently, LIPCO purchased the entire three hundred (300) hectares of land from Centennary for the purpose of developing the land into an industrial complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one issued in LIPCO’s name. Thereafter, said land was subdivided into two (2) more parcels of land. Later on, LIPCO transferred about 184 hectares to RCBC by way of dacion en pago, by virtue of which TCTs in the name of RCBC were subsequently issued.

Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner receiving a certificate of title in pursuance of a decree of registration and every subsequent purchaser of registered land taking a certificate of title for value and in good faith shall hold the same free from all encumbrances except those noted on the certificate and enumerated therein."145

It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the four corners of, but can rely on what appears on, the title. He is charged with notice only of such burdens and claims as are annotated on the title. This

principle admits of certain exceptions, such as when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation.146 A higher level of care and diligence is of course expected from banks, their business being impressed with public interest.147

Millena v. Court of Appeals describes a purchaser in good faith in this wise:

x x x A purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property at the time of such purchase, or before he has notice of the claim or interest of some other persons in the property. Good faith, or the lack of it, is in the final analysis a question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. Truly, good faith is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual or fancied tokens or signs. Otherwise stated, good faith x x x refers to the state of mind which is manifested by the acts of the individual concerned.148 (Emphasis supplied.)

In fine, there are two (2) requirements before one may be considered a purchaser in good faith, namely: (1) that the purchaser buys the property of another without notice that some other person has a right to or interest in such property; and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or before he or she has notice of the claim of another.

It can rightfully be said that both LIPCO and RCBC are––based on the above requirements and with respect to the adverted transactions of the converted land in question––purchasers in good faith for value entitled to the benefits arising from such status.

First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land, there was no notice of any supposed defect in the title of its transferor, Centennary, or that any other person has a right to or interest in such property. In fact, at the time LIPCO acquired said parcels of land, only the following annotations appeared on the TCT in the name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the Secretary’s Certificate in favor of Shintaro Murai, and the conversion of the property from agricultural to industrial and residential use.149

The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita, only the following general annotations appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its use solely as an industrial estate; the Secretary’s Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to guarantee the payment of PhP 300 million.

It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were previously covered by the SDP. Good faith "consists in the possessor’s belief that the person from whom he received it was the owner of the same and could convey his title. Good faith requires a well-founded belief that the person from whom title was received was himself the owner of the land, with the right to convey it. There is good faith where there is an honest

45

intention to abstain from taking any unconscientious advantage from another."150 It is the opposite of fraud.

To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by means of a stock distribution plan, as the DAR conversion order was annotated at the back of the titles of the lots they acquired. However, they are of the honest belief that the subject lots were validly converted to commercial or industrial purposes and for which said lots were taken out of the CARP coverage subject of PARC Resolution No. 89-12-2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows conversion and disposition of agricultural lands previously covered by CARP land acquisition "after the lapse of five (5) years from its award when the land ceases to be economically feasible and sound for agricultural purposes or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes." Moreover, DAR notified all the affected parties, more particularly the FWBs, and gave them the opportunity to comment or oppose the proposed conversion. DAR, after going through the necessary processes, granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform matters and its original exclusive jurisdiction over all matters involving the implementation of agrarian reform. The DAR conversion order became final and executory after none of the FWBs interposed an appeal to the CA. In this factual setting, RCBC and LIPCO purchased the lots in question on their honest and well-founded belief that the previous registered owners could legally sell and convey the lots though these were previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith in acquiring the subject lots.

And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably, LIPCO acquired 300 hectares of land from Centennary for the amount of PhP 750 million pursuant to a Deed of Sale dated July 30, 1998.151 On the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of Hacienda Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.

As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot just be disregarded by DAR, PARC or even by this Court. As held in Spouses Chua v. Soriano:

With the property in question having already passed to the hands of purchasers in good faith, it is now of no moment that some irregularity attended the issuance of the SPA, consistent with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste v. Court of Appeals, to wit:

x x x the general rule that the direct result of a previous void contract cannot be valid, is inapplicable in this case as it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the cancellation of the certificate. The effect of such outright cancellation will be to impair public confidence in the certificate of title. The sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the property registered under the system will have to inquire in every instance as to whether the title had been regularly or irregularly issued, contrary to the evident purpose of the law.

Being purchasers in good faith, the Chuas already acquired valid title to the property. A purchaser in good faith holds an indefeasible title to the property and he is entitled to the protection of the law.152 x x x (Emphasis supplied.)

To be sure, the practicalities of the situation have to a point influenced Our disposition on the fate of RCBC and LIPCO. After all, the Court, to borrow from Association of Small Landowners in the Philippines, Inc.,153 is not a "cloistered institution removed" from the realities on the ground. To note, the approval and issuances of both the national and local governments showing that certain portions of Hacienda Luisita have effectively ceased, legally and physically, to be agricultural and, therefore, no longer CARPable are a matter of fact which cannot just be ignored by the Court and the DAR. Among the approving/endorsing issuances:154

(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac favorably endorsing the 300-hectare industrial estate project of LIPCO;

(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in accordance with the Omnibus Investments Code of 1987;

(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving LIPCO’s application for a mixed ecozone and proclaiming the three hundred (300) hectares of the industrial land as a Special Economic Zone;

(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac, approving the Final Development Permit for the Luisita Industrial Park II Project;

(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial Park II Project issued by the Office of the Sangguniang Bayan of Tarlac;155

(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for the proposed project of building an industrial complex on three hundred (300) hectares of industrial land;156

(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the HLURB on the project of Luisita Industrial Park II with an area of three million (3,000,000) square meters;157

(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB authorizing the sale of lots in the Luisita Industrial Park II;

(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of Private Land in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a Special Economic Zone pursuant to Republic Act No. 7916," designating the Luisita Industrial Park II consisting of three hundred hectares (300 has.) of industrial land as a Special Economic Zone; and

(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA, stating that pursuant to Presidential Proclamation No. 1207 dated 22 April 1998 and Republic Act No.

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7916, LIPCO has been registered as an Ecozone Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, Tarlac.

While a mere reclassification of a covered agricultural land or its inclusion in an economic zone does not automatically allow the corporate or individual landowner to change its use,158 the reclassification process is a prima facie indicium that the land has ceased to be economically feasible and sound for agricultural uses. And if only to stress, DAR Conversion Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had effectively converted 500 hectares of hacienda land from agricultural to industrial/commercial use and authorized their disposition.

In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and LIPCO cannot be considered at fault for believing that certain portions of Hacienda Luisita are industrial/commercial lands and are, thus, outside the ambit of CARP. The PARC, and consequently DAR, gravely abused its discretion when it placed LIPCO’s and RCBC’s property which once formed part of Hacienda Luisita under the CARP compulsory acquisition scheme via the assailed Notice of Coverage.

As regards the 80.51-hectare land transferred to the government for use as part of the SCTEX, this should also be excluded from the compulsory agrarian reform coverage considering that the transfer was consistent with the government’s exercise of the power of eminent domain159 and none of the parties actually questioned the transfer.

While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain "operative facts" that had occurred in the interim. Pertinently, the "operative fact" doctrine realizes that, in declaring a law or executive action null and void, or, by extension, no longer without force and effect, undue harshness and resulting unfairness must be avoided. This is as it should realistically be, since rights might have accrued in favor of natural or juridical persons and obligations justly incurred in the meantime.160 The actual existence of a statute or executive act is, prior to such a determination, an operative fact and may have consequences which cannot justly be ignored; the past cannot always be erased by a new judicial declaration.161

The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a legislative or executive act subsequently declared invalid:

x x x It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the government organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination of [unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects,––with respect to particular relations, individual and corporate, and particular conduct, private and official." x x x

Given the above perspective and considering that more than two decades had passed since the PARC’s approval of the HLI’s SDP, in conjunction with numerous activities performed in good faith by HLI, and the reliance by the FWBs on the legality and validity of the PARC-approved SDP, perforce, certain rights of the parties, more particularly the FWBs, have to be respected pursuant to the application in a general way of the operative fact doctrine.

A view, however, has been advanced that the operative fact doctrine is of minimal or altogether without relevance to the instant case as it applies only in considering the effects of a declaration of unconstitutionality of a statute, and not of a declaration of nullity of a contract. This is incorrect, for this view failed to consider is that it is NOT the SDOA dated May 11, 1989 which was revoked in the instant case. Rather, it is PARC’s approval of the HLI’s Proposal for Stock Distribution under CARP which embodied the SDP that was nullified.

A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the qualified FWBs executed the SDOA. This agreement provided the basis and mechanics of the SDP that was subsequently proposed and submitted to DAR for approval. It was only after its review that the PARC, through then Sec. Defensor-Santiago, issued the assailed Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave legal force and effect to the stock distribution scheme but instead, it is the approval of the SDP under the PARC Resolution No. 89-12-2 that gave it its validity.

The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation to the PARC Excom, what he proposed is the recall/revocation of PARC Resolution No. 89-12-2 approving HLI’s SDP, and not the revocation of the SDOA. Sec. Pangandaman’s recommendation was favorably endorsed by the PARC Validation Committee to the PARC Excom, and these recommendations were referred to in the assailed Resolution No. 2005-32-01. Clearly, it is not the SDOA which was made the basis for the implementation of the stock distribution scheme.

That the operative fact doctrine squarely applies to executive acts––in this case, the approval by PARC of the HLI proposal for stock distribution––is well-settled in our jurisprudence. In Chavez v. National Housing Authority,163 We held:

Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable doctrine which could not be used to countenance an inequitable result that is contrary to its proper office.

On the other hand, the petitioner Solicitor General argues that the existence of the various agreements implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v. People of the Philippines.

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The argument of the Solicitor General is meritorious.

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:

x x x x x x x x x

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:

Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so, much less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair to prevent private respondent from relying upon the order of suspension in lieu of a formal leave application. (Citations omitted; Emphasis supplied.)

The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v. People,164 thus:

Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as the law upon which it was predicated — General Order No. 60, issued by then President Ferdinand E. Marcos — was subsequently declared by the Court, in Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained pursuant thereto is inadmissible in evidence.

We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the invalidity of various presidential issuances. Discussing therein how such a declaration might affect acts done on a presumption of their validity, the Court said:

". . .. In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter Bank to wit:

‘The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree. . . . It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects — with respect to particular conduct, private and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination. These questions are among the most difficult of those which

have engaged the attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’

x x x x x x x x x

"Similarly, the implementation/enforcement of presidential decrees prior to their publication in the Official Gazette is ‘an operative fact which may have consequences which cannot be justly ignored. The past cannot always be erased by a new judicial declaration . . . that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’"

The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute, there is an imperative necessity of taking into account its actual existence as an operative fact negating the acceptance of "a principle of absolute retroactive invalidity." Whatever was done while the legislative or the executive act was in operation should be duly recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 under General Order No. 60 — long before our Decision in Tañada and the arrest of petitioner — is an operative fact that can no longer be disturbed or simply ignored. (Citations omitted; Emphasis supplied.)

To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls the SDP, what it actually revoked or recalled was the PARC’s approval of the SDP embodied in Resolution No. 89-12-2. Consequently, what was actually declared null and void was an executive act, PARC Resolution No. 89-12-2,165 and not a contract (SDOA). It is, therefore, wrong to say that it was the SDOA which was annulled in the instant case. Evidently, the operative fact doctrine is applicable.

IV.

While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the revocation must, by application of the operative fact principle, give way to the right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the FWBs were said to have received from HLI salaries and cash benefits, hospital and medical benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005.166 On August 6, 20l0, HLI and private respondents submitted a Compromise Agreement, in which HLI gave the FWBs the option of acquiring a piece of agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs indicated their choice of remaining as stockholders. These facts and circumstances tend to indicate that some, if not all, of the FWBs may actually desire to continue as HLI shareholders. A matter best left to their own discretion.

With respect to the other FWBs who were not listed as qualified beneficiaries as of November 21, 1989 when the SDP was approved, they are not accorded the right to acquire land but shall, however, continue as HLI stockholders. All the benefits and homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-qualified FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected with no obligation to refund or return

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them since the benefits (except the homelots) were received by the FWBs as farmhands in the agricultural enterprise of HLI and other fringe benefits were granted to them pursuant to the existing collective bargaining agreement with Tadeco. If the number of HLI shares in the names of the original FWBs who opt to remain as HLI stockholders falls below the guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional shares to said FWBs to complete said minimum number of shares at no cost to said FWBs.

With regard to the homelots already awarded or earmarked, the FWBs are not obliged to return the same to HLI or pay for its value since this is a benefit granted under the SDP. The homelots do not form part of the 4,915.75 hectares covered by the SDP but were taken from the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No. 2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination of the ultimate agricultural land that will be subjected to land distribution, the aggregate area of the homelots will no longer be deducted.

There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory coverage has taken place, the FWBs should have their corresponding share of the land’s value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2 has been nullified, then all the lands subject of the SDP will automatically be subject of compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot acquired by the government from the area covered by SDP, then HLI and its subsidiary, Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be liable for the value received for the sale of the 200-hectare land to LRC in the amount of PhP 500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary, for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-hectare SCTEX lot.

We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the payment of taxes and expenses relating to the transfer of the land and HLI’s statement that most, if not all, of the proceeds were used for legitimate corporate purposes. In order to determine once and for all whether or not all the proceeds were properly utilized by HLI and its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be approved by the parties to audit the books of HLI to determine if the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that there remains a balance from the proceeds of the sale, then the balance shall be distributed to the qualified FWBs.

A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from 1989. We disagree. It should not be forgotten that the FWBs are also stockholders of HLI, and the benefits acquired by the corporation from its possession and use of the land ultimately redounded to the FWBs’ benefit based on its business operations in the form of salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs will result in double compensation.

For sure, HLI will still exist as a corporation even after the revocation of the SDP although it will no longer be operating under the SDP, but pursuant to the Corporation Code as a private stock corporation. The non-agricultural assets amounting to PhP 393,924,220 shall remain with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of 4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the 80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that should have been distributed to FWBs by DAR had they not opted to stay in HLI.

HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR for land distribution to the FWBs. We find that the date of the "taking" is November 21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall coordinate with LBP for the determination of just compensation. We cannot use May 11, 1989 when the SDOA was executed, since it was the SDP, not the SDOA, that was approved by PARC.

The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of the case.

WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme of the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 qualified FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately schedule meetings with the said 6,296 FWBs and explain to them the effects, consequences and legal or practical implications of their choice, after which the FWBs will be asked to manifest, in secret voting, their choices in the ballot, signing their signatures or placing their thumbmarks, as the case may be, over their printed names.

Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to 18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than 18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete said prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3% production share and 3% share in the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs, composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no obligation to refund or return them.

Within thirty (30) days after determining who from among the original FWBs will stay as stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the 500-hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex; and (c) the aggregate area of 6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he or she not opted to stay in HLI as a stockholder. After the segregation process, as indicated,

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is done, the remaining area shall be turned over to DAR for immediate land distribution to the original qualified FWBs who opted not to remain as HLI stockholders.

The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who stayed with the corporation shall form part of the HLI assets.

HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000 received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of PhP 80,511,500 paid by the government through the Bases Conversion Development Authority for the sale of the 80.51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total gross sales from the production of the agricultural land and the 3% of the proceeds of said transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable accounting firm approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.

HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are ordered to determine the compensation due to HLI.

DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after submission of the compliance report, quarterly reports on the execution of this judgment to be submitted within the first 15 days at the end of each quarter, until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.

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Supreme CourtManila EN BANC 

ANTONIO M. SERRANO, G.R. No. 167614Petitioner,

Present:PUNO, C.J.,QUISUMBING,YNARES-SANTIAGO,CARPIO,AUSTRIA-MARTINEZ,

- versus - CORONA,CARPIO MORALES,TINGA,CHICO-NAZARIO,VELASCO, Jr.,NACHURA,LEONARDO-DE CASTRO,BRION, and

GALLANT MARITIME SERVICES, PERALTA, JJ.INC. and MARLOW NAVIGATIONCO., INC., Promulgated:Respondents. March 24, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x   D E C I S I O N   AUSTRIA-MARTINEZ, J.:  For decades, the toil of solitary migrants has helped lift entire families and communities out of poverty. Their earnings have built houses, provided health care, equipped schools and planted the seeds of businesses. They have woven together the world by transmitting ideas and knowledge from country to country. They have provided the dynamic human link between cultures, societies and economies. Yet, only recently have we begun to understand not only how much international migration impacts development, but how smart public policies can magnify this effect.  United Nations Secretary-General Ban Ki-MoonGlobal Forum on Migration and DevelopmentBrussels, July 10, 2007[1]

 

For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of Section 10, Republic Act (R.A.) No. 8042,[2] to wit: Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the workers shall be entitled to the full reimbursement of his placement fee with interest of twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less. x x x x (Emphasis and underscoring supplied) does not magnify the contributions of overseas Filipino workers (OFWs) to national development, but exacerbates the hardships borne by them by unduly limiting their entitlement in case of illegal dismissal to their lump-sum salary either for the unexpired portion of their employment contract or for three months for every year of the unexpired term, whichever is less (subject clause). Petitioner claims that the last clause violates the OFWs' constitutional rights in that it impairs the terms of their contract, deprives them of equal protection and denies them due process. By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the December 8, 2004 Decision[3] and April 1, 2005 Resolution[4] of the Court of Appeals (CA), which applied the subject clause, entreating this Court to declare the subject clause unconstitutional.Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a Philippine Overseas Employment Administration (POEA)-approved Contract of Employment with the following terms and conditions:Duration of contract 12 monthsPosition Chief OfficerBasic monthly salary US$1,400.00Hours of work 48.0 hours per weekOvertime US$700.00 per monthVacation leave with pay 7.00 days per month[5]

 On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment contract for the position of Second Officer with a monthly salary of US$1,000.00, upon the assurance and representation of respondents that he would be made Chief Officer by the end of April 1998.[6]

 Respondents did not deliver on their promise to make petitioner Chief Officer.[7] Hence, petitioner refused to stay on as Second Officer and was repatriated to the Philippines on May 26, 1998.[8]

 Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to March 19, 1999, but at the time of his repatriation on May 26, 1998, he had served only two (2) months and seven (7) days of his contract, leaving an unexpired portion of nine (9) months and twenty-three (23) days. 

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Petitioner filed with the Labor Arbiter (LA) a Complaint[9] against respondents for constructive dismissal and for payment of his money claims in the total amount of US$26,442.73, broken down as follows: 

May 27/31, 1998 (5 days) incl. Leave pay

US$ 413.90

June 01/30, 1998

2,590.00

July 01/31, 1998

2,590.00

August 01/31, 1998

2,590.00

Sept. 01/30, 1998

2,590.00

Oct. 01/31, 1998

2,590.00

Nov. 01/30, 1998

2,590.00

Dec. 01/31, 1998

2,590.00

Jan. 01/31, 1999

2,590.00

Feb. 01/28, 1999

2,590.00

Mar. 1/19, 1999 (19 days) incl. leave pay

1,640.00

--------------------------------------------------------------------------------25,382.23

Amount adjusted to chief mate's salary

(March 19/31, 1998 to April 1/30, 1998) +

1,060.50[10]

----------------------------------------------------------------------------------------------

TOTAL CLAIM

US$ 26,442.73[11]

 as well as moral and exemplary damages and attorney's fees. The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding him monetary benefits, to wit: WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the complainant (petitioner) by the respondents in the above-entitled case was illegal and the respondents are hereby ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainants salary for three (3) months of the unexpired portion of the aforesaid contract of employment. The respondents are likewise ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S. DOLLARS (US$ 45.00),[12] representing the complainants claim for a salary differential. In addition, the respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, at the exchange rate prevailing at the time of payment, the complainants (petitioner's) claim for attorneys fees equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision. The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit. All other claims are hereby DISMISSED. SO ORDERED.[13] (Emphasis supplied) In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary period of three months only -- rather than the entire unexpired portion of nine months and 23 days of petitioner's employment contract - applying the subject clause. However, the LA applied the salary rate of US$2,590.00, consisting of petitioner's [b]asic salary, US$1,400.00/month + US$700.00/month, fixed overtime pay, + US$490.00/month, vacation leave pay = US$2,590.00/compensation per month.[14]

 Respondents appealed[15] to the National Labor Relations Commission (NLRC) to question the finding of the LA that petitioner was illegally dismissed. 

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Petitioner also appealed[16] to the NLRC on the sole issue that the LA erred in not applying the ruling of the Court in Triple Integrated Services, Inc. v. National Labor Relations Commission[17] that in case of illegal dismissal, OFWs are entitled to their salaries for the unexpired portion of their contracts.[18]

 In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit: WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are hereby ordered to pay complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of payment the following: 1. Three (3) months salary$1,400 x 3 US$4,200.002. Salary differential 45.00US$4,245.003. 10% Attorneys fees 424.50TOTAL US$4,669.50                                         The other findings are affirmed.SO ORDERED.[19]

 The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by reducing the applicable salary rate from US$2,590.00 to US$1,400.00 because R.A. No. 8042 does not provide for the award of overtime pay, which should be proven to have been actually performed, and for vacation leave pay.[20]

 Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of the subject clause.[21] The NLRC denied the motion.[22]

 Petitioner filed a Petition for Certiorari[23] with the CA, reiterating the constitutional challenge against the subject clause.[24] After initially dismissing the petition on a technicality, the CA eventually gave due course to it, as directed by this Court in its Resolution dated August 7, 2003 which granted the petition for certiorari, docketed as G.R. No. 151833, filed by petitioner. In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of the applicable salary rate; however, the CA skirted the constitutional issue raised by petitioner.[25]

 His Motion for Reconsideration[26] having been denied by the CA,[27] petitioner brings his cause to this Court on the following grounds: IThe Court of Appeals and the labor tribunals have decided the case in a way not in accord with applicable decision of the Supreme Court involving similar issue of granting unto the migrant worker back wages equal to the unexpired portion of his contract of employment instead of limiting it to three (3) months II

In the alternative that the Court of Appeals and the Labor Tribunals were merely applying their interpretation of Section 10 of Republic Act No. 8042, it is submitted that the Court of Appeals gravely erred in law when it failed to discharge its judicial duty to decide questions of substance not theretofore determined by the Honorable Supreme Court, particularly, the constitutional issues raised by the petitioner on the constitutionality of said law, which unreasonably, unfairly and arbitrarily limits payment of the award for back wages of overseas workers to three (3) months. IIIEven without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court of Appeals gravely erred in law in excluding from petitioners award the overtime pay and vacation pay provided in his contract since under the contract they form part of his salary.[28]

 On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old and sickly, and he intends to make use of the monetary award for his medical treatment and medication.[29] Required to comment, counsel for petitioner filed a motion, urging the court to allow partial execution of the undisputed monetary award and, at the same time, praying that the constitutional question be resolved.[30]

 Considering that the parties have filed their respective memoranda, the Court now takes up the full merit of the petition mindful of the extreme importance of the constitutional question raised therein. On the first and second issues The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is not disputed. Likewise not disputed is the salary differential of US$45.00 awarded to petitioner in all three fora. What remains disputed is only the computation of the lump-sum salary to be awarded to petitioner by reason of his illegal dismissal.Applying the subject clause, the NLRC and the CA computed the lump-sum salary of petitioner at the monthly rate of US$1,400.00 covering the period of three months out of the unexpired portion of nine months and 23 days of his employment contract or a total of US$4,200.00. Impugning the constitutionality of the subject clause, petitioner contends that, in addition to the US$4,200.00 awarded by the NLRC and the CA, he is entitled to US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for the entire nine months and 23 days left of his employment contract, computed at the monthly rate of US$2,590.00.[31]

The Arguments of Petitioner Petitioner contends that the subject clause is unconstitutional because it unduly impairs the freedom of OFWs to negotiate for and stipulate in their overseas employment contracts a determinate employment period and a fixed salary package.[32] It also impinges on the equal protection clause, for it treats OFWs differently from local Filipino workers (local workers) by putting a cap on the amount of lump-sum salary to which OFWs are entitled in case of illegal dismissal, while setting no limit to the same monetary award for local workers when their dismissal is declared illegal; that the disparate treatment is not reasonable as there is no substantial distinction between the two groups;[33] and that it defeats Section 18,[34] Article II of

53

the Constitution which guarantees the protection of the rights and welfare of all Filipino workers, whether deployed locally or overseas.[35]

 Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line with existing jurisprudence on the issue of money claims of illegally dismissed OFWs. Though there are conflicting rulings on this, petitioner urges the Court to sort them out for the guidance of affected OFWs.[36]

Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042 serves no other purpose but to benefit local placement agencies. He marks the statement made by the Solicitor General in his Memorandum, viz.: Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money claims was reduced under Section 10 of R.A. No. 8042. [37] (Emphasis supplied) Petitioner argues that in mitigating the solidary liability of placement agencies, the subject clause sacrifices the well-being of OFWs. Not only that, the provision makes foreign employers better off than local employers because in cases involving the illegal dismissal of employees, foreign employers are liable for salaries covering a maximum of only three months of the unexpired employment contract while local employers are liable for the full lump-sum salaries of their employees. As petitioner puts it: In terms of practical application, the local employers are not limited to the amount of backwages they have to give their employees they have illegally dismissed, following well-entrenched and unequivocal jurisprudence on the matter. On the other hand, foreign employers will only be limited to giving the illegally dismissed migrant workers the maximum of three (3) months unpaid salaries notwithstanding the unexpired term of the contract that can be more than three (3) months.[38]

 Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives him of the salaries and other emoluments he is entitled to under his fixed-period employment contract.[39]

 The Arguments of Respondents In their Comment and Memorandum, respondents contend that the constitutional issue should not be entertained, for this was belatedly interposed by petitioner in his appeal before the CA, and not at the earliest opportunity, which was when he filed an appeal before the NLRC.[40]

 The Arguments of the Solicitor General The Solicitor General (OSG)[41] points out that as R.A. No. 8042 took effect on July 15, 1995, its provisions could not have impaired petitioner's 1998 employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract, the provisions thereof are deemed part of the

minimum terms of petitioner's employment, especially on the matter of money claims, as this was not stipulated upon by the parties.[42]

 Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of their employment, such that their rights to monetary benefits must necessarily be treated differently. The OSG enumerates the essential elements that distinguish OFWs from local workers: first, while local workers perform their jobs within Philippine territory, OFWs perform their jobs for foreign employers, over whom it is difficult for our courts to acquire jurisdiction, or against whom it is almost impossible to enforce judgment; and second, as held in Coyoca v. National Labor Relations Commission[43] and Millares v. National Labor Relations Commission,[44] OFWs are contractual employees who can never acquire regular employment status, unlike local workers who are or can become regular employees. Hence, the OSG posits that there are rights and privileges exclusive to local workers, but not available to OFWs; that these peculiarities make for a reasonable and valid basis for the differentiated treatment under the subject clause of the money claims of OFWs who are illegally dismissed. Thus, the provision does not violate the equal protection clause nor Section 18, Article II of the Constitution.[45]

 Lastly, the OSG defends the rationale behind the subject clause as a police power measure adopted to mitigate the solidary liability of placement agencies for this redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and humane conditions.[46]

The Court's Ruling The Court sustains petitioner on the first and second issues. When the Court is called upon to exercise its power of judicial review of the acts of its co-equals, such as the Congress, it does so only when these conditions obtain: (1) that there is an actual case or controversy involving a conflict of rights susceptible of judicial determination;[47] (2) that the constitutional question is raised by a proper party[48] and at the earliest opportunity;[49] and (3) that the constitutional question is the very lis mota of the case,[50]otherwise the Court will dismiss the case or decide the same on some other ground.[51]

 Without a doubt, there exists in this case an actual controversy directly involving petitioner who is personally aggrieved that the labor tribunals and the CA computed his monetary award based on the salary period of three months only as provided under the subject clause. The constitutional challenge is also timely. It should be borne in mind that the requirement that a constitutional issue be raised at the earliest opportunity entails the interposition of the issue in the pleadings before a competent court, such that, if the issue is not raised in the pleadings before that competent court, it cannot be considered at the trial and, if not considered in the trial, it cannot be considered on appeal.[52] Records disclose that the issue on the constitutionality of the subject clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion for Partial Reconsideration with said labor tribunal,[53] and reiterated in his Petition for Certiorari before the CA.[54]Nonetheless, the issue is deemed seasonably raised because it is not the NLRC but the CA which has the competence to resolve the constitutional issue. The NLRC is a labor tribunal that merely performs a quasi-judicial function its function in the present case is limited to determining questions of fact to which the

54

legislative policy of R.A. No. 8042 is to be applied and to resolving such questions in accordance with the standards laid down by the law itself;[55]thus, its foremost function is to administer and enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The CA, on the other hand, is vested with the power of judicial review or the power to declare unconstitutional a law or a provision thereof, such as the subject clause.[56] Petitioner's interposition of the constitutional issue before the CA was undoubtedly seasonable. The CA was therefore remiss in failing to take up the issue in its decision.The third condition that the constitutional issue be critical to the resolution of the case likewise obtains because the monetary claim of petitioner to his lump-sum salary for the entire unexpired portion of his 12-month employment contract, and not just for a period of three months, strikes at the very core of the subject clause. Thus, the stage is all set for the determination of the constitutionality of the subject clause. Does the subject clause violate Section 10,Article III of the Constitution on non-impairmentof contracts?  The answer is in the negative. Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract on the term of his employment and the fixed salary package he will receive[57] is not tenable. Section 10, Article III of the Constitution provides: No law impairing the obligation of contracts shall be passed. The prohibition is aligned with the general principle that laws newly enacted have only a prospective operation,[58] and cannot affect acts or contracts already perfected;[59] however, as to laws already in existence, their provisions are read into contracts and deemed a part thereof.[60] Thus, the non-impairment clause under Section 10, Article II is limited in application to laws about to be enacted that would in any way derogate from existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties thereto. As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the employment contract between petitioner and respondents in 1998. Hence, it cannot be argued that R.A. No. 8042, particularly the subject clause, impaired the employment contract of the parties. Rather, when the parties executed their 1998 employment contract, they were deemed to have incorporated into it all the provisions of R.A. No. 8042. But even if the Court were to disregard the timeline, the subject clause may not be declared unconstitutional on the ground that it impinges on the impairment clause, for the law was enacted in the exercise of the police power of the State to regulate a business, profession or calling, particularly the recruitment and deployment of OFWs, with the noble end in view of ensuring respect for the dignity and well-being of OFWs wherever they may be employed.[61] Police power legislations adopted by the State to promote the health, morals, peace, education, good order, safety, and general welfare of the people are generally applicable not

only to future contracts but even to those already in existence, for all private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare.[62]

 Does the subject clause violate Section 1,Article III of the Constitution, and Section 18,Article II and Section 3, Article XIII on laboras a protected sector?  The answer is in the affirmative.Section 1, Article III of the Constitution guarantees: No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the equal protection of the law. Section 18,[63] Article II and Section 3,[64] Article XIII accord all members of the labor sector, without distinction as to place of deployment, full protection of their rights and welfare. To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to economic security and parity: all monetary benefits should be equally enjoyed by workers of similar category, while all monetary obligations should be borne by them in equal degree; none should be denied the protection of the laws which is enjoyed by, or spared the burden imposed on, others in like circumstances.[65]

 Such rights are not absolute but subject to the inherent power of Congress to incorporate, when it sees fit, a system of classification into its legislation; however, to be valid, the classification must comply with these requirements: 1) it is based on substantial distinctions; 2) it is germane to the purposes of the law; 3) it is not limited to existing conditions only; and 4) it applies equally to all members of the class.[66]

 There are three levels of scrutiny at which the Court reviews the constitutionality of a classification embodied in a law: a) the deferential or rational basis scrutiny in which the challenged classification needs only be shown to be rationally related to serving a legitimate state interest;[67] b) the middle-tier or intermediate scrutiny in which the government must show that the challenged classification serves an important state interest and that the classification is at least substantially related to serving that interest;[68] and c) strict judicial scrutiny[69] in which a legislative classification which impermissibly interferes with the exercise of a fundamental right[70] or operates to the peculiar disadvantage of a suspect class[71] is presumed unconstitutional, and the burden is upon the government to prove that the classification is necessary to achieve a compelling state interest and that it is the least restrictive means to protect such interest.[72]

 Under American jurisprudence, strict judicial scrutiny is triggered by suspect classifications[73] based on race[74] or gender[75] but not when the classification is drawn along income categories.[76]

 It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng Pilipinas,[77] the constitutionality of a provision in the charter of the Bangko Sentral ng Pilipinas (BSP), a government financial

55

institution (GFI), was challenged for maintaining its rank-and-file employees under the Salary Standardization Law (SSL), even when the rank-and-file employees of other GFIs had been exempted from the SSL by their respective charters. Finding that the disputed provision contained a suspect classification based on salary grade, the Court deliberately employed the standard of strict judicial scrutiny in its review of the constitutionality of said provision. More significantly, it was in this case that the Court revealed the broad outlines of its judicial philosophy, to wit: Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition and respect by the courts of justice except when they run afoul of the Constitution. The deference stops where the classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution. When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice. Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial scrutiny finds no support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities are not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our decisions. We should not place undue and fawning reliance upon them and regard them as indispensable mental crutches without which we cannot come to our own decisions through the employment of our own endowments.  We live in a different ambience and must decide our own problems in the light of our own interests and needs, and of our qualities and even idiosyncrasies as a people, and always with our own concept of law and justice. Our laws must be construed in accordance with the intention of our own lawmakers and such intent may be deduced from the language of each law and the context of other local legislation related thereto. More importantly, they must be construed to serve our own public interest which is the be-all and the end-all of all our laws.  And it need not be stressed that our public interest is distinct and different from others. x x x x Further, the quest for a better and more equal world calls for the use of equal protection as a tool of effective judicial intervention. Equality is one ideal which cries out for bold attention and action in the Constitution.  The Preamble proclaims equality as an ideal precisely in protest against crushing inequities in Philippine society.  The command to promote social justice in Article II, Section 10, in all phases of national development, further explicitated in Article XIII, are clear commands to the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in the Philippine Constitution no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality. Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of society, including labor. Under the policy of social justice, the law bends over backward to accommodate the interests of the working class on the humane justification that those with less privilege in life should have more in law. And the obligation to afford protection to labor is incumbent not only on the legislative and executive branches

but also on the judiciary to translate this pledge into a living reality. Social justice calls for the humanization of laws and the equalization of social and economic forces by the State so that justice in its rational and objectively secular conception may at least be approximated. x x x x Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing the broad discretion given to Congress in exercising its legislative power.  Judicial scrutiny would be based on the rational basis test, and the legislative discretion would be given deferential treatment. But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice against persons favored by the Constitution with special protection, judicial scrutiny ought to be more strict.  A weak and watered down view would call for the abdication of this Courts solemn duty to strike down any law repugnant to the Constitution and the rights it enshrines.  This is true whether the actor committing the unconstitutional act is a private person or the government itself or one of its instrumentalities. Oppressive acts will be struck down regardless of the character or nature of the actor. x x x x In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status.  It is akin to a distinction based on economic class and status, with the higher grades as recipients of a benefit specifically withheld from the lower grades.  Officers of the BSP now receive higher compensation packages that are competitive with the industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL.  The implications are quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher in rank - possessing higher and better education and opportunities for career advancement - are given higher compensation packages to entice them to stay.  Considering that majority, if not all, the rank-and-file employees consist of people whose status and rank in life are less and limited, especially in terms of job marketability, it is they - and not the officers - who have the real economic and financial need for the adjustment . This is in accord with the policy of the Constitution "to free the people from poverty, provide adequate social services, extend to them a decent standard of living, and improve the quality of life for all. Any act of Congress that runs counter to this constitutional desideratum deserves strict scrutiny by this Court before it can pass muster. (Emphasis supplied) Imbued with the same sense of obligation to afford protection to labor, the Court in the present case also employs the standard of strict judicial scrutiny, for it perceives in the subject clause a suspect classification prejudicial to OFWs. Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a closer examination reveals that the subject clause has a discriminatory intent against, and an invidious impact on, OFWs at two levels: First, OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts of one year or more; 

56

Second, among OFWs with employment contracts of more than one year; and Third, OFWs vis--vis local workers with fixed-period employment; OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts of one year or more As pointed out by petitioner,[78] it was in Marsaman Manning Agency, Inc. v. National Labor Relations Commission[79] (Second Division, 1999) that the Court laid down the following rules on the application of the periods prescribed under Section 10(5) of R.A. No. 804, to wit: A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed overseas contract worker, i.e., whether his salaries for the unexpired portion of his employment contract or three (3) months salary for every year of the unexpired term, whichever is less, comes into play only when the employment contract concerned has a term of at least one (1) year or more. This is evident from the words for every year of the unexpired term which follows the words salaries x x x for three months. To follow petitioners thinking that private respondent is entitled to three (3) months salary only simply because it is the lesser amount is to completely disregard and overlook some words used in the statute while giving effect to some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care should be taken that every part or word thereof be given effect since the law-making body is presumed to know the meaning of the words employed in the statue and to have used them advisedly. Ut res magis valeat quam pereat.[80] (Emphasis supplied) In Marsaman, the OFW involved was illegally dismissed two months into his 10-month contract, but was awarded his salaries for the remaining 8 months and 6 days of his contract. Prior to Marsaman, however, there were two cases in which the Court made conflicting rulings on Section 10(5). One was Asian Center for Career and Employment System and Services v. National Labor Relations Commission (Second Division, October 1998),[81] which involved an OFW who was awarded a two-year employment contract, but was dismissed after working for one year and two months. The LA declared his dismissal illegal and awarded him SR13,600.00 as lump-sum salary covering eight months, the unexpired portion of his contract. On appeal, the Court reduced the award to SR3,600.00 equivalent to his three months salary, this being the lesser value, to wit: Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without just, valid or authorized cause is entitled to his salary for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term,whichever is less. In the case at bar, the unexpired portion of private respondents employment contract is eight (8) months. Private respondent should therefore be paid his basic salary corresponding to three (3) months or a total of SR3,600.[82]

 Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division, December 1998),[83] which involved an OFW (therein respondent Erlinda Osdana) who was originally granted a 12-month contract, which was deemed renewed

for another 12 months. After serving for one year and seven-and-a-half months, respondent Osdana was illegally dismissed, and the Court awarded her salaries for the entire unexpired portion of four and one-half months of her contract. The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:  

Case Title Contract Period

Period of Service

Unexpired Period

Period Applied in the Computation of the Monetary Award

Skippers v. Maguad[84]

6 months 2 months 4 months 4 months

Bahia Shipping v. Reynaldo Chua[85]

9 months 8 months 4 months 4 months

Centennial Transmarine v. dela Cruz l[86]

9 months 4 months 5 months 5 months

Talidano v. Falcon[87]

12 months 3 months 9 months 3 months

Univan v.CA [88]

12 months 3 months 9 months 3 months

Oriental v.CA [89]

12 months more than 2 months

10 months 3 months

PCL v. NLRC[90] 12 months more than 2 months

more or less 9 months

3 months

Olarte v. Nayona[91]

12 months 21 days 11 months and 9 days

3 months

JSS v.Ferrer[92]

12 months 16 days 11 months and 24 days

3 months

Pentagon v. Adelantar[93]

12 months 9 months and 7 days

2 months and 23 days

2 months and 23 days

Phil. Employ v. Paramio,et al.[94]

12 months 10 months 2 months Unexpired portion

Flourish Maritime v. Almanzor [95]

2 years 26 days 23 months and 4 days

6 months or 3 months for each year of contract

Athenna 1 year, 10 1 month 1 year, 9 months 6 months or 3

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Manpower v. Villanos [96]

months and 28 days

and 28 days months for each year of contract

As the foregoing matrix readily shows, the subject clause classifies OFWs into two categories. The first category includes OFWs with fixed-period employment contracts of less than one year; in case of illegal dismissal, they are entitled to their salaries for the entire unexpired portion of their contract. The second category consists of OFWs with fixed-period employment contracts of one year or more; in case of illegal dismissal, they are entitled to monetary award equivalent to only 3 months of the unexpired portion of their contracts. The disparity in the treatment of these two groups cannot be discounted. In Skippers, the respondent OFW worked for only 2 months out of his 6-month contract, but was awarded his salaries for the remaining 4 months. In contrast, the respondent OFWs in Oriental and PCL who had also worked for about 2 months out of their 12-month contracts were awarded their salaries for only 3 months of the unexpired portion of their contracts. Even the OFWs involved in Talidano and Univan who had worked for a longer period of 3 months out of their 12-month contracts before being illegally dismissed were awarded their salaries for only 3 months. To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an employment contract of 10 months at a monthly salary rate of US$1,000.00 and a hypothetical OFW-B with an employment contract of 15 months with the same monthly salary rate of US$1,000.00. Both commenced work on the same day and under the same employer, and were illegally dismissed after one month of work. Under the subject clause, OFW-A will be entitled to US$9,000.00, equivalent to his salaries for the remaining 9 months of his contract, whereas OFW-B will be entitled to only US$3,000.00, equivalent to his salaries for 3 months of the unexpired portion of his contract, instead of US$14,000.00 for the unexpired portion of 14 months of his contract, as the US$3,000.00 is the lesser amount. The disparity becomes more aggravating when the Court takes into account jurisprudence that, prior to the effectivity of R.A. No. 8042 on July 14, 1995,[97] illegally dismissed OFWs, no matter how long the period of their employment contracts, were entitled to their salaries for the entire unexpired portions of their contracts. The matrix below speaks for itself: 

Case Title Contract Period

Period of Service

Unexpired Period

Period Applied in the Computation of the Monetary Award

ATCI v. CA,et al.[98]

2 years 2 months 22 months 22 months

Phil. Integrated v. NLRC[99]

2 years 7 days 23 months and 23 days

23 months and 23 days

JGB v. NLC[100] 2 years 9 months 15 months 15 months

Agoy v. NLRC[101]

2 years 2 months 22 months 22 months

EDI v. NLRC, et 2 years 5 months 19 months 19 months

al.[102]

Barros v. NLRC, et al.[103]

12 months 4 months 8 months 8 months

Philippine Transmarine v. Carilla[104]

12 months 6 months and 22 days

5 months and 18 days

5 months and 18 days

 It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions thereof, were treated alike in terms of the computation of their monetary benefits in case of illegal dismissal.Their claims were subjected to a uniform rule of computation: their basic salaries multiplied by the entire unexpired portion of their employment contracts. The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of the money claims of illegally dismissed OFWs based on their employment periods, in the process singling out one category whose contracts have an unexpired portion of one year or more and subjecting them to the peculiar disadvantage of having their monetary awards limited to their salaries for 3 months or for the unexpired portion thereof, whichever is less, but all the while sparing the other category from such prejudice, simply because the latter's unexpired contracts fall short of one year. Among OFWs With EmploymentContracts of More Than One Year  Upon closer examination of the terminology employed in the subject clause, the Court now has misgivings on the accuracy of the Marsaman interpretation. The Court notes that the subject clause or for three (3) months for every year of the unexpired term, whichever is less contains the qualifying phrases every year and unexpired term. By its ordinary meaning, the word term means a limited or definite extent of time.[105] Corollarily, that every year is but part of an unexpired term is significant in many ways: first, the unexpired term must be at least one year, for if it were any shorter, there would be no occasion for such unexpired term to be measured by every year; and second, the original term must be more than one year, for otherwise, whatever would be the unexpired term thereof will not reach even a year. Consequently, the more decisive factor in the determination of when the subject clause for three (3) months for every year of the unexpired term, whichever is less shall apply is not the length of the original contract period as held in Marsaman,[106]but the length of the unexpired portion of the contract period -- the subject clause applies in cases when the unexpired portion of the contract period is at least one year, which arithmetically requires that the original contract period be more than one year. Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs whose contract periods are for more than one year: those who are illegally dismissed with less than one year left in their contracts shall be entitled to their salaries for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more remaining in

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their contracts shall be covered by the subject clause, and their monetary benefits limited to their salaries for three months only. To concretely illustrate the application of the foregoing interpretation of the subject clause, the Court assumes hypothetical OFW-C and OFW-D, who each have a 24-month contract at a salary rate of US$1,000.00 per month. OFW-C is illegally dismissed on the 12th month, and OFW-D, on the 13th month. Considering that there is at least 12 months remaining in the contract period of OFW-C, the subject clause applies to the computation of the latter's monetary benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total salaries for the 12 months unexpired portion of the contract, but to the lesser amount of US$3,000.00 or the latter's salaries for 3 months out of the 12-month unexpired term of the contract. On the other hand, OFW-D is spared from the effects of the subject clause, for there are only 11 months left in the latter's contract period. Thus, OFW-D will be entitled to US$11,000.00, which is equivalent to his/her total salaries for the entire 11-month unexpired portion. OFWs vis--vis Local WorkersWith Fixed-Period Employment  As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally dismissed OFWs was in place. This uniform system was applicable even to local workers with fixed-term employment.[107]

 The earliest rule prescribing a uniform system of computation was actually Article 299 of the Code of Commerce (1888),[108] to wit: Article 299. If the contracts between the merchants and their shop clerks and employees should have been made of a fixed period, none of the contracting parties, without the consent of the other, may withdraw from the fulfillment of said contract until the termination of the period agreed upon. Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the exception of the provisions contained in the following articles. In Reyes v. The Compaia Maritima,[109] the Court applied the foregoing provision to determine the liability of a shipping company for the illegal discharge of its managers prior to the expiration of their fixed-term employment. The Court therein held the shipping company liable for the salaries of its managers for the remainder of their fixed-term employment.There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of Commerce which provides: Article 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or proven negligence. Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie,[110] in

which the Court held the shipping company liable for the salaries and subsistence allowance of its illegally dismissed employees for the entire unexpired portion of their employment contracts. While Article 605 has remained good law up to the present,[111] Article 299 of the Code of Commerce was replaced by Art. 1586 of the Civil Code of 1889, to wit:Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and for a certain work cannot leave or be dismissed without sufficient cause, before the fulfillment of the contract. (Emphasis supplied.) Citing Manresa, the Court in Lemoine v. Alkan[112] read the disjunctive "or" in Article 1586 as a conjunctive "and" so as to apply the provision to local workers who are employed for a time certain although for no particular skill.This interpretation of Article 1586 was reiterated in Garcia Palomar v. Hotel de France Company.[113] And in both Lemoine and Palomar, the Court adopted the general principle that in actions for wrongful discharge founded on Article 1586, local workers are entitled to recover damages to the extent of the amount stipulated to be paid to them by the terms of their contract. On the computation of the amount of such damages, the Court in Aldaz v. Gay[114]held:The doctrine is well-established in American jurisprudence, and nothing has been brought to our attention to the contrary under Spanish jurisprudence, that when an employee is wrongfully discharged it is his duty to seek other employment of the same kind in the same community, for the purpose of reducing the damages resulting from such wrongful discharge. However, while this is the general rule, the burden of showing that he failed to make an effort to secure other employment of a like nature, and that other employment of a like nature was obtainable, is upon the defendant. When an employee is wrongfully discharged under a contract of employment his prima facie damage is the amount which he would be entitled to had he continued in such employment until the termination of the period. (Howard vs. Daly, 61 N. Y., 362; Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich., 43.)[115] (Emphasis supplied)On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term employment: Section 2 (Obligations with a Period), Chapter 3, Title I, and Sections 2 (Contract of Labor) and 3 (Contract for a Piece of Work), Chapter 3, Title VIII, Book IV.[116] Much like Article 1586 of the Civil Code of 1889, the new provisions of the Civil Code do not expressly provide for the remedies available to a fixed-term worker who is illegally discharged. However, it is noted that in Mackay Radio & Telegraph Co., Inc. v. Rich,[117] the Court carried over the principles on the payment of damages underlying Article 1586 of the Civil Code of 1889 and applied the same to a case involving the illegal discharge of a local worker whose fixed-period employment contract was entered into in 1952, when the new Civil Code was already in effect.[118]

 More significantly, the same principles were applied to cases involving overseas Filipino workers whose fixed-term employment contracts were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v. Ople,[119] involving seafarers who were illegally discharged. In Teknika Skills and Trade Services, Inc. v. National Labor Relations Commission,[120] an OFW who was illegally dismissed prior to the expiration of her fixed-period employment contract as a baby sitter, was awarded salaries corresponding to the unexpired portion of her contract. The Court arrived at the same ruling in Anderson v. National Labor Relations Commission,[121] which involved a foreman hired in 1988 in Saudi Arabia for a fixed term of two years, but who was illegally dismissed after only nine months

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on the job -- the Court awarded him salaries corresponding to 15 months, the unexpired portion of his contract. In Asia World Recruitment, Inc. v. National Labor Relations Commission,[122] a Filipino working as a security officer in 1989 in Angola was awarded his salaries for the remaining period of his 12-month contract after he was wrongfully discharged. Finally, in Vinta Maritime Co., Inc. v. National Labor Relations Commission,[123] an OFW whose 12-month contract was illegally cut short in the second month was declared entitled to his salaries for the remaining 10 months of his contract. In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who were illegally discharged were treated alike in terms of the computation of their money claims: they were uniformly entitled to their salaries for the entire unexpired portions of their contracts. But with the enactment of R.A. No. 8042, specifically the adoption of the subject clause, illegally dismissed OFWs with an unexpired portion of one year or more in their employment contract have since been differently treated in that their money claims are subject to a 3-month cap, whereas no such limitation is imposed on local workers with fixed-term employment. The Court concludes that the subject clause contains a suspect classification in that, in the computation of the monetary benefits of fixed-term employees who are illegally discharged, it imposes a 3-month cap on the claim of OFWs with an unexpired portion of one year or more in their contracts, but none on the claims of other OFWs or local workers with fixed-term employment. The subject clause singles out one classification of OFWs and burdens it with a peculiar disadvantage. There being a suspect classification involving a vulnerable sector protected by the Constitution, the Court now subjects the classification to a strict judicial scrutiny, and determines whether it serves a compelling state interest through the least restrictive means. What constitutes compelling state interest is measured by the scale of rights and powers arrayed in the Constitution and calibrated by history.[124] It is akin to the paramount interest of the state[125] for which some individual liberties must give way, such as the public interest in safeguarding health or maintaining medical standards,[126] or in maintaining access to information on matters of public concern.[127]

 In the present case, the Court dug deep into the records but found no compelling state interest that the subject clause may possibly serve. The OSG defends the subject clause as a police power measure designed to protect the employment of Filipino seafarers overseas x x x. By limiting the liability to three months [sic], Filipino seafarers have better chance of getting hired by foreign employers. The limitation also protects the interest of local placement agencies, which otherwise may be made to shoulder millions of pesos in termination pay.[128]

 The OSG explained further:Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign

employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money are reduced under Section 10 of RA 8042. This measure redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and humane conditions.[129] (Emphasis supplied) However, nowhere in the Comment or Memorandum does the OSG cite the source of its perception of the state interest sought to be served by the subject clause. The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in sponsorship of House Bill No. 14314 (HB 14314), from which the law originated;[130] but the speech makes no reference to the underlying reason for the adoption of the subject clause. That is only natural for none of the 29 provisions in HB 14314 resembles the subject clause. On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to wit: Sec. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of the complaint, the claim arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas employment including claims for actual, moral, exemplary and other forms of damages. The liability of the principal and the recruitment/placement agency or any and all claims under this Section shall be joint and several. Any compromise/amicable settlement or voluntary agreement on any money claims exclusive of damages under this Section shall not be less than fifty percent (50%) of such money claims: Provided, That any installment payments, if applicable, to satisfy any such compromise or voluntary settlement shall not be more than two (2) months. Any compromise/voluntary agreement in violation of this paragraph shall be null and void. Non-compliance with the mandatory period for resolutions of cases provided under this Section shall subject the responsible officials to any or all of the following penalties: (1) The salary of any such official who fails to render his decision or resolution within the prescribed period shall be, or caused to be, withheld until the said official complies therewith;(2) Suspension for not more than ninety (90) days; or (3) Dismissal from the service with disqualification to hold any appointive public office for five (5) years. 

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Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official may have incurred under other existing laws or rules and regulations as a consequence of violating the provisions of this paragraph. But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of money claims. A rule on the computation of money claims containing the subject clause was inserted and eventually adopted as the 5th paragraph of Section 10 of R.A. No. 8042. The Court examined the rationale of the subject clause in the transcripts of the Bicameral Conference Committee (Conference Committee) Meetings on the Magna Carta on OCWs (Disagreeing Provisions of Senate Bill No. 2077 and House Bill No. 14314). However, the Court finds no discernible state interest, let alone a compelling one, that is sought to be protected or advanced by the adoption of the subject clause. In fine, the Government has failed to discharge its burden of proving the existence of a compelling state interest that would justify the perpetuation of the discrimination against OFWs under the subject clause. Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the employment of OFWs by mitigating the solidary liability of placement agencies, such callous and cavalier rationale will have to be rejected. There can never be a justification for any form of government action that alleviates the burden of one sector, but imposes the same burden on another sector, especially when the favored sector is composed of private businesses such as placement agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the Constitution commands. The idea that private business interest can be elevated to the level of a compelling state interest is odious. Moreover, even if the purpose of the subject clause is to lessen the solidary liability of placement agencies vis-a-vis their foreign principals, there are mechanisms already in place that can be employed to achieve that purpose without infringing on the constitutional rights of OFWs. The POEA Rules and Regulations Governing the Recruitment and Employment of Land-Based Overseas Workers, dated February 4, 2002, imposes administrative disciplinary measures on erring foreign employers who default on their contractual obligations to migrant workers and/or their Philippine agents. These disciplinary measures range from temporary disqualification to preventive suspension. The POEA Rules and Regulations Governing the Recruitment and Employment of Seafarers, dated May 23, 2003, contains similar administrative disciplinary measures against erring foreign employers. Resort to these administrative measures is undoubtedly the less restrictive means of aiding local placement agencies in enforcing the solidary liability of their foreign principals. Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of the right of petitioner and other OFWs to equal protection. 

Further, there would be certain misgivings if one is to approach the declaration of the unconstitutionality of the subject clause from the lone perspective that the clause directly violates state policy on labor under Section 3,[131]Article XIII of the Constitution. While all the provisions of the 1987 Constitution are presumed self-executing,,[132] there are some which this Court has declared not judicially enforceable, Article XIII being one,[133] particularly Section 3 thereof, the nature of which, this Court, in Agabon v. National Labor Relations Commission,[134] has described to be not self-actuating: Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as self-executing in the sense that these are automatically acknowledged and observed without need for any enabling legislation. However, to declare that the constitutional provisions are enough to guarantee the full exercise of the rights embodied therein, and the realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view presents the dangerous tendency of being overbroad and exaggerated. The guarantees of "full protection to labor" and "security of tenure", when examined in isolation, are facially unqualified, and the broadest interpretation possible suggests a blanket shield in favor of labor against any form of removal regardless of circumstance. This interpretation implies an unimpeachable right to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of the framers. Subsequent legislation is still needed to define the parameters of these guaranteed rights to ensure the protection and promotion, not only the rights of the labor sector, but of the employers' as well. Without specific and pertinent legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at least the aims of the Constitution. Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive enforceable right to stave off the dismissal of an employee for just cause owing to the failure to serve proper notice or hearing. As manifested by several framers of the 1987 Constitution, the provisions on social justice require legislative enactments for their enforceability.[135] (Emphasis added) Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable rights, for the violation of which the questioned clause may be declared unconstitutional. It may unwittingly risk opening the floodgates of litigation to every worker or union over every conceivable violation of so broad a concept as social justice for labor. It must be stressed that Section 3, Article XIII does not directly bestow on the working class any actual enforceable right, but merely clothes it with the status of a sector for whom the Constitution urges protection through executive or legislative action and judicial recognition. Its utility is best limited to being an impetus not just for the executive and legislative departments, but for the judiciary as well, to protect the welfare of the working class. And it was in fact consistent with that constitutional agenda that the Court in Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng Pilipinas, penned by then Associate Justice now Chief Justice Reynato S. Puno, formulated the judicial precept that when the challenge to a statute is premised on the perpetuation of prejudice against persons favored by the Constitution with special protection -- such as the working class or a section thereof -- the Court may recognize the existence of a suspect classification and subject the same to strict judicial scrutiny. 

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The view that the concepts of suspect classification and strict judicial scrutiny formulated in Central Bank Employee Association exaggerate the significance of Section 3, Article XIII is a groundless apprehension. Central Bank applied Article XIII in conjunction with the equal protection clause. Article XIII, by itself, without the application of the equal protection clause, has no life or force of its own as elucidated in Agabon. Along the same line of reasoning, the Court further holds that the subject clause violates petitioner's right to substantive due process, for it deprives him of property, consisting of monetary benefits, without any existing valid governmental purpose.[136]

 The argument of the Solicitor General, that the actual purpose of the subject clause of limiting the entitlement of OFWs to their three-month salary in case of illegal dismissal, is to give them a better chance of getting hired by foreign employers. This is plain speculation. As earlier discussed, there is nothing in the text of the law or the records of the deliberations leading to its enactment or the pleadings of respondent that would indicate that there is an existing governmental purpose for the subject clause, or even just a pretext of one. The subject clause does not state or imply any definitive governmental purpose; and it is for that precise reason that the clause violates not just petitioner's right to equal protection, but also her right to substantive due processunder Section 1,[137] Article III of the Constitution. The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired period of nine months and 23 days of his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No. 8042. On the Third Issue Petitioner contends that his overtime and leave pay should form part of the salary basis in the computation of his monetary award, because these are fixed benefits that have been stipulated into his contract. Petitioner is mistaken. The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE Department Order No. 33, series 1996, provides a Standard Employment Contract of Seafarers, in which salary is understood as the basic wage, exclusive of overtime, leave pay and other bonuses; whereas overtime pay is compensation for all work performed in excess of the regular eight hours, and holiday pay is compensation for any work performed on designated rest days and holidays. By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and holiday pay in the computation of petitioner's monetary award, unless there is evidence that he performed work during those periods. As the Court held in Centennial Transmarine, Inc. v. Dela Cruz,[138]

However, the payment of overtime pay and leave pay should be disallowed in light of our ruling in Cagampan v. National Labor Relations Commission, to wit: The rendition of overtime work and the submission of sufficient proof that said was actually performed are conditions to be satisfied before a seaman could be entitled to overtime pay

which should be computed on the basis of 30% of the basic monthly salary. In short, the contract provision guarantees the right to overtime pay but the entitlement to such benefit must first be established.

In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is unwarranted since the same is given during the actual service of the seamen. WHEREFORE, the Court GRANTS the Petition. The subject clause or for three months for every year of the unexpired term, whichever is less in the 5th paragraph of Section 10 of Republic Act No. 8042 isDECLARED UNCONSTITUTIONAL; and the December 8, 2004 Decision and April 1, 2005 Resolution of the Court of Appeals are MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his employment contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per month. No costs. SO ORDERED. 

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[G.R. No. 126102. December 4, 2000]ORTIGAS & CO. LTD., petitioner, vs. THE COURT OF APPEALS and ISMAEL G. MATHAY III, respondents.D E C I S I O NQUISUMBING, J.:This petition seeks to reverse the decision of the Court of Appeals, dated March 25, 1996, in CA-G.R. SP No. 39193, which nullified the writ of preliminary injunction issued by the Regional Trial Court of Pasig City, Branch 261, in Civil Case No. 64931. It also assails the resolution of the appellate court, dated August 13, 1996, denying petitioners motion for reconsideration.The facts of this case, as culled from the records, are as follows:On August 25, 1976, petitioner Ortigas & Company sold to Emilia Hermoso, a parcel of land known as Lot 1, Block 21, Psd-66759, with an area of 1,508 square meters, located in Greenhills Subdivision IV, San Juan, Metro Manila, and covered by Transfer Certificate of Title No. 0737. The contract of sale provided that the lot:1. (1) be used exclusivelyfor residential purposes only, and not more than one single-family residential building will be constructed thereon,x x x6. The BUYER shall not erectany sign or billboard on the rooffor advertising purposesx x x11. No single-family residential building shall be erecteduntil the building plans, specificationhave been approved by the SELLERx x x14....restrictions shall run with the land and shall be construed as real covenants until December 31, 2025 when they shall cease and terminatei[1]These and the other conditions were duly annotated on the certificate of title issued to Emilia.In 1981, the Metropolitan Manila Commission (now Metropolitan Manila Development Authority) enacted MMC Ordinance No. 81-01, also known as the Comprehensive Zoning Area for the National Capital Region. The ordinance reclassified as a commercial area a portion of Ortigas Avenue from Madison to Roosevelt Streets of Greenhills Subdivision where the lot is located.On June 8, 1984, private respondent Ismael Mathay III leased the lot from Emilia Hermoso and J.P. Hermoso Realty Corp.. The lease contract did not specify the purposes of the lease. Thereupon, private respondent constructed a single story commercial building for Greenhills Autohaus, Inc., a car sales company.On January 18, 1995, petitioner filed a complaint against Emilia Hermoso with the Regional Trial Court of Pasig, Branch 261. Docketed as Civil Case No. 64931, the complaint sought the demolition of the said commercial structure for having violated the terms and conditions of the Deed of Sale. Complainant prayed for the issuance of a temporary restraining order and a writ of preliminary injunction to prohibit petitioner from constructing the commercial building and/or engaging in commercial activity on the lot. The complaint was later amended to implead Ismael G. Mathay III and J.P. Hermoso Realty Corp., which has a ten percent (10%) interest in the lot.In his answer, Mathay III denied any knowledge of the restrictions on the use of the lot and filed a cross-claim against the Hermosos.On June 16, 1995, the trial court issued the writ of preliminary injunction. On June 29, 1995, Mathay III moved to set aside the injunctive order, but the trial court denied the motion.Mathay III then filed with the Court of Appeals a special civil action for certiorari, docketed as CA-G.R. SP No. 39193, ascribing to the trial court grave abuse of discretion in issuing the writ

of preliminary injunction. He claimed that MMC Ordinance No. 81-01 classified the area where the lot was located as commercial area and said ordinance must be read into the August 25, 1976 Deed of Sale as a concrete exercise of police power.Ortigas and Company averred that inasmuch as the restrictions on the use of the lot were duly annotated on the title it issued to Emilia Hermoso, said restrictions must prevail over the ordinance, specially since these restrictions were agreed upon before the passage of MMC Ordinance No. 81-01.On March 25, 1996, the appellate court disposed of the case as follows:WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The assailed orders are hereby nullified and set aside.SO ORDERED.ii[2]In finding for Mathay III, the Court of Appeals held that the MMC Ordinance No. 81-01 effectively nullified the restrictions allowing only residential use of the property in question.Ortigas seasonably moved for reconsideration, but the appellate court denied it on August 13, 1996.Hence, the instant petition.In its Memorandum, petitioner now submits that the principal issue in this case is whether respondent Court of Appeals correctly set aside the Order dated June 16, 1995 of the trial court which issued the writ of preliminary injunction on the sole ground that MMC Ordinance No. 81-01 nullified the building restriction imposing exclusive residential use on the property in question.iii[3] It also asserts that Mathay III lacks legal capacity to question the validity of conditions of the deed of sale; and he is barred by estoppel or waiver to raise the same question like his principals, the owners.iv[4] Lastly, it avers that the appellate court unaccountably failed to address several questions of fact.Principally, we must resolve the issue of whether the Court of Appeals erred in holding that the trial court committed grave abuse of discretion when it refused to apply MMC Ordinance No.81-01 to Civil Case No. 64931.But first, we must address petitioners allegation that the Court of Appeals unaccountably failed to address questions of fact. For basic is the rule that factual issues may not be raised before this Court in a petition for review and this Court is not duty-bound to consider said questions.v[5] CA-G.R. SP No. 39193 was a special civil action for certiorari, and the appellate court only had to determine if the trial court committed grave abuse of discretion amounting to want or excess of jurisdiction in issuing the writ of preliminary injunction. Thus, unless vital to our determination of the issue at hand, we shall refrain from further consideration of factual questions.Petitioner contends that the appellate court erred in limiting its decision to the cited zoning ordinance. It avers that a contractual right is not automatically discarded once a claim is made that it conflicts with police power. Petitioner submits that the restrictive clauses in the questioned contract is not in conflict with the zoning ordinance. For one, according to petitioner, the MMC Ordinance No. 81-01 did not prohibit the construction of residential buildings. Petitioner argues that even with the zoning ordinance, the seller and buyer of the re-classified lot can voluntarily agree to an exclusive residential use thereof. Hence, petitioner concludes that the Court of Appeals erred in holding that the condition imposing exclusive residential use was effectively nullified by the zoning ordinance.In its turn, private respondent argues that the appellate court correctly ruled that the trial court had acted with grave abuse of discretion in refusing to subject the contract to the MMC Ordinance No. 81-01. He avers that the appellate court properly held the police power superior to the non-impairment of contract clause in the Constitution. He concludes that the appellate

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court did not err in dissolving the writ of preliminary injunction issued by the trial court in excess of its jurisdiction.We note that in issuing the disputed writ of preliminary injunction, the trial court observed that the contract of sale was entered into in August 1976, while the zoning ordinance was enacted only in March 1981. The trial court reasoned that since private respondent had failed to show that MMC Ordinance No. 81-01 had retroactive effect, said ordinance should be given prospective application only,vi[6] citing Co vs. Intermediate Appellate Court, 162 SCRA 390 (1988).In general, we agree that laws are to be construed as having only prospective operation. Lex prospicit, non respicit. Equally settled, only laws existing at the time of the execution of a contract are applicable thereto and not later statutes, unless the latter are specifically intended to have retroactive effect.vii[7] A later law which enlarges, abridges, or in any manner changes the intent of the parties to the contract necessarily impairs the contract itselfviii[8] and cannot be given retroactive effect without violating the constitutional prohibition against impairment of contracts.ix[9]But, the foregoing principles do admit of certain exceptions. One involves police power. A law enacted in the exercise of police power to regulate or govern certain activities or transactions could be given retroactive effect and may reasonably impair vested rights or contracts. Police power legislation is applicable not only to future contracts, but equally to those already in existence.x[10] Nonimpairment of contracts or vested rights clauses will have to yield to the superior and legitimate exercise by the State of police power to promote the health, morals, peace, education, good order, safety, and general welfare of the people.xi[11] Moreover, statutes in exercise of valid police power must be read into every contract.xii[12] Noteworthy, in Sangalang vs. Intermediate Appellate Court,xiii[13] we already upheld MMC Ordinance No. 81-01 as a legitimate police power measure.The trial courts reliance on the Co vs. IAC,xiv[14] is misplaced. In Co, the disputed area was agricultural and Ordinance No. 81-01 did not specifically provide that it shall have retroactive effect so as to discontinue all rights previously acquired over lands located within the zone which are neither residential nor light industrial in nature,xv[15] and stated with respect to agricultural areas covered that the zoning ordinance should be given prospective operation only.xvi[16] The area in this case involves not agricultural but urban residential land. Ordinance No. 81-01 retroactively affected the operation of the zoning ordinance in Greenhills by reclassifying certain locations therein as commercial.Following our ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co., 94 SCRA 533 (1979), the contractual stipulations annotated on the Torrens Title, on which Ortigas relies, must yield to the ordinance. When that stretch of Ortigas Avenue from Roosevelt Street to Madison Street was reclassified as a commercial zone by the Metropolitan Manila Commission in March 1981, the restrictions in the contract of sale between Ortigas and Hermoso, limiting all construction on the disputed lot to single-family residential buildings, were deemed extinguished by the retroactive operation of the zoning ordinance and could no longer be enforced. While our legal system upholds the sanctity of contract so that a contract is deemed law between the contracting parties,xvii[17] nonetheless, stipulations in a contract cannot contravene law, morals, good customs, public order, or public policy.xviii[18] Otherwise such stipulations would be deemed null and void. Respondent court correctly found that the trial court committed in this case a grave abuse of discretion amounting to want of or excess of jurisdiction in refusing to treat Ordinance No. 81-01 as applicable to Civil Case No. 64931. In resolving matters in litigation, judges are not only duty-bound to ascertain the facts and the applicable laws,xix[19] they are also bound by their oath of office to apply the applicable law.xx

[20]

As a secondary issue, petitioner contends that respondent Mathay III, as a mere lessee of the lot in question, is a total stranger to the deed of sale and is thus barred from questioning the conditions of said deed. Petitioner points out that the owners of the lot voluntarily agreed to the restrictions on the use of the lot and do not question the validity of these restrictions. Petitioner argues that Mathay III as a lessee is merely an agent of the owners, and could not override and rise above the status of his principals. Petitioner submits that he could not have a higher interest than those of the owners, the Hermosos, and thus had no locus standi to file CA-G.R. SP No. 39193 to dissolve the injunctive writ issued by the RTC of Pasig City.For his part, private respondent argues that as the lessee who built the commercial structure, it is he and he alone who stands to be either benefited or injured by the results of the judgment in Civil Case No. 64931. He avers he is the party with real interest in the subject matter of the action, as it would be his business, not the Hermosos, which would suffer had not the respondent court dissolved the writ of preliminary injunction.A real party in interest is defined as the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. Interest within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.xxi[21] By real interest is meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate, or consequential interest.xxii[22]Tested by the foregoing definition, private respondent in this case is clearly a real party in interest. It is not disputed that he is in possession of the lot pursuant to a valid lease. He is a possessor in the concept of a holder of the thing under Article 525 of the Civil Code.xxiii[23] He was impleaded as a defendant in the amended complaint in Civil Case No. 64931. Further, what petitioner seeks to enjoin is the building by respondent of a commercial structure on the lot. Clearly, it is private respondents acts which are in issue, and his interest in said issue cannot be a mere incidental interest. In its amended complaint, petitioner prayed for, among others, judgment ordering the demolition of all improvements illegally built on the lot in question.xxiv[24] These show that it is petitioner Mathay III, doing business as Greenhills Autohaus, Inc., and not only the Hermosos, who will be adversely affected by the courts decree.Petitioner also cites the rule that a stranger to a contract has no rights or obligations under it,xxv

[25] and thus has no standing to challenge its validity.xxvi[26] But in seeking to enforce the stipulations in the deed of sale, petitioner impleaded private respondent as a defendant. Thus petitioner must recognize that where a plaintiff has impleaded a party as a defendant, he cannot subsequently question the latters standing in court.xxvii[27]WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals dated March 25, 1996, as well as the assailed resolution of August 13, 1996, in CA-G.R. SP No. 39193 is AFFIRMED. Costs against petitioner.SO ORDERED.

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SUPREME COURTManilaSECOND DIVISIONG.R. No. 198935               November 27, 2013MAYNILAD WATER SUPERVISORS ASSOCIATION, represented by ROBERTA ESTINO, Petitioners, vs.MAYNILAD WATER SERVICES, INC., Respondent.D E C I S I O NPEREZ, J.:For resolution is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to reverse, annul and set aside the Amended Decision and Resolution issued by the Court of Appeals (CA) in CA-G.R. S.P. No. 101911, specifically the (a) Amended Decision2 dated 31 January 2011 which reversed its earlier Decision dated 31 May 2010 and (b) Resolution3 dated 12 September 2011 which denied petitioner s Motion for Reconsideration.Culled from the records are the following antecedent facts:4

Petitioner Maynilad Water Supervisors Association (MWSA) is an association composed of former supervisory employees of Metropolitan Waterworks and Sewerage System (MWSS). These employees claim that during their employment with MWSS, they were receiving a monthly cost of living allowance (COLA) equivalent to 40% of their basic pay.The payment of these allowances and other additional compensation, including the COLA were, however, discontinued without qualification effective 1 November 1989 when the Department of Budget and Management (DBM) issued Corporate Compensation Circular No. 10 (CCC No. 10). In 1997, MWSS was privatized and part of it, MWSS West, was acquired by Maynilad Water Services, Inc. (Maynilad). Some of the employees of MWSS, which included members of MWSA, were absorbed by Maynilad subject to the terms and conditions of a Concession Agreement, a portion of which reads:Article 6.1.1 (ii)One month prior to the Commencement Date, the Concessionaire shall make an offer to employ each Concessionaire Employee, subject to a probationary period of six months following the Commencement Date, at a salary or pay scale and with benefits at least equal to those enjoyed by such Employee on the date of his or her separation from MWSS. x x xx x x xArticle 6.1.3. Non-Diminution of BenefitsThe Concessionaire shall grant to all Concessionaire Employees employee benefits no less favorable than those granted to such employees by the MWSS at the time of their separation from MWSS, particularly those set forth in Exhibit F and the following:x x x xThe payment of COLA was not among those listed as benefits in Exhibit "F."In 1998, the Supreme Court promulgated a Decision5 declaring DBM CCC No.10 ineffective for failure to comply with the publication requirement. Consequently, MWSS partially released the COLA payments for its employees, including members of MWSA, covering the years 1989 to 1997, and up to year 1999 for its retained employees.In 2002, MWSA filed a complaint before the Labor Arbiter praying for the payment of their COLA from the year 1997, the time its members were absorbed by Maynilad, up to the present. MWSA argued that since DBM CCC No. 10 was rendered ineffective, the COLA should be paid as part of the benefits enjoyed by their members at the time of their separation from MWSS, and which should form part of their salaries and benefits with Maynilad.

In a decision dated 10 November 2006, the Labor Arbiter granted MWSA’s claim and directed Maynilad to pay the COLA of the supervisors retroactive to the date when they were hired in 1997, with legal interest from the date of promulgation of the decision. It also directed Maynilad to take necessary measures to ensure that the benefit is incorporated in the employees’ monthly compensation.6

On 11 December 2006, Maynilad appealed the decision before the National Labor Relations Commission (NLRC) and filed an Urgent Manifestation and Motion to Reduce Bond.The NLRC granted Maynilad’s motion and reversed on appeal the decision of the Labor Arbiter. On 28 September 2007, MWSA filed a motion for reconsideration but this was denied by the NLRC in its 23 October 2007 resolution.Aggrieved, MWSA filed a petition for certiorari with the CA on 11 January 2008.In a Decision7 dated 31 May 2010, the CA Ninth Division annulled and set aside the decision of the NLRC. It thus reinstated the decision of the Labor Arbiter.Maynilad filed a motion for reconsideration of the 31 May 2010 CA Decision.On 31 January 2011, the CA Ninth Division reconsidered its earlier Decision. The decretal portion of the amended decision reads:WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED. Consequently, the Court’s 31 May 2010 Decision is REVERSED and SET ASIDE, and the 07 September 2007 Decision and 23 October 2007 Resolution of the NLRC are AFFIRMED, and are thus REINSTATED.8

MWSA filed a Motion for Reconsideration of the amended decision. Pending resolution of the Motion for Reconsideration, MWSA moved for the inhibition of the members of the Ninth Division of the CA. The members of the division recused from the case in a Resolution dated 3 June 2011. Thereafter, the Second Division of the CA, to which the case was raffled, issued a Resolution9 on 12 September 2011 denying MWSA’s Motion for Reconsideration.Hence, this Petition for Review on Certiorari under Rule 45 of the Rules of Court.ISSUESWhether the CA erred in not holding that the MWSA members are entitled to COLA under the Concession Agreement.Whether the CA erred in not finding grave abuse of discretion on the part of NLRC when the latter granted Maynilad’s appeal despite insufficiency of the appeal bond.OUR RULINGSimply stated, the main issue in this case is whether Maynilad bound itself under the Concession Agreement to pay the COLA of the employees it absorbed from MWSS. A careful review of the Concession Agreement led us to conclude that both MWSS and Maynilad never intended to include COLA as one of the benefits to be granted to the absorbed employees.The benefits agreed upon by the parties are stated in Exhibit "F" of the Concession Agreement, to wit:Existing MWSS Fringe BenefitsA. ALLOWANCESPERA - P500.00 Salary Grade 1 to 23 except those with RATAACA – P500.00 Salary Grade 1 to 25RATA- 40% of basic – Supervisory Level, Section Chiefs and up or equivalent ranks. Technical and Executive AssistantsMedical – 2,500/yearRice – 500/monthUniform – 2,000/yearMeal – 25.00/day (for medical personnel – P30.00/day)Longevity – 50.00/year of service/month

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Children – 30.00/child/month, maximum four (4) children below 21 years oldHazard – 50.00/monthB. BONUSESYear-End Financial Assistance – One (1) month Gross pay (Basic Salary plus PERA, ACA, rice, meal, longevity, Children and RATAMid-Year – One (1) month Gross Pay Christmas Bonus and Cash Gift – One (1) month Basic salary plus P1,000 cash giftAnniversary (Bigay-pala) – 4,000.00 or 50% of basic, whichever is greaterProductivity as of December 1995 – Amount equivalent to P5,000 or 60% of gross pay, exclusive of RATA, whichever is higherC. PREMIUMSGraveyard – 50% (12MN – 6:00 AM)Nightwork – 25% (6PM – 6AM)Holiday – 125%Sunday – 150%Overtime – 125%Distress – 25% of basic pay (For Sewerage Department only)D. PAID LEAVESVacation – 15 days/yearSick – 15 days/yearMaternity – 60 calendar daysPaternity – 7 working daysEmergency Leave - 3 days/year(Birthday/Funeral/Mourning/Graduation/Enrollment/Wedding/Anniversary/Hospitalization/Accident/Relocation)E. STUDY LEAVE- Study now pay later scheme- Grant (with contract to serve MWSS)10

It is clear from the aforesaid enumeration that COLA is not among the benefits to be received by the absorbed employees. Contrary to the contention of MWSA, the declaration by the Court of the ineffectiveness of DBM CCC No. 10 due to its non-publication in the Official Gazette or in a newspaper of general circulation in the country,11did not give rise to the employee’s right to demand payment of the subject benefit from Maynilad.As far as their employment relationship with Maynilad is concerned, the same is not affected by the De Jesus ruling because it is governed by a separate compensation package provided for under the Concession Agreement. It would be erroneous to presume that had the COLA been received during the time of the execution of the contract, the benefit would have been included in Exhibit "F." First of all, we note that the Court’s ruling in the De Jesus case applies only to government-owned and controlled corporations and not to private entities. Secondly, the parties to the Concession Agreement could not have thought of including the COLA in Exhibit "F" because as early as 1989, the government already resolved to remove the COLA, among others, from the list of allowances being received by government employees. Hence, the enactment of Republic Act R.A. No. 6758 or the Compensation and Position Classification Act of 198912 which integrated the COLA into the standardized salary rate. Section 12 thereof provides:Consolidation of Allowances and Compensation. – All allowances, except for representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional

compensation not otherwise specified herein as may be determined by the DBM, shall be deemed included in the standardized salary rates herein prescribed. x x xFrom the aforesaid provision, we note that all allowances were deemed integrated into the standardized salary rates except:(1) representation and transportation allowances;(2) clothing and laundry allowances;(3) subsistence allowances of marine officers and crew on board government vessels;(4) subsistence allowances of hospital personnel;(5) hazard pay;(6) allowances of foreign service personnel stationed abroad; and(7) such other additional compensation not otherwise specified in Section 12 as may be determined by the DBM.In Gutierrez v. DBM,13 which is a consolidated case involving over 20 government-owned and controlled corporations, the Court found proper the inclusion of COLA in the standardized salary rates. It settled that COLA, not being an enumerated exclusion, was deemed already incorporated in the standardized salary rates of government employees under the general rule of integration. In explaining its inclusion in the standardized salary rates, the Court cited its ruling in National Tobacco Administration v. COA,14 in that the enumerated fringe benefits in items (1) to (6) have one thing in common – they belong to one category of privilege called allowances which are usually granted to officials and employees of the government to defray or reimburse the expenses incurred in the performance of their official functions. Consequently, if these allowances are consolidated with the standardized salary rates, then the government official or employee will be compelled to spend his personal funds in attending to his duties. On the other hand, item (7) is a "catch-all proviso" for benefits in the nature of allowances similar to those enumerated.15

Clearly, COLA is not in the nature of an allowance intended to reimburse expenses incurred by officials and employees of the government in the performance of their official functions. It is not payment in consideration of the fulfillment of official duty.16 As defined, cost of living refers to "the level of prices relating to a range of everyday items"17 or "the cost of purchasing those goods and services which are included in an accepted standard level of consumption."18 Based on this premise, COLA is a benefit intended to cover increases in the cost of living. Thus, it is and should be integrated into the standardized salary rates.From the aforesaid discussion, it is evident therefore, that at the time the MWSS employees were absorbed by Maynilad in 1997, the COLA was already part and parcel of their monthly salary. The non-publication of DBM CCC No. 10 in the Official Gazette or newspaper of general circulation did not nullify the integration of COLA into the standardized salary rates upon the effectivity of R.A. No. 6758.19 As held by this Court in Phil. International Trading Corp. v. COA,20 the validity of R.A. No. 6758 should not be made to depend on the validity of its implementing rules. To grant COLA to herein petitioners now would create an absurd situation wherein they would be receiving an additional COLA in the amount equivalent to 40% of their basic salary even if the Court has already ruled that the COLA is already integrated in the employee’s basic salary. Such conclusion would give the absorbed employees far greater rights than their former co-employees or other government employees from whom COLA was eventually disallowed.The ruling of the Labor Arbiter which MWSA insists on is also erroneous in that it seeks to have the COLA incorporated in the monthly compensation to be received by the absorbed employees. It failed to consider that the employment contracts of the MWSA members with MWSS were terminated prior to their employment with MAYNILAD. Although they may

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have continued performing the same function, their employment is already covered by an entirely new employment contract.This Court has ruled that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the parties.21 In the instant case, the only commitment of Maynilad under the Concession Agreement it entered with MWSS was to provide the absorbed employees with a compensation package "no less favorable than those granted to [them] by the MWSS at the time of their separation from MWSS, particularly those set forth in Exhibit ‘F’ x x x."22 It is undisputed that Maynilad complied with such commitment. It cannot, however, be compelled to assume the payment of an allowance which was not agreed upon. Such would not only be unreasonable but also unfair for Maynilad. MWSS and Maynilad could not have presumed that the COLA was part of the agreement when it was no longer being received by the employees at the time of the execution of the contract, which is the reckoning point of their new employment.In Norton Resources and Development Corporation v. All Asia Bank Corporation,23 this Court ruled that the agreement or contract between the parties is the formal expression of the parties’ rights, duties and obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be no evidence of such terms other than the contents of the written agreement between the parties and their successors in interest. Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as it is not contrary to law, morals, good customs or public policy. Otherwise, courts would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties or amend the latter’s agreement, for to do so would be to alter the real intention of the contracting parties when the contrary function of courts is to give force and effect to the intention of the parties.In fine, contrary to the allegation of MWSA, there is no ambiguity in the Concession Agreement.1âwphi1 Thus, there is nothing to be construed.Anent the issue of the insufficiency of the appeal bond posted by Maynilad, we agree with the NLRC that there was merit in the arguments forwarded in support of the prayer for the reduction of the appeal bond. Maynilad sought the reduction of the appeal bond to ten percent (10%) for the following reasons: a) that it had filed a Petition for Rehabilitation before the Regional Trial Court of Quezon City; and b) that as a result thereof, the Rehabilitation Court issued a Stay Order prohibiting it from selling, encumbering, transferring or disposing in any manner any of its properties making it impossible for it to fully comply with the appeal bond requirement.24 Our ruling in Garcia, et al. v. KJ Commercial25 that the requirement on appeals may be relaxed when there is substantial compliance with the Rules of Procedure of the NLRC or when the appellant shows willingness to post a partial bond. Here, we note that Maynilad s appeal was accompanied by an appeal bond in the amount of Twenty Five Million Pesos (P25,000,000.00) with an Urgent Manifestation and Motion to Reduce Bond on the ground that the labor arbiter failed to specify the exact amount of monetary award from which the amount of the appeal bond is to be based.In University Plans v. Solano,26 this Court reiterated the guidelines which the NLRC must exercise in considering the motions for reduction of bond:The bond requirement on appeals involving monetary awards has been and may be relaxed in meritorious cases. These cases include instances in which (1) there was substantial compliance with the Rules, (2) surrounding facts and circumstances constitute meritorious grounds to reduce the bond, (3) a liberal interpretation of the requirement of an appeal bond would serve the desired objective of resolving controversies on the merits, or (4) the appellants, at the very

least, exhibited their willingness and/or good faith by posting a partial bond during the reglementary period.It is evident that the aforesaid instances are present in the instant case.WHEREFORE, premises considered, the instant Petition is hereby DENIED and the 31 January 2011 Amended Decision and 12 September 2011 Resolution of the Court of Appeals in CA-G.R. SP No. 101911 is AFFIRMED in toto.SO ORDERED.

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EN BANC  

BANK OF THE PHILIPPINE ISLANDS,Petitioner,

- versus -

BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONSIN BPI UNIBANK,Respondent.

G.R. No. 164301

Present:

CORONA, C.J.,CARPIO,CARPIO MORALES,VELASCO, JR.,*

NACHURA,LEONARDO-DE CASTRO,BRION,PERALTA,BERSAMIN,DEL CASTILLO,ABAD,VILLARAMA, JR.,PEREZ, andMENDOZA, JJ.

Promulgated:

August 10, 2010x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  D E C I S I O N  LEONARDO-DE CASTRO, J.:  May a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed employees from the coverage of a union shop clause contained in its existing Collective Bargaining Agreement (CBA) with its own certified labor union? That is the question we shall endeavor to answer in this petition for review filed by an employer after the Court of Appeals decided in favor of respondent union, which is the employees recognized collective bargaining representative. At the outset, we should call to mind the spirit and the letter of the Labor Code provisions on union security clauses, specifically Article 248 (e), which states, x x x Nothing in this Code or in any other law shall stop the parties from requiring membership in a recognized collective bargaining agent as a condition for employment, except those employees who are already members of another union at the time of the signing of the collective bargaining agreement.[1] This case which involves the application of a collective bargaining agreement with a union shop clause should be resolved principally from the standpoint of the clear provisions of our

labor laws, and the express terms of the CBA in question, and not by inference from the general consequence of the merger of corporations under the Corporation Code, which obviously does not deal with and, therefore, is silent on the terms and conditions of employment in corporations or juridical entities. This issue must be resolved NOW, instead of postponing it to a future time when the CBA is renegotiated as suggested by the Honorable Justice Arturo D. Brion because the same issue may still be resurrected in the renegotiation if the absorbed employees insist on their privileged status of being exempt from any union shop clause or any variant thereof. We find it significant to note that it is only the employer, Bank of the Philippine Islands (BPI), that brought the case up to this Court via the instant petition for review; while the employees actually involved in the case did not pursue the same relief, but had instead chosen in effect to acquiesce to the decision of the Court of Appeals which effectively required them to comply with the union shop clause under the existing CBA at the time of the merger of BPI with Far East Bank and Trust Company (FEBTC), which decision had already become final and executory as to the aforesaid employees. By not appealing the decision of the Court of Appeals, the aforesaid employees are bound by the said Court of Appeals decision to join BPIs duly certified labor union. In view of the apparent acquiescence of the affected FEBTC employees in the Court of Appeals decision, BPI should not have pursued this petition for review. However, even assuming that BPI may do so, the same still cannot prosper. What is before us now is a petition for review under Rule 45 of the Rules of Court of the Decision[2] dated September 30, 2003 of the Court of Appeals, as reiterated in its Resolution[3] of June 9, 2004, reversing and setting aside the Decision[4] dated November 23, 2001 of Voluntary Arbitrator Rosalina Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank v. Bank of the Philippine Islands, et al. The antecedent facts are as follows: On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger executed on January 20, 2000 by and between BPI, herein petitioner, and FEBTC.[5] This Article and Plan of Merger was approved by the Securities and Exchange Commission on April 7, 2000.[6]

 Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC employees, including those in its different branches across the country, were hired by petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained. Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank (hereinafter the Union, for brevity) is the exclusive bargaining agent of BPIs rank and file employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, or on March 31, 2000, respondent Union invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the existing CBA between petitioner BPI and respondent Union.[7]

 The parties both advert to certain provisions of the existing CBA, which are quoted below:

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 ARTICLE ISection 1. Recognition and Bargaining Unit The BANK recognizes the UNION as the sole and exclusive collective bargaining representative of all the regular rank and file employees of the Bank offices in Davao City. Section 2. Exclusions Section 3. Additional Exclusions Section 4. Copy of Contract ARTICLE II Section 1. Maintenance of Membership All employees within the bargaining unit who are members of the Union on the date of the effectivity of this Agreement as well as employees within the bargaining unit who subsequently join or become members of the Union during the lifetime of this Agreement shall as a condition of their continued employment with the Bank, maintain their membership in the Union in good standing. Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the Bank.[8] (Emphases supplied.)  After the meeting called by the Union, some of the former FEBTC employees joined the Union, while others refused. Later, however, some of those who initially joined retracted their membership.[9]

 Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as those who retracted their membership, and called them to a hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their employment pursuant thereto.[10]

 After two months of management inaction on the request, respondent Union informed petitioner BPI of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. However, the issue remained unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties.[11]

 Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision[12] dated November 23, 2001, ruled in favor of petitioner BPIs interpretation that the former FEBTC employees were not covered by the Union Security Clause of the CBA between the Union and the Bank on the ground that the said employees were not new employees who were hired and subsequently regularized, but were absorbed employees by operation of law because the former employees of FEBTC can be considered assets and liabilities of the absorbed corporation. The

Voluntary Arbitrator concluded that the former FEBTC employees could not be compelled to join the Union, as it was their constitutional right to join or not to join any organization. Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator denied the same in an Order dated March 25, 2002.[13]

 Dissatisfied, respondent then appealed the Voluntary Arbitrators decision to the Court of Appeals. In the herein assailed Decision dated September 30, 2003, the Court of Appeals reversed and set aside the Decision of the Voluntary Arbitrator.[14] Likewise, the Court of Appeals denied herein petitioners Motion for Reconsideration in a Resolution dated June 9, 2004. The Court of Appeals pertinently ruled in its Decision: A union-shop clause has been defined as a form of union security provision wherein non-members may be hired, but to retain employment must become union members after a certain period. There is no question as to the existence of the union-shop clause in the CBA between the petitioner-union and the company. The controversy lies in its application to the absorbed employees. This Court agrees with the voluntary arbitrator that the ABSORBED employees are distinct and different from NEW employees BUT only in so far as their employment service is concerned. The distinction ends there. In the case at bar, the absorbed employees length of service from its former employer is tacked with their employment with BPI. Otherwise stated, the absorbed employees service is continuous and there is no gap in their service record. This Court is persuaded that the similarities of new and absorbed employees far outweighs the distinction between them. The similarities lies on the following, to wit: (a) they have a new employer; (b) new working conditions; (c) new terms of employment and; (d) new company policy to follow. As such, they should be considered as new employees for purposes of applying the provisions of the CBA regarding the union-shop clause. To rule otherwise would definitely result to a very awkward and unfair situation wherein the absorbed employees shall be in a different if not, better situation than the existing BPI employees. The existing BPI employees by virtue of the union-shop clause are required to pay the monthly union dues, remain as members in good standing of the union otherwise, they shall be terminated from the company, and other union-related obligations. On the other hand, the absorbed employees shall enjoy the fruits of labor of the petitioner-union and its members for nothing in exchange. Certainly, this would disturb industrial peace in the company which is the paramount reason for the existence of the CBA and the union. The voluntary arbitrators interpretation of the provisions of the CBA concerning the coverage of the union-shop clause is at war with the spirit and the rationale why the Labor Code itself allows the existence of such provision. The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R. No. 76989, September 29, 1987) rule, to quote:

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 This Court has held that a valid form of union security, and such a provision in a collective bargaining agreement is not a restriction of the right of freedom of association guaranteed by the Constitution. A closed-shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs. It is THE MOST PRIZED ACHIEVEMENT OF UNIONISM. IT ADDS MEMBERSHIP AND COMPULSORY DUES. By holding out to loyal members a promise of employment in the closed-shop, it wields group solidarity.(Emphasis supplied) Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of industrial peace in the company. With the foregoing ruling from this Court, necessarily, the alternative prayer of the petitioner to require the individual respondents to become members or if they refuse, for this Court to direct respondent BPI to dismiss them, follows.[15]

  Hence, petitioners present recourse, raising the following issues: IWHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE FORMER FEBTC EMPLOYEES SHOULD BE CONSIDERED NEW EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION SHOP CLAUSE OF THE CBA IIWHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE VOLUNTARY ARBITRATORS INTERPRETATION OF THE COVERAGE OF THE UNION SHOP CLAUSE IS AT WAR WITH THE SPIRIT AND THE RATIONALE WHY THE LABOR CODE ITSELF ALLOWS THE EXISTENCE OF SUCH PROVISION[16]

  In essence, the sole issue in this case is whether or not the former FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing CBA between petitioner and respondent Union. Petitioner is of the position that the former FEBTC employees are not new employees of BPI for purposes of applying the Union Shop Clause of the CBA, on this note, petitioner points to Section 2, Article II of the CBA, which provides: New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the Bank.[17] (Emphases supplied.)  

Petitioner argues that the term new employees in the Union Shop Clause of the CBA is qualified by the phrases who may hereafter be regularly employed and after they become regular employees which led petitioner to conclude that the new employees referred to in, and contemplated by, the Union Shop Clause of the CBA were only those employees who were new to BPI, on account of having been hired initially on a temporary or probationary status for possible regular employment at some future date. BPI argues that the FEBTC employees absorbed by BPI cannot be considered as new employees of BPI for purposes of applying the Union Shop Clause of the CBA.[18]

 According to petitioner, the contrary interpretation made by the Court of Appeals of this particular CBA provision ignores, or even defies, what petitioner assumes as its clear meaning and scope which allegedly contradicts the Courts strict and restrictive enforcement of union security agreements. We do not agree. Section 2, Article II of the CBA is silent as to how one becomes a regular employee of the BPI for the first time. There is nothing in the said provision which requires that a new regular employee first undergo a temporary or probationary status before being deemed as such under the union shop clause of the CBA. Union security is a generic term which is applied to and comprehends closed shop, union shop, maintenance of membership or any other form of agreement which imposes upon employees the obligation to acquire or retain union membership as a condition affecting employment. There is union shop when all new regular employees are required to join the union within a certain period for their continued employment.There is maintenance of membership shop when employees, who are union members as of the effective date of the agreement, or who thereafter become members, must maintain union membership as a condition for continued employment until they are promoted or transferred out of the bargaining unit or the agreement is terminated. A closed-shop, on the other hand, may be defined as an enterprise in which, by agreement between the employer and his employees or their representatives, no person may be employed in any or certain agreed departments of the enterprise unless he or she is, becomes, and, for the duration of the agreement, remains a member in good standing of a union entirely comprised of or of which the employees in interest are a part.[19]

In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,[20] we ruled that: It is the policy of the State to promote unionism to enable the workers to negotiate with management on the same level and with more persuasiveness than if they were to individually and independently bargain for the improvement of their respective conditions. To this end, the Constitution guarantees to them the rights to self-organization, collective bargaining and negotiations and peaceful concerted actions including the right to strike in accordance with law. There is no question that these purposes could be thwarted if every worker were to choose to go his own separate way instead of joining his co-employees in planning collective action and presenting a united front when they sit down to bargain with their employers. It is for this reason that the law has sanctioned stipulations for the union shop and the closed shop as a means of encouraging the workers to join and support the labor union of their own choice as their representative in the negotiation of their demands and the protection of their interest vis--vis the employer. (Emphasis ours.)

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 In other words, the purpose of a union shop or other union security arrangement is to guarantee the continued existence of the union through enforced membership for the benefit of the workers. All employees in the bargaining unit covered by a Union Shop Clause in their CBA with management are subject to its terms. However, under law and jurisprudence, the following kinds of employees are exempted from its coverage, namely, employees who at the time the union shop agreement takes effect are bona fide members of a religious organization which prohibits its members from joining labor unions on religious grounds;[21] employees already in the service and already members of a union other than the majority at the time the union shop agreement took effect;[22] confidential employees who are excluded from the rank and file bargaining unit;[23] and employees excluded from the union shop by express terms of the agreement. When certain employees are obliged to join a particular union as a requisite for continued employment, as in the case of Union Security Clauses, this condition is a valid restriction of the freedom or right not to join any labor organization because it is in favor of unionism. This Court, on occasion, has even held that a union security clause in a CBA is not a restriction of the right of freedom of association guaranteed by the Constitution.[24]

Moreover, a closed shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who must continue to remain members in good standing to keep their jobs.It is the most prized achievement of unionism. It adds membership and compulsory dues. By holding out to loyal members a promise of employment in the closed shop, it wields group solidarity.[25]

Indeed, the situation of the former FEBTC employees in this case clearly does not fall within the first three exceptions to the application of the Union Shop Clause discussed earlier. No allegation or evidence of religious exemption or prior membership in another union or engagement as a confidential employee was presented by both parties. The sole category therefore in which petitioner may prove its claim is the fourth recognized exception or whether the former FEBTC employees are excluded by the express terms of the existing CBA between petitioner and respondent. To reiterate, petitioner insists that the term new employees, as the same is used in the Union Shop Clause of the CBA at issue, refers only to employees hired by BPI as non-regular employees who later qualify for regular employment and become regular employees, and not those who, as a legal consequence of a merger, are allegedly automatically deemed regular employees of BPI. However, the CBA does not make a distinction as to how a regular employee attains such a status. Moreover, there is nothing in the Corporation Law and the merger agreement mandating the automatic employment as regular employees by the surviving corporation in the merger. It is apparent that petitioner hinges its argument that the former FEBTC employees were absorbed by BPI merely as a legal consequence of a merger based on the characterization by the Voluntary Arbiter of these absorbed employees as included in the assets and liabilities of the dissolved corporation - assets because they help the Bank in its operation and liabilities because redundant employees may be terminated and company benefits will be paid to them, thus reducing the Banks financial status. Based on this ratiocination, she ruled that the same are not new employees of BPI as contemplated by the CBA at issue, noting that the Certificate

of Filing of the Articles of Merger and Plan of Merger between FEBTC and BPI stated that x x x the entire assets and liabilities of FAR EASTERN BANK & TRUST COMPANY will be transferred to and absorbed by the BANK OF THE PHILIPPINE ISLANDS x x x (underlining supplied).[26] In sum, the Voluntary Arbiter upheld the reasoning of petitioner that the FEBTC employees became BPI employees by operation of law because they are included in the term assets and liabilities. Absorbed FEBTC Employees are Neither Assets nor Liabilities In legal parlance, however, human beings are never embraced in the term assets and liabilities. Moreover, BPIs absorption of former FEBTC employees was neither by operation of law nor by legal consequence of contract. There was no government regulation or law that compelled the merger of the two banks or the absorption of the employees of the dissolved corporation by the surviving corporation.Had there been such law or regulation, the absorption of employees of the non-surviving entities of the merger would have been mandatory on the surviving corporation.[27] In the present case, the merger was voluntarily entered into by both banks presumably for some mutually acceptable consideration. In fact, the Corporation Code does not also mandate the absorption of the employees of the non-surviving corporation by the surviving corporation in the case of a merger. Section 80 of the Corporation Code provides: SEC. 80. Effects of merger or consolidation. The merger or consolidation, as provided in the preceding sections shall have the following effects: 1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation; 2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation; 3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code; 4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be taken and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed; and 5. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any claim, action or proceeding pending by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation, as the case may be. Neither the rights of creditors nor any lien upon the property of any of such constituent corporations shall be impaired by such merger or consolidated.

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  Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation. The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the parties. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power.[28]

  Furthermore, this Court believes that it is contrary to public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to property rights and obligations of FEBTC and do not include the employment contracts of its personnel. A corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if BPI as an employer had the right to choose who to retain among FEBTCs employees, FEBTC employees had the concomitant right to choose not to be absorbed by BPI. Even though FEBTC employees had no choice or control over the merger of their employer with BPI, they had a choice whether or not they would allow themselves to be absorbed by BPI. Certainly nothing prevented the FEBTCs employees from resigning or retiring and seeking employment elsewhere instead of going along with the proposed absorption. Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without the consent of the employee is in violation of an individuals freedom to contract. It would have been a different matter if there was an express provision in the articles of merger that as a condition for the merger, BPI was being required to assume all the employment contracts of all existing FEBTC employees with the conformity of the employees. In the absence of such a provision in the articles of merger, then BPI clearly had the business management decision as to whether or not employ FEBTCs employees. FEBTC employees likewise retained the prerogative to allow themselves to be absorbed or not; otherwise, that would be tantamount to involuntary servitude. There appears to be no dispute that with respect to FEBTC employees that BPI chose not to employ or FEBTC employees who chose to retire or be separated from employment instead of being absorbed, BPIs assumed liability to these employees pursuant to the merger is FEBTCs liability to them in terms of separation pay,[29] retirement pay[30] or other benefits that may be due them depending on the circumstances.

Legal Consequences of Mergers Although not binding on this Court, American jurisprudence on the consequences of voluntary mergers on the right to employment and seniority rights is persuasive and illuminating. We quote the following pertinent discussion from the American Law Reports: Several cases have involved the situation where as a result of mergers, consolidations, or shutdowns, one group of employees, who had accumulated seniority at one plant or for one employer, finds that their jobs have been discontinued except to the extent that they are offered employment at the place or by the employer where the work is to be carried on in the future. Such cases have involved the question whether such transferring employees should be entitled to carry with them their accumulated seniority or whether they are to be compelled to start over at the bottom of the seniority list in the "new" job. It has been recognized in some cases that the accumulated seniority does not survive and cannot be transferred to the "new" job. In Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three formerly separate railroad corporations, which had previously operated separate facilities, was consolidated in the shops of one of the roads. Displaced employees of the other two roads were given preference for the new jobs created in the shops of the railroad which took over the work. A controversy arose between the employees as to whether the displaced employees were entitled to carry with them to the new jobs the seniority rights they had accumulated with their prior employers, that is, whether the rosters of the three corporations, for seniority purposes, should be "dovetailed" or whether the transferring employees should go to the bottom of the roster of their new employer. Labor representatives of the various systems involved attempted to work out an agreement which, in effect, preserved the seniority status obtained in the prior employment on other roads, and the action was for specific performance of this agreement against a demurring group of the original employees of the railroad which was operating the consolidated shops. The relief sought was denied, the court saying that, absent some specific contract provision otherwise, seniority rights were ordinarily limited to the employment in which they were earned, and concluding that the contract for which specific performance was sought was not such a completed and binding agreement as would support such equitable relief, since the railroad, whose concurrence in the arrangements made was essential to their effectuation, was not a party to the agreement. Where the provisions of a labor contract provided that in the event that a trucker absorbed the business of another private contractor or common carrier, or was a party to a merger of lines, the seniority of the employees absorbed or affected thereby should be determined by mutual agreement between the trucker and the unions involved, it was held in Moore v International Brotherhood of Teamsters, etc. (1962, Ky) 356 SW2d 241, that the trucker was not required to absorb the affected employees as well as the business, the court saying that they could find no such meaning in the above clause, stating that it dealt only with seniority, and not with initial employment. Unless and until the absorbing company agreed to take the employees of the company whose business was being absorbed, no seniority problem was created, said the court, hence the provision of the contract could have no application.Furthermore, said the court, it did not require that the absorbing company take these employees, but only that if it did take them the question of seniority between the old and new employees would be worked out by agreement or else be submitted to the grievance procedure.[31] (Emphasis ours.)

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  Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of the dissolved corporations employees or the recognition of the absorbed employees service with their previous employer may be demanded from the surviving corporation if required by provision of law or contract. The dissent of Justice Arturo D. Brion tries to make a distinction as to the terms and conditions of employment of the absorbed employees in the case of a corporate merger or consolidation which will, in effect, take away from corporate management the prerogative to make purely business decisions on the hiring of employees or will give it an excuse not to apply the CBA in force to the prejudice of its own employees and their recognized collective bargaining agent. In this regard, we disagree with Justice Brion. Justice Brion takes the position that because the surviving corporation continues the personality of the dissolved corporation and acquires all the latters rights and obligations, it is duty-bound to absorb the dissolved corporations employees, even in the absence of a stipulation in the plan of merger. He proposes that this interpretation would provide the necessary protection to labor as it spares workers from being left in legal limbo. However, there are instances where an employer can validly discontinue or terminate the employment of an employee without violating his right to security of tenure. Among others, in case of redundancy, for example, superfluous employees may be terminated and such termination would be authorized under Article 283 of the Labor Code.[32]

 Moreover, assuming for the sake of argument that there is an obligation to hire or absorb all employees of the non-surviving corporation, there is still no basis to conclude that the terms and conditions of employment under a valid collective bargaining agreement in force in the surviving corporation should not be made to apply to the absorbed employees. The Corporation Code and the Subject Merger Agreement are Silent on Efficacy, Terms and Conditions of Employment Contracts  The lack of a provision in the plan of merger regarding the transfer of employment contracts to the surviving corporation could have very well been deliberate on the part of the parties to the merger, in order to grant the surviving corporation the freedom to choose who among the dissolved corporations employees to retain, in accordance with the surviving corporations business needs. If terminations, for instance due to redundancy or labor-saving devices or to prevent losses, are done in good faith, they would be valid. The surviving corporation too is duty-bound to protect the rights of its own employees who may be affected by the merger in terms of seniority and other conditions of their employment due to the merger. Thus, we are not convinced that in the absence of a stipulation in the merger plan the surviving corporation was compelled, or may be judicially compelled, to absorb all employees under the same terms and conditions obtaining in the dissolved corporation as the surviving corporation should also take into consideration the state of its business and its obligations to its own employees, and to their certified collective bargaining agent or labor union. Even assuming we accept Justice Brions theory that in a merger situation the surviving corporation should be compelled to absorb the dissolved corporations employees as a legal consequence of the merger and as a social justice consideration, it bears to emphasize his

dissent also recognizes that the employee may choose to end his employment at any time by voluntarily resigning. For the employee to be absorbed by BPI, it requires the employees implied or express consent. It is because of this human element in employment contracts and the personal, consensual nature thereof that we cannot agree that, in a merger situation, employment contracts are automatically transferable from one entity to another in the same manner that a contract pertaining to purely proprietary rights such as a promissory note or a deed of sale of property is perfectly and automatically transferable to the surviving corporation. That BPI is the same entity as FEBTC after the merger is but a legal fiction intended as a tool to adjudicate rights and obligations between and among the merged corporations and the persons that deal with them. Although in a merger it is as if there is no change in the personality of the employer, there is in reality a change in the situation of the employee. Once an FEBTC employee is absorbed, there are presumably changes in his condition of employment even if his previous tenure and salary rate is recognized by BPI. It is reasonable to assume that BPI would have different rules and regulations and company practices than FEBTC and it is incumbent upon the former FEBTC employees to obey these new rules and adapt to their new environment. Not the least of the changes in employment condition that the absorbed FEBTC employees must face is the fact that prior to the merger they were employees of an unorganized establishment and after the merger they became employees of a unionized company that had an existing collective bargaining agreement with the certified union. This presupposes that the union who is party to the collective bargaining agreement is the certified union that has, in the appropriate certification election, been shown to represent a majority of the members of the bargaining unit. Likewise, with respect to FEBTC employees that BPI chose to employ and who also chose to be absorbed, then due to BPIs blanket assumption of liabilities and obligations under the articles of merger, BPI was bound to respect the years of service of these FEBTC employees and to pay the same, or commensurate salaries and other benefits that these employees previously enjoyed with FEBTC. As the Union likewise pointed out in its pleadings, there were benefits under the CBA that the former FEBTC employees did not enjoy with their previous employer. As BPI employees, they will enjoy all these CBA benefits upon their absorption. Thus, although in a sense BPI is continuing FEBTCs employment of these absorbed employees, BPIs employment of these absorbed employees was not under exactly the same terms and conditions as stated in the latters employment contracts with FEBTC. This further strengthens the view that BPI and the former FEBTC employees voluntarily contracted with each other for their employment in the surviving corporation.Proper Appreciation of the Term New Employees Under the CBA In any event, it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their former employer upon their absorption by petitioner. This fact would not remove them from the scope of the phrase new employees as contemplated in the Union Shop Clause of the CBA, contrary to petitioners insistence that the term new employees only refers to those who are initially hired as non-regular employees for possible regular employment. 

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The Union Shop Clause in the CBA simply states that new employees who during the effectivity of the CBA may be regularly employed by the Bank must join the union within thirty (30) days from their regularization. There is nothing in the said clause that limits its application to only new employees who possess non-regular status, meaning probationary status, at the start of their employment. Petitioner likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are absorbed as regular employees from the beginning of their employment. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioners new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment. The dissenting opinion of Justice Brion dovetails with Justice Carpios view only in their restrictive interpretation of who are new employees under the CBA. To our dissenting colleagues, the phrase new employees (who are covered by the union shop clause) should only include new employees who were hired as probationary during the life of the CBA and were later granted regular status. They propose that the former FEBTC employees who were deemed regular employees from the beginning of their employment with BPI should be treated as a special class of employees and be excluded from the union shop clause. Justice Brion himself points out that there is no clear, categorical definition of new employee in the CBA. In other words, the term new employee as used in the union shop clause is used broadly without any qualification or distinction. However, the Court should not uphold an interpretation of the term new employee based on the general and extraneous provisions of the Corporation Code on merger that would defeat, rather than fulfill, the purpose of the union shop clause. To reiterate, the provision of the Article 248(e) of the Labor Code in point mandates that nothing in the said Code or any other law should stop the parties from requiring membership in a recognized collective bargaining agent as a condition of employment. Significantly, petitioner BPI never stretches its arguments so far as to state that the absorbed employees should be deemed old employees who are not covered by the Union Shop Clause. This is not surprising. By law and jurisprudence, a merger only becomes effective upon approval by the Securities and Exchange Commission (SEC) of the articles of merger. In Associated Bank v. Court of Appeals,[33] we held: The procedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. (Emphasis ours.)  In other words, even though BPI steps into the shoes of FEBTC as the surviving corporation, BPI does so at a particular point in time, i.e., the effectivity of the merger upon the SECs issuance of a certificate of merger. In fact, the articles of merger themselves provided that both

BPI and FEBTC will continue their respective business operations until the SEC issues the certificate of merger and in the event SEC does not issue such a certificate, they agree to hold each other blameless for the non-consummation of the merger. Considering the foregoing principle, BPI could have only become the employer of the FEBTC employees it absorbed after the approval by the SEC of the merger. If the SEC did not approve the merger, BPI would not be in the position to absorb the employees of FEBTC at all. Indeed, there is evidence on record that BPI made the assignments of its absorbed employees in BPI effective April 10, 2000, or after the SECs approval of the merger.[34] In other words, BPI became the employer of the absorbed employees only at some point after the effectivity of the merger, notwithstanding the fact that the absorbed employees years of service with FEBTC were voluntarily recognized by BPI. Even assuming for the sake of argument that we consider the absorbed FEBTC employees as old employees of BPI who are not members of any union (i.e., it is their date of hiring by FEBTC and not the date of their absorption that is considered), this does not necessarily exclude them from the union security clause in the CBA. The CBA subject of this case was effective from April 1, 1996 until March 31, 2001. Based on the allegations of the former FEBTC employees themselves, there were former FEBTC employees who were hired by FEBTC after April 1, 1996 and if their date of hiring by FEBTC is considered as their date of hiring by BPI, they would undeniably be considered new employees of BPI within the contemplation of the Union Shop Clause of the said CBA. Otherwise, it would lead to the absurd situation that we would discriminate not only between new BPI employees (hired during the life of the CBA) and former FEBTC employees (absorbed during the life of the CBA) but also among the former FEBTC employees themselves. In other words, we would be treating employees who are exactly similarly situated (i.e., the group of absorbed FEBTC employees) differently. This hardly satisfies the demands of equality and justice. Petitioner limited itself to the argument that its absorbed employees do not fall within the term new employees contemplated under the Union Shop Clause with the apparent objective of excluding all, and not just some, of the former FEBTC employees from the application of the Union Shop Clause. However, in law or even under the express terms of the CBA, there is no special class of employees called absorbed employees. In order for the Court to apply or not apply the Union Shop Clause, we can only classify the former FEBTC employees as either old or new. If they are not old employees, they are necessarily new employees. If they are new employees, the Union Shop Clause did not distinguish between new employees who are non-regular at their hiring but who subsequently become regular and new employees who are absorbed as regular and permanent from the beginning of their employment. The Union Shop Clause did not so distinguish, and so neither must we. No Substantial Distinction Under the CBA Between Regular Employees Hired After Probationary Status and Regular Employees Hired After the Merger  Verily, we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a

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merger, for purposes of applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At the time they are being required to join the Union, they are both already regular rank and file employees of BPI. They belong to the same bargaining unit being represented by the Union. They both enjoy benefits that the Union was able to secure for them under the CBA. When they both entered the employ of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their preference for unionism or not. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new employees, for they are undeniably similarly situated. The effect or consequence of BPIs so-called absorption of former FEBTC employees should be limited to what they actually agreed to, i.e. recognition of the FEBTC employees years of service, salary rate and other benefits with their previous employer. The effect should not be stretched so far as to exempt former FEBTC employees from the existing CBA terms, company policies and rules which apply to employees similarly situated. If the Union Shop Clause is valid as to other new regular BPI employees, there is no reason why the same clause would be a violation of the absorbed employees freedom of association. Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and Inimical to Industrial Peace  It is but fair that similarly situated employees who enjoy the same privileges of a CBA should be likewise subject to the same obligations the CBA imposes upon them. A contrary interpretation of the Union Shop Clause will be inimical to industrial peace and workers solidarity. This unfavorable situation will not be sufficiently addressed by asking the former FEBTC employees to simply pay agency fees to the Union in lieu of union membership, as the dissent of Justice Carpio suggests. The fact remains that other new regular employees, to whom the absorbed employees should be compared, do not have the option to simply pay the agency fees and they must join the Union or face termination.Petitioners restrictive reading of the Union Shop Clause could also inadvertently open an avenue, which an employer could readily use, in order to dilute the membership base of the certified union in the collective bargaining unit (CBU). By entering into a voluntary merger with a non-unionized company that employs more workers, an employer could get rid of its existing union by the simple expedient of arguing that the absorbed employees are not new employees, as are commonly understood to be covered by a CBAs union security clause. This could then lead to a new majority within the CBU that could potentially threaten the majority status of the existing union and, ultimately, spell its demise as the CBUs bargaining representative. Such a dreaded but not entirely far-fetched scenario is no different from the ingenious and creative union-busting schemes that corporations have fomented throughout the years, which this Court has foiled time and again in order to preserve and protect the valued place of labor in this jurisdiction consistent with the Constitutions mandate of insuring social justice. There is nothing in the Labor Code and other applicable laws or the CBA provision at issue that requires that a new employee has to be of probationary or non-regular status at the beginning of the employment relationship. An employer may confer upon a new employee the status of regular employment even at the onset of his engagement. Moreover, no law prohibits an employer from voluntarily recognizing the length of service of a new employee with a

previous employer in relation to computation of benefits or seniority but it should not unduly be interpreted to exclude them from the coverage of the CBA which is a binding contractual obligation of the employer and employees. Indeed, a union security clause in a CBA should be interpreted to give meaning and effect to its purpose, which is to afford protection to the certified bargaining agent and ensure that the employer is dealing with a union that represents the interests of the legally mandated percentage of the members of the bargaining unit. The union shop clause offers protection to the certified bargaining agent by ensuring that future regular employees who (a) enter the employ of the company during the life of the CBA; (b) are deemed part of the collective bargaining unit; and (c) whose number will affect the number of members of the collective bargaining unit will be compelled to join the union. Such compulsion has legal effect, precisely because the employer by voluntarily entering in to a union shop clause in a CBA with the certified bargaining agent takes on the responsibility of dismissing the new regular employee who does not join the union. Without the union shop clause or with the restrictive interpretation thereof as proposed in the dissenting opinions, the company can jeopardize the majority status of the certified union by excluding from union membership all new regular employees whom the Company will absorb in future mergers and all new regular employees whom the Company hires as regular from the beginning of their employment without undergoing a probationary period. In this manner, the Company can increase the number of members of the collective bargaining unit and if this increase is not accompanied by a corresponding increase in union membership, the certified union may lose its majority status and render it vulnerable to attack by another union who wishes to represent the same bargaining unit.[35]

 Or worse, a certified union whose membership falls below twenty percent (20%) of the total members of the collective bargaining unit may lose its status as a legitimate labor organization altogether, even in a situation where there is no competing union.[36] In such a case, an interested party may file for the cancellation of the unions certificate of registration with the Bureau of Labor Relations.[37]

 Plainly, the restrictive interpretation of the union shop clause would place the certified unions very existence at the mercy and control of the employer. Relevantly, only BPI, the employer appears to be interested in pursuing this case. The former FEBTC employees have not joined BPI in this appeal. For the foregoing reasons, Justice Carpios proposal to simply require the former FEBTC to pay agency fees is wholly inadequate to compensate the certified union for the loss of additional membership supposedly guaranteed by compliance with the union shop clause. This is apart from the fact that treating these absorbed employees as a special class of new employees does not encourage worker solidarity in the company since another class of new employees (i.e. those whose were hired as probationary and later regularized during the life of the CBA) would not have the option of substituting union membership with payment of agency fees. Justice Brion, on the other hand, appears to recognize the inherent unfairness of perpetually excluding the absorbed employees from the ambit of the union shop clause. He proposes that

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this matter be left to negotiation by the parties in the next CBA. To our mind, however, this proposal does not sufficiently address the issue. With BPI already taking the position that employees absorbed pursuant to its voluntary mergers with other banks are exempt from the union shop clause, the chances of the said bank ever agreeing to the inclusion of such employees in a future CBA is next to nil more so, if BPIs narrow interpretation of the union shop clause is sustained by this Court. Right of an Employee not to Join a Union is not Absolute and Must Give Way to the Collective Good of All Members of the Bargaining Unit The dissenting opinions place a premium on the fact that even if the former FEBTC employees are not old employees, they nonetheless were employed as regular and permanent employees without a gap in their service. However, an employees permanent and regular employment status in itself does not necessarily exempt him from the coverage of a union shop clause. In the past this Court has upheld even the more stringent type of union security clause, i.e., the closed shop provision, and held that it can be made applicable to old employees who are already regular and permanent but have chosen not to join a union. In the early case of Juat v. Court of Industrial Relations,[38] the Court held that an old employee who had no union may be compelled to join the union even if the collective bargaining agreement (CBA) imposing the closed shop provision was only entered into seven years after of the hiring of the said employee. To quote from that decision: A closed-shop agreement has been considered as one form of union security whereby only union members can be hired and workers must remain union members as a condition of continued employment. The requirement for employees or workers to become members of a union as a condition for employment redounds to the benefit and advantage of said employees because by holding out to loyal members a promise of employment in the closed-shop the union wields group solidarity. In fact, it is said that "the closed-shop contract is the most prized achievement of unionism."x x x xThis Court had categorically held in the case of Freeman Shirt Manufacturing Co., Inc., et al. vs. Court of Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961, that the closed-shop proviso of a collective bargaining agreement entered into between an employer and a duly authorized labor union is applicable not only to the employees or laborers that are employed after the collective bargaining agreement had been entered into but also to old employees who are not members of any labor union at the time the said collective bargaining agreement was entered into. In other words, if an employee or laborer is already a member of a labor union different from the union that entered into a collective bargaining agreement with the employer providing for a closed-shop, said employee or worker cannot be obliged to become a member of that union which had entered into a collective bargaining agreement with the employer as a condition for his continued employment. (Emphasis and underscoring supplied.)  Although the present case does not involve a closed shop provision that included even old employees, the Juat example is but one of the cases that laid down the doctrine that the right not to join a union is not absolute. Theoretically, there is nothing in law or jurisprudence to

prevent an employer and a union from stipulating that existing employees (who already attained regular and permanent status but who are not members of any union) are to be included in the coverage of a union security clause. Even Article 248(e) of the Labor Code only expressly exempts old employees who already have a union from inclusion in a union security clause.[39]

 Contrary to the assertion in the dissent of Justice Carpio, Juat has not been overturned by Victoriano v. Elizalde Rope Workers Union[40] nor by Reyes v. Trajano.[41] The factual milieus of these three cases are vastly different. In Victoriano, the issue that confronted the Court was whether or not employees who were members of the Iglesia ni Kristo (INK) sect could be compelled to join the union under a closed shop provision, despite the fact that their religious beliefs prohibited them from joining a union. In that case, the Court was asked to balance the constitutional right to religious freedom against a host of other constitutional provisions including the freedom of association, the non-establishment clause, the non-impairment of contracts clause, the equal protection clause, and the social justice provision. In the end, the Court held that religious freedom, although not unlimited, is a fundamental personal right and liberty, and has a preferred position in the hierarchy of values.[42]

 However, Victoriano is consistent with Juat since they both affirm that the right to refrain from joining a union is not absolute. The relevant portion of Victoriano is quoted below: The right to refrain from joining labor organizations recognized by Section 3 of the Industrial Peace Act is, however, limited. The legal protection granted to such right to refrain from joining is withdrawn by operation of law, where a labor union and an employer have agreed on a closed shop, by virtue of which the employer may employ only member of the collective bargaining union, and the employees must continue to be members of the union for the duration of the contract in order to keep their jobs. Thus Section 4 (a) (4) of the Industrial Peace Act, before its amendment by Republic Act No. 3350, provides that although it would be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization" the employer is, however, not precluded "from making an agreement with a labor organization to require as a condition of employment membership therein, if such labor organization is the representative of the employees." By virtue, therefore, of a closed shop agreement, before the enactment of Republic Act No. 3350, if any person, regardless of his religious beliefs, wishes to be employed or to keep his employment, he must become a member of the collective bargaining union. Hence, the right of said employee not to join the labor union is curtailed and withdrawn.[43] (Emphases supplied.)  If Juat exemplified an exception to the rule that a person has the right not to join a union, Victoriano merely created an exception to the exception on the ground of religious freedom. Reyes, on the other hand, did not involve the interpretation of any union security clause. In that case, there was no certified bargaining agent yet since the controversy arose during a certification election. In Reyes,the Court highlighted the idea that the freedom of association included the right not to associate or join a union in resolving the issue whether or not the

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votes of members of the INK sect who were part of the bargaining unit could be excluded in the results of a certification election, simply because they were not members of the two contesting unions and were expected to have voted for NO UNION in view of their religious affiliation. The Court upheld the inclusion of the votes of the INK members since in the previous case of Victoriano we held that INK members may not be compelled to join a union on the ground of religious freedom and even without Victoriano every employee has the right to vote no union in a certification election as part of his freedom of association. However, Reyes is not authority for Justice Carpios proposition that an employee who is not a member of any union may claim an exemption from an existing union security clause because he already has regular and permanent status but simply prefers not to join a union. The other cases cited in Justice Carpios dissent on this point are likewise inapplicable. Basa v. Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas,[44] Anucension v. National Labor Union,[45] and Gonzales v. Central Azucarera de Tarlac Labor Union[46] all involved members of the INK. In line with Victoriano, these cases upheld the INK members claimed exemption from the union security clause on religious grounds. In the present case, the former FEBTC employees never claimed any religious grounds for their exemption from the Union Shop Clause. As for Philips Industrial Development, Inc. v. National Labor Relations Corporation[47] and Knitjoy Manufacturing, Inc. v. Ferrer-Calleja,[48] the employees who were exempted from joining the respondent union or who were excluded from participating in the certification election were found to be not members of the bargaining unit represented by respondent union and were free to form/join their own union. In the case at bar, it is undisputed that the former FEBTC employees were part of the bargaining unit that the Union represented. Thus, the rulings in Philips and Knitjoy have no relevance to the issues at hand. Time and again, this Court has ruled that the individual employees right not to join a union may be validly restricted by a union security clause in a CBA[49] and such union security clause is not a violation of the employees constitutional right to freedom of association.[50]

 It is unsurprising that significant provisions on labor protection of the 1987 Constitution are found in Article XIII on Social Justice. The constitutional guarantee given the right to form unions[51] and the State policy to promote unionism[52] have social justice considerations. In Peoples Industrial and Commercial Employees and Workers Organization v. Peoples Industrial and Commercial Corporation,[53] we recognized that [l]abor, being the weaker in economic power and resources than capital, deserve protection that is actually substantial and material. The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the individual employees right or freedom of association, is not to protect the union for the unions sake.Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. This is the rationale behind the State policy to promote unionism declared in the Constitution, which was elucidated in the above-cited case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.[54]

 

In the case at bar, since the former FEBTC employees are deemed covered by the Union Shop Clause, they are required to join the certified bargaining agent, which supposedly has gathered the support of the majority of workers within the bargaining unit in the appropriate certification proceeding. Their joining the certified union would, in fact, be in the best interests of the former FEBTC employees for it unites their interests with the majority of employees in the bargaining unit. It encourages employee solidarity and affords sufficient protection to the majority status of the union during the life of the CBA which are the precisely the objectives of union security clauses, such as the Union Shop Clause involved herein. We are indeed not being called to balance the interests of individual employees as against the State policy of promoting unionism, since the employees, who were parties in the court below, no longer contested the adverse Court of Appeals decision. Nonetheless, settled jurisprudence has already swung the balance in favor of unionism, in recognition that ultimately the individual employee will be benefited by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice.  Also in the dissenting opinion of Justice Carpio, he maintains that one of the dire consequences to the former FEBTC employees who refuse to join the union is the forfeiture of their retirement benefits. This is clearly not the case precisely because BPI expressly recognized under the merger the length of service of the absorbed employees with FEBTC. Should some refuse to become members of the union, they may still opt to retire if they are qualified under the law, the applicable retirement plan, or the CBA, based on their combined length of service with FEBTC and BPI. Certainly, there is nothing in the union shop clause that should be read as to curtail an employees eligibility to apply for retirement if qualified under the law, the existing retirement plan, or the CBA as the case may be. In sum, this Court finds it reasonable and just to conclude that the Union Shop Clause of the CBA covers the former FEBTC employees who were hired/employed by BPI during the effectivity of the CBA in a manner which petitioner describes as absorption. A contrary appreciation of the facts of this case would, undoubtedly, lead to an inequitable and very volatile labor situation which this Court has consistently ruled against. In the case of former FEBTC employees who initially joined the union but later withdrew their membership, there is even greater reason for the union to request their dismissal from the employer since the CBA also contained a Maintenance of Membership Clause. A final point in relation to procedural due process, the Court is not unmindful that the former FEBTC employees refusal to join the union and BPIs refusal to enforce the Union Shop Clause in this instance may have been based on the honest belief that the former FEBTC employees were not covered by said clause. In the interest of fairness, we believe the former FEBTC employees should be given a fresh thirty (30) days from notice of finality of this decision to join the union before the union demands BPI to terminate their employment under the Union Shop Clause, assuming said clause has been carried over in the present CBA and there has been no material change in the situation of the parties. WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice requirement imposed

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herein.Former FEBTC employees who opt not to become union members but who qualify for retirement shall receive their retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may be. SO ORDERED. 

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