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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 176951 August 24, 2010

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National PresidentJERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS, CITY OFCALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS inhis personal capacity as taxpayer, Petitioners,vs.COMMISSION ON ELECTIONS; MUNICIPALITY OF BAYBAY, PROVINCE OF LEYTE;MUNICIPALITY OF BOGO, PROVINCE OF CEBU; MUNICIPALITY OF CATBALOGAN,PROVINCE OF WESTERN SAMAR; MUNICIPALITY OF TANDAG, PROVINCE OF SURIGAODEL SUR; MUNICIPALITY OF BORONGAN, PROVINCE OF EASTERN SAMAR; andMUNICIPALITY OF TAYABAS, PROVINCE OF QUEZON, Respondents.

CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF LEGAZPI,CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY, CITY OFGENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF CAUAYAN, CITYOF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO, CITY OF TACURONG,CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA, CITY OF VICTORIAS, CITY OFCALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, andCITY OF TAGUM, Petitioners-In-Intervention.

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G.R. No. 177499

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National PresidentJERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS,CITY OFCALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS inhis personal capacity as taxpayer, Petitioners,vs.COMMISSION ON ELECTIONS; MUNICIPALITY OF LAMITAN, PROVINCE OF BASILAN;MUNICIPALITY OF TABUK, PROVINCE OF KALINGA; MUNICIPALITY OF BAYUGAN,PROVINCE OF AGUSAN DEL SUR; MUNICIPALITY OF BATAC, PROVINCE OF ILOCOSNORTE; MUNICIPALITY OF MATI, PROVINCE OF DAVAO ORIENTAL; and MUNICIPALITY OFGUIHULNGAN, PROVINCE OF NEGROS ORIENTAL, Respondents.CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF LEGAZPI,CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY, CITY OFGENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF CAUAYAN, CITY

OF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO, CITY OF TACURONG,CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA, CITY OF VICTORIAS, CITY OFCALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, andCITY OF TAGUM, Petitioners-In-Intervention.


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G.R. No. 178056

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National PresidentJERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS, CITY OFCALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS inhis personal capacity as taxpayer, Petitioners,vs.COMMISSION ON ELECTIONS; MUNICIPALITY OF CABADBARAN, PROVINCE OF AGUSANDEL NORTE; MUNICIPALITY OF CARCAR, PROVINCE OF CEBU; and MUNICIPALITY OF ELSALVADOR, MISAMIS ORIENTAL, Respondents.CITY OF TARLAC, CITY OF SANTIAGO, CITY OF IRIGA, CITY OF LIGAO, CITY OF LEGAZPI,CITY OF TAGAYTAY, CITY OF SURIGAO, CITY OF BAYAWAN, CITY OF SILAY, CITY OFGENERAL SANTOS, CITY OF ZAMBOANGA, CITY OF GINGOOG, CITY OF CAUAYAN, CITYOF PAGADIAN, CITY OF SAN CARLOS, CITY OF SAN FERNANDO, CITY OF TACURONG,

CITY OF TANGUB, CITY OF OROQUIETA, CITY OF URDANETA, CITY OF VICTORIAS, CITY OFCALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, andCITY OF TAGUM, Petitioners-In-Intervention.

R E S O L U T I O N

CARPIO, J .:

For resolution are (1) the ad cautelam motion for reconsideration and (2) motion to annul theDecision of 21 December 2009 filed by petitioners League of Cities of the Philippines, et al. and (3)the ad cautelam motion for reconsideration filed by petitioners-in-intervention Batangas City,Santiago City, Legazpi City, Iriga City, Cadiz City, and Oroquieta City.

On 18 November 2008, the Supreme Court En Banc, by a majority vote, struck down the subject 16Cityhood Laws for violating Section 10, Article X of the 1987 Constitution and the equal protectionclause. On 31 March 2009, the Supreme Court En Banc, again by a majority vote, denied therespondents first motion for reconsideration. On 28 April 2009, the Supreme Court En Banc, by asplit vote, denied the respondents second motion for reconsideration. Accordingly, the 18 November2008 Decision became final and executory and was recorded, in due course, in the Book of Entriesof Judgments on 21 May 2009.

However, after the finality of the 18 November 2008 Decision and without any exceptional andcompelling reason, the Court En Banc unprecedentedly reversed the 18 November 2008 Decisionby upholding the constitutionality of the Cityhood Laws in the Decision of 21 December 2009.

Upon reexamination, the Court finds the motions for reconsideration meritorious and accordinglyreinstates the 18 November 2008 Decision declaring the 16 Cityhood Laws unconstitutional.


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A. Violation of Section 10, Artic le X of the Cons ti tution

Section 10, Article X of the 1987 Constitution provides:

No province, city, municipality, or barangay shall be created, divided, merged, abolished or itsboundary substantially altered, except in accordance with the criteria established in the local

government codeand subject to approval by a majority of the votes cast in a plebiscite in thepolitical units directly affected. (Emphasis supplied)

The Constitution is clear. The creation of local government units must follow the criteria establishedin the Local Government Code and not in any other law. There is only one Local GovernmentCode.1The Constitution requires Congress to stipulate in the Local Government Code all the criterianecessary for the creation of a city, including the conversion of a municipality into a city. Congresscannot write such criteria in any other law, like the Cityhood Laws.

The clear intent of the Constitution is to insure that the creation of cities and other political units mustfollow the same uniform, non-discriminatory criteria found solely in the Local Government Code. Anyderogation or deviation from the criteria prescribed in the Local Government Code violates Section

10, Article X of the Constitution.

RA 9009 amended Section 450 of the Local Government Code to increase the income requirementfrom P20 million to P100 million for the creation of a city. This took effect on 30 June 2001. Hence,from that moment the Local Government Code required that any municipality desiring to become acity must satisfy the P100 million income requirement. Section 450 of the Local Government Code,as amended by RA 9009, does not contain any exemption from this income requirement.

In enacting RA 9009, Congress did not grant any exemption to respondent municipalities, eventhough their cityhood bills were pending in Congress when Congress passed RA 9009. TheCityhood Laws, all enacted after the effectivity of RA 9009, explicitly exempt respondentmunicipalities from the increased income requirement in Section 450 of the Local Government Code,as amended by RA 9009. Such exemption clearly violates Section 10, Article X of the Constitutionand is thus patently unconstitutional. To be valid, such exemption must be written in the LocalGovernment Code and not in any other law, including the Cityhood Laws.

RA 9009 is not a law different from the Local Government Code. Section 1 of RA 9009 pertinentlyprovides: "Section 450 of Republic Act No. 7160, otherwise known as the Local Government Code of1991, is hereby amended to read as follows: x x x." RA 9009 amended Section 450 of the LocalGovernment Code. RA 9009, by amending Section 450 of the Local Government Code, embodiesthe new and prevailing Section 450 of the Local Government Code. Considering the Legislaturesprimary intent to curtail "the mad rush of municipalities wanting to be converted into cities," RA 9009increased the income requirement for the creation of cities. To repeat, RA 9009 is not a law differentfrom the Local Government Code, as it expressly amended Section 450 of the Local GovernmentCode.

The language of RA 9009 is plain, simple, and clear. Nothing is unintelligible or ambiguous; not asingle word or phrase admits of two or more meanings. RA 9009 amended Section 450 of the LocalGovernment Code of 1991 by increasing the income requirement for the creation of cities. There areno exemptions from this income requirement. Since the law is clear, plain and unambiguous that anymunicipality desiring to convert into a city must meet the increased income requirement, there is noreason to go beyond the letter of the law. Moreover, where the law does not make an exemption, theCourt should not create one.2
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B. Operative Fact Doctrine

Under the operative fact doctrine, the law is recognized as unconstitutional but the effects of theunconstitutional law, prior to its declaration of nullity, may be left undisturbed as a matter of equityand fair play. In fact, the invocation of the operative fact doctrine is an admission that the law isunconstitutional.

However, the minoritys novel theory, invoking the operative fact doctrine, is that the enactment ofthe Cityhood Laws and the functioning of the 16 municipalities as new cities with new sets of officialsand employees operate to contitutionalize the unconstitutional Cityhood Laws. This novel theorymisapplies the operative fact doctrine and sets a gravely dangerous precedent.

Under the minoritys novel theory, an unconstitutional law, if already implemented prior to itsdeclaration of unconstitutionality by the Court, can no longer be revoked and its implementation mustbe continued despite being unconstitutional. This view will open the floodgates to the wantonenactment of unconstitutional laws and a mad rush for their immediate implementation before theCourt can declare them unconstitutional. This view is an open invitation to serially violate theConstitution, and be quick about it, lest the violation be stopped by the Court.

The operative fact doctrine is a rule of equity. As such, it must be applied as an exception to thegeneral rule that an unconstitutional law produces no effects. It can never be invoked to validate asconstitutional an unconstitutional act. In Planters Products, Inc. v. Fertiphil Corporation ,3the Courtstated:

The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties andaffords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has notbeen passed. Being void, Fertiphil is not required to pay the levy. All levies paid should be refundedin accordance with the general civil code principle against unjust enrichment. The general rule issupported by Article 7 of the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall notbe excused by disuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void andthe latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter ofequity and fair play. It nullifies the effects of an unconstitutional law by recognizing that theexistence of a statute prior to a determination of unconstitutionality is an operative fact andmay have consequences which cannot always be ignored. The past cannot always be erasedby a new judicial declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on

those who have relied on the invalid law. Thus, it was applied to a criminal case when a declarationof unconstitutionality would put the accused in double jeopardy or would put in limbo the acts doneby a municipality in reliance upon a law creating it. (Emphasis supplied)

The operative fact doctrine never validates or constitutionalizes an unconstitutional law. Under theoperative fact doctrine, the unconstitutional law remains unconstitutional, but the effects of theunconstitutional law, prior to its judicial declaration of nullity, may be left undisturbed as a matter ofequity and fair play. In short, the operative fact doctrine affects or modifies only the effects of theunconstitutional law, not the unconstitutional law itself.
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Thus, applying the operative fact doctrine to the present case, the Cityhood Laws remainunconstitutional because they violate Section 10, Article X of the Constitution. However, the effectsof the implementation of the Cityhood Laws prior to the declaration of their nullity, such as thepayment of salaries and supplies by the "new cities" or their issuance of licenses or execution ofcontracts, may be recognized as valid and effective. This does not mean that the Cityhood Laws arevalid for they remain void. Only the effects of the implementation of these unconstitutional laws are

left undisturbed as a matter of equity and fair play to innocent people who may have relied on thepresumed validity of the Cityhood Laws prior to the Courts declaration of their unconstitutionality.

C. Equal Protectio n Clause

As the Court held in the 18 November 2008 Decision, there is no substantial distinction betweenmunicipalities with pending cityhood bills in the 11th Congress and municipalities that did not havepending bills. The mere pendency of a cityhood bill in the 11th Congress is not a material differenceto distinguish one municipality from another for the purpose of the income requirement. Thependency of a cityhood bill in the 11th Congress does not affect or determine the level ofincome of a municipality. Municipalities with pending cityhood bills in the 11th Congress mighteven have lower annual income than municipalities that did not have pending cityhood bills. In short,the classification criterion mere pendency of a cityhood bill in the 11th Congress is notrationally related to the purpose of the law which is to prevent fiscally non-viablemunicipalities from converting into cities.

Moreover, the fact of pendency of a cityhood bill in the 11th Congress limits the exemption to aspecific condition existing at the time of passage of RA 9009. That specific condition will neverhappen again. This violates the requirement that a valid classification must not be limited toexisting conditions only. In fact, the minority concedes that "the conditions (pendency of thecityhood bills) adverted to can no longer be repeated."

Further, the exemption provision in the Cityhood Laws gives the 16 municipalities a uniqueadvantage based on an arbitrary date the filing of their cityhood bills before the end of the 11thCongress as against all other municipalities that want to convert into cities after the effectivity of

RA 9009.

In addition, limiting the exemption only to the 16 municipalities violates the requirement that theclassification must apply to all similarly situated. Municipalities with the same income as the 16respondent municipalities cannot convert into cities, while the 16 respondent municipalities can.Clearly, as worded, the exemption provision found in the Cityhood Laws, even if it were written inSection 450 of the Local Government Code, would still be unconstitutional for violation of the equalprotection clause.

D. Tie-Vote on a Motion fo r Recons ideration

Section 7, Rule 56 of the Rules of Court provides:

SEC. 7. Procedure if opinion is equally divided. Where the court en bancis equally divided inopinion, or the necessary majority cannot be had, the case shall again be deliberated on, and if aftersuch deliberation no decision is reached, the original action commenced in the court shall bedismissed; in appealed cases, the judgment or order appealed from shall stand affirmed; and on allincidental matters, the petition or motion shall be denied. (Emphasis supplied)

The En BancResolution of 26 January 1999 in A.M. No. 99-1-09-SC, reads:


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A MOTION FOR THE CONSIDERATION OF A DECISION OR RESOLUTION OF THE COURT ENBANCOR OF A DIVISION MAY BE GRANTED UPON A VOTE OF A MAJORITY OF THEMEMBERS OF THE EN BANCOR OF A DIVISION, AS THE CASE MAY BE, WHO ACTUALLYTOOK PART IN THE DELIBERATION OF THE MOTION.

IF THE VOTING RESULTS IN A TIE, THE MOTION FOR RECONSIDERATION IS DEEMED

DENIED. (Emphasis supplied)

The clear and simple language of the clarificatory en bancResolution requires no furtherexplanation. If the voting of the Court en bancresults in a tie, the motion for reconsideration isdeemed denied. The Courts prior majority action on the main decision stands affirmed.4Thisclarificatory Resolution applies to all cases heard by the Court en banc, which includes not onlycases involving the constitutionality of a law, but also, as expressly stated in Section 4(2), Article VIIIof the Constitution, "all other cases which under the Rules of Court are required to be heard enbanc."

The 6-6 tie-vote by the Court en bancon the second motion for reconsideration necessarily resultedin the denial of the second motion for reconsideration. Since the Court was evenly divided, there

could be no reversal of the 18 November 2008 Decision, for a tie-vote cannot result in any courtorder or directive.5The judgment stands in full force.6Undeniably, the 6-6 tie-vote did not overrulethe prior majority en bancDecision of 18 November 2008, as well as the prior majority enbancResolution of 31 March 2009 denying reconsideration. The tie-vote on the second motionfor reconsideration is not the same as a tie-vote on the main decision where there is no priordecision. Here, the tie-vote plainly signifies that there is no majority to overturn the prior 18November 2008 Decision and 31 March 2009 Resolution, and thus the second motion forreconsideration must be denied.

Further, the tie-vote on the second motion for reconsideration did not mean that the present caseswere left undecided because there remain the Decision of 18 November 2008 and the Resolution of31 March 2009 where a majority of the Court en bancconcurred in declaring the unconstitutionalityof the sixteen Cityhood Laws. In short, the 18 November 2008 Decision and the 31 March 2009

Resolution, which were both reached with the concurrence of a majority of the Court enbanc, are not reconsidered but stand affirmed.7These prior majority actions of the Court enbanccan only be overruled by a new majority vote, not a tie-vote because a tie-vote cannotoverrule a prior affirmative action.

The denial, by a split vote, of the second motion for reconsideration inevitably rendered the 18November 2008 Decision final. In fact, in its Resolution of 28 April 2009, denying the second motionfor reconsideration, the Courten bancreiterated that no further pleadings shall be entertained andstated that entry of judgment be made in due course. 1wphi1

The dissenting opinion stated that "a deadlocked vote of six is not a majority and a non-majoritydoes not constitute a rule with precedential value."8

Indeed, a tie-vote is a non-majority a non-majority which cannot overrule a prior affirmative action,that is the 18 November 2008 Decision striking down the Cityhood Laws. In short, the 18 November2008 Decision stands affirmed. And assuming a non-majority lacks any precedential value, the 18November 2008 Decision, which was unreversed as a result of the tie-vote on the respondentssecond motion for reconsideration, nevertheless remains binding on the parties.9

Conclusion
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Associate Justice Associate Justice

JOSE PORTUGAL PEREZAssociate Justice

JOSE C. MENDOZAAssociate Justice

MARIA LOURDES P. A. SERENOAssociate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the aboveResolution had been reached in consultation before the case was assigned to the writer of theopinion of the Court.

RENATO C. CORONAChief Justice

Footnotes

1Republic Act No. 7160, as amended.

2See Francisco v. Court of Appeals, 313 Phil. 241, 258 (1995).

3G.R. No. 166006, 14 March 2008, 548 SCRA 485, 516-517.

4In Fortich v. Corona, G.R. No. 131457, 19 August 1999, 312 SCRA 751, 766, retiredJustice Jose Melo, in his Separate Opinion on the motion for reconsideration, stated that "inour own Court En Banc, if the voting is evenly split, on a 7-7 vote, one (1) slot vacant,

or with one (1) justice inhibiting or disqualifying himself, the motion (forreconsideration) shall, of course, not be carried because that is the end of theline." (Emphasis supplied)

5Michael Coenen, Original Jurisdiction Deadlocks, Yale Law Journal, March, 2009, 118 YaleL.J. 1003, citing Durant v. Essex Co., 74 U.S. (7 Wall.) 107, 112 (1868).

6Id.

7In Defensor-Santiago v. COMELEC, G.R. No. 127325, the Court, by a vote of 6-6 with one(1) justice inhibiting himself and another justice refusing to rule on the ground that the issuewas not ripe for adjudication, denied the motion for reconsideration. The case ofLambino v.

COMELEC, G.R. Nos. 174153 and 174299, cited Defensor-Santiago v. COMELEC.8See Chief Justice Punos separate opinion inLambino v. COMELEC, G.R. Nos. 174153and 174299, 25 October 2006, 505 SCRA 160.

9See Recusals and the "Problem" of an Equally Divided Supreme Court by Ryan Black andLee Epstein, (http://epstein.law.northwestern.edu/research/recusal.pdf), citing Durant, 74U.S. at 109; Egger, (Student Author, Court of Appeals Review of Agency Action:
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Republic of the PhilippinesSupreme Court

Manila

EN BANC

PHILIPPINE NATIONAL BANK,Petitioner,

- versus -

CAYETANO A. TEJANO, JR.,Respondent.

G.R. No. 173615

Present:

PUNO, C.J.,*

QUISUMBING,**CARPIO,CORONA,CARPIO MORALES,CHICO-NAZARIO,

VELASCO, JR.,*NACHURA,LEONARDO-DE CASTRO,BRION,

PERALTA,BERSAMIN,DEL CASTILLO,***andABAD,JJ.

Promulgated:

October 16, 2009x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

PERALTA, J.:

In this petition for review,[1]the Philippine National Bank assails the January 3, 2006 Decision [2]of the

Court of Appeals in CA-G.R. SP No. 50084, which reversed Resolution Nos. 980716 and 983099 issued by the

Civil Service Commission, respectively dated April 14, 1998 and December 7, 1998, and referred the case back to

said office for further proceedings. The assailed Resolutions, in turn, dismissed respondent Cayetano A. Tejanos

appeal from the resolution of the Board of Directors of the Philippine National Bank which found him guilty of

grave misconduct in connection with a number of transactions with certain corporate entities.

The case stems from a number of alleged irregular and fraudulent transactions made by respondent Cayetano

A. Tejano, Jr. supposedly with the participation of eight (8) other employees of petitioner Philippine National Bank

(PNB) in its branch in Cebu City namely Ma. Teresa Chan, Marcelino Magdadaro, Douglasia Canuel, Novel

Fortich, Jacinto Ouano, Quirubin Blanco, Manuel Manzanares and Pedrito Ranile. Respondent, together with the

other employees, allegedly committed grave misconduct, gross neglect of duty, conduct grossly prejudicial to the
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best interest of the service and acts violative of Republic Act No. 3019, relative to the corporate accounts of and

transactions with Pat International Trading Corporation (PITC), Khun Tong International Trading Corporation

(KITC), Pat Garments International Corporation (PGIC), Aqua Solar Trading Corporation, Dacebu Traders and

Exporters, Mancao Mercantile Co., Inc. and V&G Better Homes Subdivision. All of these transactions transpired at

the time that PNB was still a government-owned and controlled corporation.

Respondent, who was then the Vice-President and Manager of the bank, and the eight other employees were

administratively charged before the PNB Management Hearing Committee on February 24 and March 17,

1994.[3] At the close of the hearing on the merits, the Committee found that with respect to respondent, he was

guilty of gross misconduct in misappropriating the funds of V&G and of gross neglect in extending unwarranted

credit accommodations to PITC, PGIC and KITC which must serve as an aggravating circumstance. The

Committee then recommended that respondent be meted the penalty of forced resignation without forfeiture of

benefits.

[4]

The PNB Board of Directors differed. In its Resolution No. 88 [5]dated June 21, 1995, it found that

respondents gross neglect in giving unwarranted credit to PITC, PGIC and KITC must serve as an aggravating

circumstance in relation to the offense of grave misconduct consisting of misappropriation of V&G funds and must

serve the penalty of forced resignation with forfeiture of benefits .[6]

It appears that only herein respondent sought reconsideration but the Board of Directors, in its Resolution No.

107,[7]denied the same. Thereafter, on September 21, 1995, respondent appealed to the Civil Service Commission

(CSC)[8]and, on October 19, 1995, he submitted his Memorandum on Appeal.[9]

In the meantime, on May 27, 1996, the PNB had ceased to be a government-owned and controlled

corporation, and in view of its conversion into a private banking institution by virtue of Executive Order (E.O.) No.

80.[10] Despite this development, the CSC, on April 14 1998, issued Resolution No. 980716[11]dismissing

respondents appeal for being filed out of time.

Respondent filed a motion for reconsideration[12]on which the CSC required petitioner to comment. In its

Comment, petitioner theorized that even granting respondents appeal was filed on time, the same must,nevertheless, be dismissed on account of the privatization of PNB which thereby removed the case from the

jurisdiction of the CSC. The CSC found this argument meritorious and, subsequently, in its Resolution No.

983099[13]dated December 7, 1998, it denied respondents reconsideration on that ground.

Respondent elevated the matter to the Court of Appeals on petition for review,[14]docketed as CA-G.R. SP

No. 50084.
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Before the appellate court, respondent, on the one hand, ascribed error to the CSC in denying due course to

his appeal on the basis of the privatization of PNB inasmuch as the incident subject of the case had transpired way

back in 1992, when the bank was still a government-owned and controlled corporation. He particularly noted that

the CSC, before the privatization of the bank, had already acquired jurisdiction over the appeal upon the filing

thereof and subsequent submission of the memorandum on appeal. This, according to respondent, negated

petitioners theory that the CSC could no longer assume jurisdiction and dispose of the appeal on the merits,

especially considering that jurisdiction once acquired generally continues until the final disposition of the

case.[15] On the other hand, petitioner argued in essence that although the jurisdiction to act on the appeal must

continue until the final disposition of the case, this rule admits of exceptions as where, in the present case, the law

must be construed in a way as to operate on actions pending before its enactment.[16]

The Court of Appeals found merit in respondents appeal. On January 3, 2006, it issued the assailed

Decision reversing the twin resolutions of the CSC. The appellate court pointed out that respondents appeal before

the CSC had been filed on time and that the said commission had not lost jurisdiction over it despite the supervening

privatization of PNB. But inasmuch as the assailed Resolutions did not permeate the merits of respondents appeal,

the appellate court found it wise to remand the case to the CSC for further proceedings. It disposed of the appeal as

follows:

WHEREFORE, premises considered, the instant petition for review under Rule 43 of the

Rules of Court is hereby GRANTED. ACCORDINGLY, Resolution No. 980716 dated April 14,

1998and Resolution No. 983099 dated December 7, 1998 of the Civil Service Commission are

hereby REVERSED and the case is remanded to the Civil Service Commission for further

proceedings.

SO ORDERED.[17]

Petitioners motion for reconsideration was denied.[18] Hence, it filed the instant petition for review bearing

the same issue as that raised previously.

At the core of the controversy is the question of whether E.O. No. 80 has the effect of removing from the

jurisdiction of the CSC the appeal of respondent which was already pending before the CSC at the time the said law

converted PNB into a private banking institution. Petitioner is insistent that, indeed, the law does have that effect,

and this argument is perched on Section 6 of E.O. No. 80, which materially provides that the bank would cease to be

a government-owned and controlled corporation upon the issuance of its articles of incorporation by the Securities

and Exchange Commission and would no longer be subject to the coverage of both the CSC and the Commission on

Audit.[19]Petitioner believes that while indeed jurisdiction ordinarily continues until the termination of the case, it

advances the opinion that the rule does not apply where the law provides otherwise or where the said law intends to

operate on cases pending at the time of its enactment.[20]
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For his part, respondent submits that Section 6 of E.O. No. 80 does not provide for the transfer of jurisdiction

over his pending appeal from the CSC to another administrative authority, and that neither does the provision

authorize its retroactive application in a way that would deprive the CSC of jurisdiction over cases already pending

before it prior to its effectivity.[21]Additionally, he invokes estoppel against petitioner inasmuch as the latter has

actively participated in the proceedings before the CSC and, hence, was already barred from raising the issue of

jurisdiction, and alleges that petitioners present recourse was taken merely to cause delay in the final resolution of

the controversy.[22]

We draw no merit in the petition.

In essence, Section 6 of E.O. No. 80, also known as the Revised Charter of PNB, treats of the effects of

converting the bank into a private financial and banking institution. It states:

Section 6. Change in Ownership of the Majori ty of the Voting Equi ty of the Bank. -

When the ownership of the majority of the issued common voting shares passes to privateinvestors, the stockholders shall cause the adoption and registration with the Securities and

Exchange Commission of the appropriate Articles of Incorporation and revised by-laws within

three (3) months from such transfer of ownership. Upon the issuance of the certificate of

incorporation under the provisions of the Corporation Code, this Charter shall cease to have force

and effect, and shall be deemed repealed. Any special privileges granted to the Bank such as the

authority to act as official government depositary, or restrictions imposed upon the Bank, shall be

withdrawn, and the Bank shall thereafter be considered a privately organized bank subject to the

laws and regulations generally applicable to private banks. The Bank shall likewise cease to be a

government-owned or controlled corporation subject to the coverage of service-wide

agencies such as the Commission on Audit and the Civil Service Commission.

The fact of the change of the nature of the Bank from a government-owned and

controlled financial institution to a privately-owned entity shall be given publicity .

[23]

In a language too plain to be mistaken, the quoted portion of the law only states no more than the natural,

logical and legal consequences of opening to private ownership the majority of the banks voting equity. This is very

evident in the title of the section called Change in Ownership of the Majority of the Voting Equity of the

Bank. Certainly, the transfer of the majority of the banks voting equity from public to private hands is an inevitable

effect of privatization or, conversely, the privatization of the bank would necessitate the opening of the voting equity

thereof to private ownership. And as the bank ceases to be government depository, it would, accordingly be coming

under the operation of the definite set of laws and rules applicable to all other private corporations incorporated

under the general incorporation law. Perhaps the aspect of more importance in the present case is that the bank,

upon its privatization, would no longer be subject to the coverage of government service-wide agencies such as the

CSC and the Commission on Audit (COA).
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By no stretch of intelligent and reasonable construction can the provisions in Section 6 of E.O. No. 80 be

interpreted in such a way as to divest the CSC of jurisdiction over pending disciplinary cases involving acts

committed by an employee of the PNB at the time that the bank was still a government-owned and controlled

corporation. Stated otherwise, no amount of reasonable inference may be derived from the terms of the said Section

to the effect that it intends to modify the jurisdiction of the CSC in disciplinary cases involving employees of the

government.

Sound indeed is the rule that where the law is clear, plain and free from ambiguity, it must be given its

literal meaning and applied without any interpretation or even construction.[24] This is based on the presumption that

the words employed therein correctly express its intent and preclude even the courts from giving it a different

construction.[25] Section 6 of E.O. No. 80 is explicit in terms. It speaks for itself. It does not invite an interpretation

that reads into its clear and plain language petitioners adamant assertion that it divested the CSC of jurisdiction to

finally dispose of respondents pending appeal despite the privatization of PNB.

In the alternative, petitioner likewise posits that the portion of Section 6 of the E.O. No. 80, which states

that the PNB would no longer be subject to the coverage of both the COA and the CSC, must be understood to be

applicable to cases already pending with the CSC at the time of the banks conversion into a private ent ity. We are

not swayed.

While there is no denying that upon its privatization, the bank would consequently be subject to laws, rules

and regulations applicable to private corporations which is to say that disciplinary cases involving its employees

would then be placed under the operation of the Labor Code of the Philippines still, we cannot validate

petitioners own interpretation of Section 6 of E.O. No. 80 that the same must be applied to respondents pending

appeal with the CSC and that, resultantly, the CSC must abdicate its appellate jurisdiction without having to resolve

the case to finality.

It is binding rule, conformably with Article 4 of the Civil Code, that, generally, laws shall have only a

prospective effect and must not be applied retroactively in such a way as to apply to pending disputes and

cases. This is expressed in the familiar legal maxim lex prospicit, non respicit(the law looks forward and not

backward.)

[26]

The rationale against retroactivity is easy to perceive: the retroactive application of a law usuallydivests rights that have already become vested or impairs the obligations of contract and, hence, is

unconstitutional.[27]Although the rule admits of certain well-defined exceptions[28]such as, for instance, where the

law itself expressly provides for retroactivity,[29]we find that not one of such exceptions that would otherwise lend

credence to petitioners argument obtains in this case. Hence, in other words, the fact that Section 6 of E.O. No. 80

states that PNB would be removed from the coverage of the CSC must be taken to govern acts committed by the

banks employees after privatization.
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Moreover, jurisdiction is conferred by no other source than law. Once jurisdiction is acquired, it continues

until the case is finally terminated.[30] The disciplinary jurisdiction of the CSC over government officials and

employees within its coverage is well-defined in Presidential Decree (P.D.) No. 807,[31]otherwise known as The

Civil Service Decree of the Philippines. Section 37[32]thereof materially provides that the CSC shall have

jurisdiction over appeals in administrative disciplinary cases involving the imposition of the penalty of suspension

for more than thirty days; or fine in an amount exceeding thirty days salary; demotion in rank or salary or transfer,

removal or dismissal from office.

It bears to stress on this score that the CSC was able to acquire jurisdiction over the appeal of respondent

merely upon its filing, followed by the submission of his memorandum on appeal. From that point, the appellate

jurisdiction of the CSC at once attached, thereby vesting it with the authority to dispose of the case on the merits

until it shall have been finally terminated.

Petitioner, however, takes exception. It notes that, while indeed the general rule is that jurisdiction

continues until the termination of the case and is not affected by new legislation on the matter, the rule does not

obtain where the new law provides otherwise, or where said law is intended to apply to actions pending before its

enactment. Again, petitioner insists that E.O. No. 80 is a new legislation of a character belonging to one of the

exceptions inasmuch as supposedly Section 6 thereof expressly sanctions its application to cases already pending

prior to its enactmentparticularly that provision which treats of the jurisdiction of the CSC.[33]

The argument is unconvincing.

InLatchme Motoomull v. Dela Paz,[34]the Court had dealt with a situation where jurisdiction over certain

cases was transferred by a supervening legislation to another tribunal. Latchme involved a perfected appeal from the

decision of the SEC and pending with the Court of Appeals at the time P.D. No. 902-A was enacted which

transferred appellate jurisdiction over the decisions of the SEC from the Court of Appeals to the Supreme Court. On

the question of whether the tribunal with which the cases were pending had lost jurisdiction over the appeal upon the

effectivity of the new law, the Court ruled in the negative, citing the earlier case ofBengzon v. Inciong,[35]thus:

The rule is that where a court has already obtained and is exercising jurisdiction over a

controversy, its jurisdiction to proceed to the final determination of the cause is not affected by

new legislation placing jurisdiction over such proceedings in another tribunal. The exception to

the rule is where the statute expressly provides, or is construed to the effect that it is

intended to operate as to actions pending before its enactment. Where a statute changing the

jurisdiction of a court has no retroactive effect, it cannot be applied to a case that was pending

prior to the enactment of the statute.[36]
http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn33http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn34http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn34http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn34http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn35http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn35http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn35http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn36http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn36http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn36http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn37http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn37http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn37http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn38http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn38http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn38http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn39http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn39http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn39http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn39http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn38http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn37http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn36http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn35http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn34http://sc.judiciary.gov.ph/jurisprudence/2009/october2009/173615.htm#_ftn33


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Petitioner derives support from the exceptions laid down in the cases ofLatchme

MotoomullandBengzon quoted above. Yet, as discussed above, the provisions in Section 6 of E.O. No. 80 are too

clear and unambiguous to be interpreted in such a way as to abort the continued exercise by the CSC of its appellate

jurisdiction over the appeal filed before the privatization of PNB became effective. Suffice it to say that nowhere in

the said Section can we find even the slightest indication that indeed it expressly authorizes the transfer of

jurisdiction from the CSC to another tribunal over disciplinary and administrative cases already pending with the

said Commission even prior to the enactment of the law.

All told, the Court finds that no error was committed by the Court of Appeals in reversing the twin

resolutions issued by the CSC. The Court also agrees that because the merits of respondents appeal with the said

Commission have not been completely threshed out, it is only correct and appropriate to remand the case back to it

for further proceedings.

With this disquisition, the Court finds it unnecessary to discuss the other issues propounded by the parties.

WHEREFORE, the petition is DENIED. The January 3, 2006 Decision of the Court of Appeals in CA-

G.R. SP No. 50084, which reversed and set aside CSC Resolution Nos. 980716 and 983099 and ordered the remand

of the case to the CSC for further proceedings, is hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTAAssociate Justice

WE CONCUR:

On Official Leave

REYNATO S. PUNOChief Justice

LEONARDO A. QUISUMBING

Associate Justice

Acting Chief JusticeANTONIO T. CARPIO

Associate Justice


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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 79255 January 20, 1992

UNION OF FILIPRO EMPLOYEES (UFE), petitioner,vs.BENIGNO VIVAR, JR., NATIONAL LABOR RELATIONS COMMISSION and NESTLPHILIPPINES, INC. (formerly FILIPRO, INC.), respondents.

Jose C. Espinas for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

GUTIERREZ, JR., J.:

This labor dispute stems from the exclusion of sales personnel from the holiday pay award and thechange of the divisor in the computation of benefits from 251 to 261 days.

On November 8, 1985, respondent Filipro, Inc. (now Nestle Philippines, Inc.) filed with the NationalLabor Relations Commission (NLRC) a petition for declaratory relief seeking a ruling on its rights andobligations respecting claims of its monthly paid employees for holidaypay in the light of the Court'sdecision in Chartered Bank Employees Association v. Ople (138 SCRA273 [1985]).

Both Filipro and the Union of Filipino Employees (UFE) agreed to submit the case for voluntaryarbitration and appointed respondent Benigno Vivar, Jr. as voluntary arbitrator.

On January 2, 1980, Arbitrator Vivar rendered a decision directing Filipro to:

pay its monthly paid employees holiday pay pursuant to Article 94 of the Code,subject only to the exclusions and limitations specified in Article 82 and such other

legal restrictions as are provided for in the Code. (Rollo,p.31)

Filipro filed a motion for clarification seeking (1) the limitation of the award to three years, (2)theexclusion of salesmen, sales representatives, truck drivers, merchandisers and medicalrepresentatives (hereinafter referred to as sales personnel) from the award of the holiday pay, and(3) deduction from theholiday pay award of overpayment for overtime, night differential, vacationand sick leave benefits due to the use of 251 divisor. (Rollo, pp. 138-145)


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Petitioner UFE answered that the award should be made effective from the date of effectivity of theLabor Code, that their sales personnel are not field personnel and are therefore entitled to holidaypay, and that the use of251 as divisor is an established employee benefit whichcannot bediminished.

On January 14, 1986, the respondent arbitrator issued an order declaring that the effectivity of the

holiday pay award shall retroact to November 1, 1974, the date of effectivity of the Labor Code. Headjudged, however, that the company's sales personnel are field personnel and, as such, are notentitled to holiday pay. He likewise ruled that with the grant of 10 days' holiday pay, the divisorshould be changed from 251 to 261 and ordered the reimbursement of overpayment for overtime,night differential, vacation and sick leave pay due to the use of 251 days as divisor.

Both Nestle and UFE filed their respective motions for partial reconsideration. Respondent Arbitratortreated the two motions as appeals and forwarded the case to the NLRC which issued a resolutiondated May 25, 1987 remanding the case to the respondent arbitrator on the ground that it has no

jurisdiction to review decisions in voluntary arbitration cases pursuant to Article 263 of the LaborCode as amended by Section 10, Batas Pambansa Blg. 130 and as implemented by Section 5 of therules implementing B.P. Blg. 130.

However, in a letter dated July 6, 1987, the respondent arbitrator refused to take cognizance of thecase reasoning that he had no more jurisdiction to continue as arbitrator because he had resignedfrom service effective May 1, 1986.

Hence, this petition.

The petitioner union raises the following issues:

1) Whether or not Nestle's sales personnel are entitled to holiday pay; and

2) Whether or not, concomitant with the award of holiday pay, the divisor should be changed from

251 to 261 days and whether or not the previous use of 251 as divisor resulted in overpayment forovertime, night differential, vacation and sick leave pay.

The petitioner insists that respondent's sales personnel are not field personnel under Article 82 ofthe Labor Code. The respondent company controverts this assertion.

Under Article 82, field personnel are not entitled to holiday pay. Said article defines field personnelas "non-agritultural employees who regularly perform their duties away from the principal place ofbusiness or branch office of the employer and whose actual hours of work in the field cannot bedetermined with reasonable certainty."

The controversy centers on the interpretation of the clause "whose actual hours of work in the fieldcannot be determined with reasonable certainty."

It is undisputed that these sales personnel start their field work at 8:00 a.m. after having reported tothe office and come back to the office at 4:00 p.m. or 4:30 p.m. if they are Makati-based.

The petitioner maintains that the period between 8:00 a.m. to 4:00 or 4:30 p.m. comprises the salespersonnel's working hours which can be determined with reasonable certainty.


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The Court does not agree. The law requires that the actual hours of work in the field be reasonablyascertained. The company has no way of determining whether or not these sales personnel, even ifthey report to the office before 8:00 a.m. prior to field work and come back at 4:30 p.m, really spendthe hours in between in actual field work.

We concur with the following disquisition by the respondent arbitrator:

The requirement for the salesmen and other similarly situated employees to reportfor work at the office at 8:00 a.m. and return at 4:00 or 4:30 p.m. is not within therealm of work in the field as defined in the Code but an exercise of purelymanagement prerogative of providing administrative control over such personnel.This does not in any manner provide a reasonable level of determination on theactual field work of the employees which can be reasonably ascertained. Thetheoretical analysis that salesmen and other similarly-situated workers regularlyreport for work at 8:00 a.m. and return to their home station at 4:00 or 4:30 p.m.,creating the assumption that their field work is supervised, is surface projection.

Actual field work begins after 8:00 a.m., when the sales personnel follow their fielditinerary, and ends immediately before 4:00 or 4:30 p.m. when they report back totheir office. The period between 8:00 a.m. and 4:00 or 4:30 p.m. comprises theirhours of work in the field, the extent or scope and result of which are subject to theirindividual capacity and industry and which "cannot be determined with reasonablecertainty." This is the reason why effective supervision over field work of salesmenand medical representatives, truck drivers and merchandisers is practically aphysical impossibility. Consequently, they are excluded from the ten holidays withpay award. (Rollo, pp. 36-37)

Moreover, the requirement that "actual hours of work in the field cannot be determined withreasonable certainty" must be read in conjunction with Rule IV, Book III of the Implementing Ruleswhich provides:

Rule IV Holidays with Pay

Sec. 1. Coverage This rule shall apply to all employees except:

xxx xxx xxx

(e) Field personnel and other employees whose time and performance isunsupervised by the employer. . . (Emphasis supplied)

While contending that such rule added another element not found in the law ( Rollo, p. 13), thepetitioner nevertheless attempted to show that its affected members are not covered by theabovementioned rule. The petitioner asserts that the company's sales personnel are strictlysupervised as shown by the SOD (Supervisor of the Day) schedule and the company circular dated

March 15, 1984 (Annexes 2 and 3, Rollo, pp. 53-55).

Contrary to the contention of the petitioner, the Court finds that the aforementioned rule did not addanother element to the Labor Code definition of field personnel. The clause "whose time andperformance is unsupervised by the employer" did not amplify but merely interpreted and expoundedthe clause "whose actual hours of work in the field cannot be determined with reasonable certainty."The former clause is still within the scope and purview of Article 82 which defines field personnel.Hence, in deciding whether or not an employee's actual working hours in the field can be determined


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with reasonable certainty, query must be made as to whether or not such employee's time andperformance is constantly supervised by the employer.

The SOD schedule adverted to by the petitioner does not in the least signify that these salespersonnel's time and performance are supervised. The purpose of this schedule is merely to ensurethat the sales personnel are out of the office not later than 8:00 a.m. and are back in the office not

earlier than 4:00 p.m.

Likewise, the Court fails to see how the company can monitor the number of actual hours spent infield work by an employee through the imposition of sanctions on absenteeism contained in thecompany circular of March 15, 1984.

The petitioner claims that the fact that these sales personnel are given incentive bonus every quarterbased on their performance is proof that their actual hours of work in the field can be determinedwith reasonable certainty.

The Court thinks otherwise.

The criteria for granting incentive bonus are: (1) attaining or exceeding sales volume based on salestarget; (2) good collection performance; (3) proper compliance with good market hygiene; (4) goodmerchandising work; (5) minimal market returns; and (6) proper truck maintenance. (Rollo, p. 190).

The above criteria indicate that these sales personnel are given incentive bonuses preciselybecause of the difficulty in measuring their actual hours of field work. These employees areevaluated by the result of their work and not by the actual hours of field work which are hardlysusceptible to determination.

In San Miguel Brewery, Inc. v. Democratic Labor Organization (8 SCRA 613 [1963]), the Court hadoccasion to discuss the nature of the job of a salesman. Citing the case ofJewel TeaCo. v. Williams, C.C.A. Okla.,118 F. 2d 202, the Court stated:

The reasons for excluding an outside salesman are fairly apparent. Such asalesman, to a greater extent, works individually. There are no restrictions respectingthe time he shall work and he can earn as much or as little, within the range of hisability, as his ambition dictates. In lieu of overtime he ordinarily receivescommissions as extra compensation. He works away from his employer's place ofbusiness, is not subject to the personal supervision of his employer, and hisemployer has no way of knowing the number of hours he works per day.

While in that case the issue was whether or not salesmen were entitled to overtime pay, the samerationale for their exclusion as field personnel from holiday pay benefits also applies.

The petitioner union also assails the respondent arbitrator's ruling that, concomitant with the awardof holiday pay, the divisor should be changed from 251 to 261 days to include the additional 10holidays and the employees should reimburse the amounts overpaid by Filipro due to the use of 251days' divisor.

Arbitrator Vivar's rationale for his decision is as follows:

. . . The new doctrinal policy established which ordered payment of ten holidayscertainly adds to or accelerates the basis of conversion and computation by ten days.


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With the inclusion of ten holidays as paid days, the divisor is no longer 251 but 261or 262 if election day is counted. This is indeed an extremely difficult legal questionof interpretation which accounts for what is claimed as falling within the concept of"solutio indebti."

When the claim of the Union for payment of ten holidays was granted, there was a

consequent need to abandon that 251 divisor. To maintain it would create animpossible situation where the employees would benefit with additional ten days withpay but would simultaneously enjoy higher benefits by discarding the same ten daysfor purposes of computing overtime and night time services and considering sick andvacation leave credits. Therefore, reimbursement of such overpayment with the useof 251 as divisor arises concomitant with the award of ten holidays with pay. (Rollo,p. 34)

The divisor assumes an important role in determining whether or not holiday pay is already includedin the monthly paid employee's salary and in the computation of his daily rate. This is the thrust ofour pronouncement inChartered Bank Employees Association v. Ople (supra). In that case, We held:

It is argued that even without the presumption found in the rules and in the policyinstruction, the company practice indicates that the monthly salaries of theemployees are so computed as to include the holiday pay provided by law. Thepetitioner contends otherwise.

One strong argument in favor of the petitioner's stand is the fact that the CharteredBank, in computing overtime compensation for its employees, employs a "divisor" of251 days. The 251 working days divisor is the result of subtracting all Saturdays,Sundays and the ten (10) legal holidays from the total number of calendar days in ayear. If the employees are already paid for all non-working days, the divisor shouldbe 365 and not 251.

In the petitioner's case, its computation of daily ratio since September 1, 1980, is as follows:

monthly rate x 12 months

251 days

Following the criterion laid down in the Chartered Bankcase, the use of 251 days' divisor byrespondent Filipro indicates that holiday pay is not yet included in the employee's salary, otherwisethe divisor should have been 261.

It must be stressed that the daily rate, assuming there are no intervening salary increases, is aconstant figure for the purpose of computing overtime and night differential pay and commutation ofsick and vacation leave credits. Necessarily, the daily rate should also be the same basis forcomputing the 10 unpaid holidays.

The respondent arbitrator's order to change the divisor from 251 to 261 days would result in a lowerdaily rate which is violative of the prohibition on non-diminution of benefits found in Article 100 of theLabor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the dividend,whichrepresents the employee's annual salary, should correspondingly be increased to incorporate


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the holiday pay. To illustrate, if prior to the grant of holiday pay, the employee's annual salary isP25,100, then dividing such figure by 251 days, his daily rate is P100.00 After the payment of 10days' holiday pay, his annual salary already includes holiday pay and totals P26,100 (P25,100 +1,000). Dividing this by 261 days, thedaily rate is still P100.00. There is thus no merit in respondentNestle's claim of overpayment of overtime and night differential pay and sick and vacation leavebenefits, the computation of which are all based on the daily rate, since the daily rate is still the same

before and after the grant of holiday pay.

Respondent Nestle's invocation ofsolutio indebiti, or payment by mistake, due to its use of 251 daysas divisor must fail in light of the Labor Code mandate that "all doubts in the implementation andinterpretation of this Code, including its implementing rules and regulations, shall be resolved infavor of labor." (Article 4). Moreover, prior to September 1, 1980, when the company was on a 6-dayworking schedule, the divisor used by the company was 303, indicating that the 10 holidays werelikewise not paid. When Filipro shifted to a 5-day working schebule on September 1, 1980, it had thechance to rectify its error, if ever there was one but did not do so. It is now too late to allege paymentby mistake.

Nestle also questions the voluntary arbitrator's ruling that holiday pay should be computed fromNovember 1, 1974. This ruling was not questioned by the petitioner union as obviously said decisionwas favorable to it. Technically, therefore, respondent Nestle should have filed a separate petitionraising the issue of effectivity of the holiday pay award. This Court has ruled that an appellee who isnot an appellant may assign errors in his brief where his purpose is to maintain the judgment onother grounds, but he cannot seek modification or reversal of the judgment or affirmative reliefunless he has also appealed. (Franco v. Intermediate Appellate Court, 178 SCRA 331 [1989], citingLa Campana Food Products, Inc. v. Philippine Commercial and Industrial Bank, 142 SCRA 394[1986]). Nevertheless, in order to fully settle the issues so that the execution of the Court's decisionin this case may not be needlessly delayed by another petition, the Court resolved to take up thematter of effectivity of the holiday pay award raised by Nestle.

Nestle insists that the reckoning period for the application of the holiday pay award is 1985 whenthe Chartered Bankdecision, promulgated on August 28, 1985, became final and executory, and not

from the date of effectivity of the Labor Code. Although the Court does not entirely agree with Nestle,we find its claim meritorious.

In Insular Bank of Asia and America Employees' Union (IBAAEU) v. Inciong, 132 SCRA 663 [1984],hereinafter referred to as the IBAA case, the Court declared that Section 2, Rule IV, Book III of theimplementing rules and Policy Instruction No. 9, issued by the then Secretary of Labor on February16, 1976 and April 23, 1976, respectively, and which excluded monthly paid employees from holidaypay benefits, are null and void. The Court therein reasoned that, in the guise of clarifying the LaborCode's provisions on holiday pay, the aforementioned implementing rule and policy instructionamended them by enlarging the scope of their exclusion. The Chartered Bankcase reiterated theabove ruling and added the "divisor" test.

However, prior to their being declared null and void, the implementing rule and policy instructionenjoyed the presumption of validity and hence, Nestle's non-payment of the holiday benefit up to thepromulgation of the IBAA case on October 23, 1984 was in compliance with these presumably validrule and policy instruction.

In the case ofDe Agbayani v. Philippine National Bank, 38 SCRA 429 [1971], the Court discussedthe effect to be given to a legislative or executive act subsequently declared invalid:

xxx xxx xxx


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Narvasa, C.J., Melencio-Herrera, Paras, Feliciano, Padilla, Bidin, Medialdea, Grio-Aquino,Regalado, Davide, Jr. and Romero, JJ., concur.

Cruz and Nocon, JJ., took no part.

The Lawphil Project - Arellano Law Foundation

SECOND DIVISION

[G.R. No. 104215. May 8, 1996] ERECTORS, INC., petitioner, vs. NATIONAL LABOR

RELATIONS COMMISSION, HON. JULIO ANDRES, JR. and FLORENCIOBURGOS,respondents.SYLLABUS

1. REMEDIAL LAW; JURISDICTION; JURISDICTION OVER THE SUBJECT MATTER,

DETERMINED BY LAW IN FORCE AT THE COMMENCEMENT OF ACTION; LABORARBITER HAS JURISDICTION OVER MONEY CLAIMS OF OVERSEAS WORKER FILEDON MARCH 31, 1982. - The rule is that jurisdiction over the subject matter is determinedby the law in force at the time of the commencement of the action. On March 31, 1982, at

the time private respondent filed his complaint against the petitioner, the prevailing laws

were Presidential Decree No. 1691 and Presidential Decree No. 1391 which vested theRegional Offices of the Ministry of Labor and the Labor Arbiters with "original and exclusive

jurisdiction over all cases involving employer-employee relations including money claims

arising out of any law or contracts involving Filipino workers for overseas employment." Atthe time of the filing of the complaint, the Labor Arbiter had clear jurisdiction over the

same.

2. LABOR AND SOCIAL LEGISLATION; EXECUTIVE ORDER NO. 797 CREATING THE

PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA); WITHOUTRETROACTIVE APPLICATION; LABOR ARBITER NOT DIVESTED OF JURISDICTIONBY EFFECTIVITY OF E.O. 797. - E.O. No. 797 did not divest the Labor Arbiter's authority

to hear and decide the case filed by private respondent prior to its effectivity. Laws should

only be applied prospectively unless the legislative intent to give them retroactive effect isexpressly declared or is necessarily implied from the language used. We fail to perceive in

the language of E.O. No. 797 an intention to give it retroactive effect. The law at bar, E.O.No. 797, is not a curative statute. It was not intended to remedy any defect in the law. It

created the POEA to assume the functions of the Overseas Employment DevelopmentBoard, the National Seamen Board and the overseas employment functions of the Bureau of

Employment Services. Accordingly, it gave the POEA "original and exclusive jurisdiction

over all cases, including money claims, involving employer-employee relations arising out ofor by virtue of any law or contract involving Filipino workers for overseas employment,including seamen." The rule on prospectivity of laws should therefore apply to E.O. No.

797. It should not affect jurisdiction over cases filed prior to its effectivity.


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3. STATUTORY CONSTRUCTION; STATUTES; CURATIVE STATUTE; DEFINED. - Acurative statute is enacted to cure defects in a prior law or to validate legal

proceedings, instruments or acts of public authorities which would otherwise be void forwant of conformity with certain existing legal requirements.

APPEARANCES OF COUNSEL

Bengzon, Zarraga, Narciso, Ardala, Pecson, Bengzon, and Jimenez for petitioner.Fabian Gappi for private respondent.

D E C I S I O N

PUNO,J.:

Petitioner Erectors, Inc. challenges the jurisdiction of respondent Labor Arbiter Julio F.

Andres, Jr. to hear and decide the complaint[1]for underpayment of wages and non-

payment of overtime pay filed by private respondent Florencio Burgos, an overseas contractworker.

The facts are undisputed:

In September 1979, petitioner recruited private respondent to work as service contractdriver in Saudi Arabia for a period of twelve (12) months with a salary of US$165.00 and anallowance of US$165.00 per month. They further agreed that private respondent shall be

entitled to a bonus of US$ 1,000.00 if after the 12-month period, he renews or extends hisemployment contract without availing of his vacation or home leave. Their contract datedSeptember 20, 1979, was duly approved by the Ministry of Labor and Employment.

The aforesaid contract was not implemented. In December, 1979, petitioner notified

private respondent that the position of service driver was no longer available. On December14, 1979, they executed another contract which changed the position of private respondent

into that of helper/laborer with a salary of US$105.00 and an allowance of US$105.00 per

month. The second contract was not submitted to the Ministry of Labor and Employment

for approval.On December 18, 1979, private respondent left the country and worked at petitioner's

Buraidah Sports Complex project in Saudi Arabia, performing the job of a

helper/laborer. He received a monthly salary and allowance of US$210.00, in accordancewith the second contract. Private respondent renewed his contract of employment after one

year. His salary and allowance were increased to US$231.00.

Private respondent returned to the Philippines on August 24, 1981. He then invoked hisfirst employment contract. He demanded from the petitioner the difference between hissalary and allowance as indicated in the said contract, and the amount actually paid to him,

plus the contractual bonus which should have been awarded to him for not availing of his

vacation or home leave credits. Petitioner denied private respondent's claim.

On March 31, 1982, private respondent filed with the Labor Arbiter a complaint againstthe petitioner for underpayment of wages and non-payment of overtime pay and contractual

bonus.

On May 1, 1982, while the case was still in the conciliation stage, Executive Order

(E.O.) No. 797 creating the Philippine Overseas Employment Administration (POEA) tookeffect. Section 4(a) of E.O. No. 797 vested the POEA with "original and exclusive

jurisdiction over all cases, including money claims, involving employer-employee relations

arising out of or by virtue of any law or contract involving Filipino workers for overseasemployment.[2]
http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn1


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Despite E.O. No. 797, respondent Labor Arbiter proceeded to try the case on themerits. On September 23, 1983, he rendered a Decision[3]in favor of private respondent,

the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered ordering the respondent to pay the complainant

as follows:

1. The sum of US$2,496.00 in its peso equivalent on August 25, 1981 as differencebetween his allowance as Service Driver as against his position as Helper/Laborer;

2. The sum of US$1,000.00 in its peso equivalent as of the same date, as hiscontractual bonus.

The complaints for non-payment/underpayment of overtime pay and unpaid wages orcommission are DISMISSED for lack of merit.[4]

Petitioner appealed to respondent National Labor Relations Commission (NLRC). It

questioned the jurisdiction of the Labor Arbiter over the case in view of the enactment of

E.O. No. 797.

In a Resolution dated July 17, 1991,[5]respondent NLRC dismissed the petitioner'sappeal and upheld the Labor Arbiter's jurisdiction. It ruled:

"To begin with, the Labor Arbiter has the authority to decide this case. On May 29, 1978,

the Labor Arbiters were integrated into the Regional Offices under P.D. 1391. On May 1,1980, P.D. 1691 was promulgated giving the Regional Offices of the Ministry of Labor and

Employment the original and exclusive jurisdiction over all cases arising out of or by virtue

of any law or contract involving Filipino workers for overseas employment. There is nodispute that the Labor Arbiter had the legal authority over the case on hand, which accruedand was filed when the two above mentioned Presidential Decrees were in force.[6]

Petitioner filed this special civil action for certiorarireiterating the argument that:

"The NLRC committed grave abuse of discretion tantamount to lack of jurisdiction in

affirming the Labor Arbiter's void judgment in the case a quo."[7]

It asserts that E.O. No. 797 divested the Labor Arbiter of his authority to try and

resolve cases arising from overseas employment contract. Invoking this Court's ruling

in Briad Agro Developinent Corp. vs. Dela Cerna,[8]petitioner argues that E.O. No. 797applies retroactively to affect pending cases, including the complaint filed by private

respondent.

The petition is devoid of merit.

The rule is that jurisdiction over the subject matter is determined by the law in force atthe time of the commencement of the action.[9]On March 31, 1982, at the time privaterespondent filed his complaint against the petitioner, the prevailing laws were Presidential

Decree No. 1691[10]and Presidential Decree No. 1391[11]which vested the Regional Offices

of the Ministry of Labor and the Labor Arbiters with "original and exclusive jurisdiction overall cases involving employer-employee relations including money claims arising out of any

law or contracts involving Filipino workers for overseas employment."[12]At the time of thefiling of the complaint, the Labor Arbiter had clear jurisdiction over the same.
http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn11http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn11http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn12http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104215.htm#_edn12http://sc.judiciary.gov.ph/jurisprudence/1996/may1996/104

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