Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

176951 August 24, 2010

LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President JERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS, CITY OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS in his 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 SURIGAO DEL SUR; MUNICIPALITY OF BORONGAN, PROVINCE OF EASTERN SAMAR; and MUNICIPALITY 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 OF GENERAL 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 OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, Petitioners-In-Intervention. x-----------------------x G.R. No. 177499 LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President JERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS,CITY OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS in his 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 ILOCOS NORTE; MUNICIPALITY OF MATI, PROVINCE OF DAVAO ORIENTAL; and MUNICIPALITY OF GUIHULNGAN, 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 OF GENERAL 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 OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, Petitioners-In-Intervention.

x-----------------------x G.R. No. 178056 LEAGUE OF CITIES OF THE PHILIPPINES (LCP) represented by LCP National President JERRY P. TREAS, CITY OF ILOILO represented by MAYOR JERRY P. TREAS, CITY OF CALBAYOG represented by MAYOR MEL SENEN S. SARMIENTO, and JERRY P. TREAS in his personal capacity as taxpayer, Petitioners, vs. COMMISSION ON ELECTIONS; MUNICIPALITY OF CABADBARAN, PROVINCE OF AGUSAN DEL NORTE; MUNICIPALITY OF CARCAR, PROVINCE OF CEBU; and MUNICIPALITY OF EL SALVADOR, 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 OF GENERAL 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 OF CALAPAN, CITY OF HIMAMAYLAN, CITY OF BATANGAS, CITY OF BAIS, CITY OF CADIZ, and CITY OF TAGUM, Petitioners-In-Intervention. RESOLUTION CARPIO, J.: For resolution are (1) the ad cautelam motion for reconsideration and (2) motion to annul the Decision 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 16 Cityhood Laws for violating Section 10, Article X of the 1987 Constitution and the equal protection clause. On 31 March 2009, the Supreme Court En Banc, again by a majority vote, denied the respondents first motion for reconsideration. On 28 April 2009, the Supreme Court En Banc, by a split vote, denied the respondents second motion for reconsideration. Accordingly, the 18 November 2008 Decision became final and executory and was recorded, in due course, in the Book of Entries of Judgments on 21 May 2009. However, after the finality of the 18 November 2008 Decision and without any exceptional and compelling reason, the Court En Banc unprecedentedly reversed the 18 November 2008 Decision by 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 accordingly reinstates the 18 November 2008 Decision declaring the 16 Cityhood Laws unconstitutional.

A. Violation of Section 10, Article X of the Constitution Section 10, Article X of the 1987 Constitution provides: No province, city, municipality, or barangay shall be created, divided, merged, abolished or its boundary 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 the political units directly affected. (Emphasis supplied) The Constitution is clear. The creation of local government units must follow the criteria established in the Local Government Code and not in any other law. There is only one Local Government Code.1 The Constitution requires Congress to stipulate in the Local Government Code all the criteria necessary for the creation of a city, including the conversion of a municipality into a city. Congress cannot 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 must follow the same uniform, non-discriminatory criteria found solely in the Local Government Code. Any derogation 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 requirement from 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 a city 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, even though their cityhood bills were pending in Congress when Congress passed RA 9009. The Cityhood Laws, all enacted after the effectivity of RA 9009, explicitly exempt respondent municipalities 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 Constitution and is thus patently unconstitutional. To be valid, such exemption must be written in the Local Government 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 pertinently provides: "Section 450 of Republic Act No. 7160, otherwise known as the Local Government Code of 1991, is hereby amended to read as follows: x x x." RA 9009 amended Section 450 of the Local Government Code. RA 9009, by amending Section 450 of the Local Government Code, embodies the new and prevailing Section 450 of the Local Government Code. Considering the Legislatures primary intent to curtail "the mad rush of municipalities wanting to be converted into cities," RA 9009 increased the income requirement for the creation of cities. To repeat, RA 9009 is not a law different from the Local Government Code, as it expressly amended Section 450 of the Local Government Code. The language of RA 9009 is plain, simple, and clear. Nothing is unintelligible or ambiguous; not a single word or phrase admits of two or more meanings. RA 9009 amended Section 450 of the Local Government Code of 1991 by increasing the income requirement for the creation of cities. There are no exemptions from this income requirement. Since the law is clear, plain and unambiguous that any municipality desiring to convert into a city must meet the increased income requirement, there is no reason to go beyond the letter of the law. Moreover, where the law does not make an exemption, the Court should not create one.2

B. Operative Fact Doctrine Under the operative fact doctrine, the law is recognized as unconstitutional but the effects of the unconstitutional law, prior to its declaration of nullity, may be left undisturbed as a matter of equity and fair play. In fact, the invocation of the operative fact doctrine is an admission that the law is unconstitutional. However, the minoritys novel theory, invoking the operative fact doctrine, is that the enactment of the Cityhood Laws and the functioning of the 16 municipalities as new cities with new sets of officials and employees operate to contitutionalize the unconstitutional Cityhood Laws. This novel theory misapplies the operative fact doctrine and sets a gravely dangerous precedent. Under the minoritys novel theory, an unconstitutional law, if already implemented prior to its declaration of unconstitutionality by the Court, can no longer be revoked and its implementation must be continued despite being unconstitutional. This view will open the floodgates to the wanton enactment of unconstitutional laws and a mad rush for their immediate implementation before the Court can declare them unconstitutional. This view is an open invitation to serially violate the Constitution, 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 the general rule that an unconstitutional law produces no effects. It can never be invoked to validate as constitutional an unconstitutional act. In Planters Products, Inc. v. Fertiphil Corporation,3 the Court stated: The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed. Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in accordance with the general civil code principle against unjust enrichment. The general rule is supported 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 not be 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 and the latter shall govern. The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by 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 declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done by a municipality in reliance upon a law creating it. (Emphasis supplied) The operative fact doctrine never validates or constitutionalizes an unconstitutional law. Under the operative fact doctrine, the unconstitutional law remains unconstitutional, but the effects of the unconstitutional law, prior to its judicial declaration of nullity, may be left undisturbed as a matter of equity and fair play. In short, the operative fact doctrine affects or modifies only the effects of the unconstitutional law, not the unconstitutional law itself.

Thus, applying the operative fact doctrine to the present case, the Cityhood Laws remain unconstitutional because they violate Section 10, Article X of the Constitution. However, the effects of the implementation of the Cityhood Laws prior to the declaration of their nullity, such as the payment of salaries and supplies by the "new cities" or their issuance of licenses or execution of contracts, may be recognized as valid and effective. This does not mean that the Cityhood Laws are valid 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 the presumed validity of the Cityhood Laws prior to the Courts declaration of their unconstitutionality. C. Equal Protection Clause As the Court held in the 18 November 2008 Decision, there is no substantial distinction between municipalities with pending cityhood bills in the 11th Congress and municipalities that did not have pending bills. The mere pendency of a cityhood bill in the 11th Congress is not a material difference to distinguish one municipality from another for the purpose of the income requirement. The pendency of a cityhood bill in the 11th Congress does not affect or determine the level of income of a municipality. Municipalities with pending cityhood bills in the 11th Congress might even 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 not rationally related to the purpose of the law which is to prevent fiscally non-viable municipalities from converting into cities. Moreover, the fact of pendency of a cityhood bill in the 11th Congress limits the exemption to a specific condition existing at the time of passage of RA 9009. That specific condition will never happen again. This violates the requirement that a valid classification must not be limited to existing conditions only. In fact, the minority concedes that "the conditions (pendency of the cityhood bills) adverted to can no longer be repeated." Further, the exemption provision in the Cityhood Laws gives the 16 municipalities a unique advantage based on an arbitrary date the filing of their cityhood bills before the end of the 11th Congress 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 the classification must apply to all similarly situated. Municipalities with the same income as the 16 respondent 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 in Section 450 of the Local Government Code, would still be unconstitutional for violation of the equal protection clause. D. Tie-Vote on a Motion for Reconsideration Section 7, Rule 56 of the Rules of Court provides: SEC. 7. Procedure if opinion is equally divided. Where the court en banc is equally divided in opinion, or the necessary majority cannot be had, the case shall again be deliberated on, and if after such deliberation no decision is reached, the original action commenced in the court shall be dismissed; in appealed cases, the judgment or order appealed from shall stand affirmed; and on all incidental matters, the petition or motion shall be denied. (Emphasis supplied) The En Banc Resolution of 26 January 1999 in A.M. No. 99-1-09-SC, reads:

A MOTION FOR THE CONSIDERATION OF A DECISION OR RESOLUTION OF THE COURT EN BANC OR OF A DIVISION MAY BE GRANTED UPON A VOTE OF A MAJORITY OF THE MEMBERS OF THE EN BANC OR OF A DIVISION, AS THE CASE MAY BE, WHO ACTUALLY TOOK 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 banc Resolution requires no further explanation. If the voting of the Court en banc results in a tie, the motion for reconsideration is deemed denied. The Courts prior majority action on the main decision stands affirmed.4 This clarificatory Resolution applies to all cases heard by the Court en banc, which includes not only cases involving the constitutionality of a law, but also, as expressly stated in Section 4(2), Article VIII of the Constitution, "all other cases which under the Rules of Court are required to be heard en banc." The 6-6 tie-vote by the Court en banc on the second motion for reconsideration necessarily resulted in 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 court order or directive.5 The judgment stands in full force.6 Undeniably, the 6-6 tie-vote did not overrule the prior majority en banc Decision of 18 November 2008, as well as the prior majority en banc Resolution of 31 March 2009 denying reconsideration. The tie-vote on the second motion for reconsideration is not the same as a tie-vote on the main decision where there is no prior decision. Here, the tie-vote plainly signifies that there is no majority to overturn the prior 18 November 2008 Decision and 31 March 2009 Resolution, and thus the second motion for reconsideration must be denied. Further, the tie-vote on the second motion for reconsideration did not mean that the present cases were left undecided because there remain the Decision of 18 November 2008 and the Resolution of 31 March 2009 where a majority of the Court en banc concurred in declaring the unconstitutionality of 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 en banc, are not reconsidered but stand affirmed.7These prior majority actions of the Court en banc can only be overruled by a new majority vote, not a tie-vote because a tie-vote cannot overrule a prior affirmative action. The denial, by a split vote, of the second motion for reconsideration inevitably rendered the 18 November 2008 Decision final. In fact, in its Resolution of 28 April 2009, denying the second motion for reconsideration, the Courten banc reiterated that no further pleadings shall be entertained and stated that entry of judgment be made in due course.
1w phi1

The dissenting opinion stated that "a deadlocked vote of six is not a majority and a non-majority does 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 November 2008 Decision stands affirmed. And assuming a non-majority lacks any precedential value, the 18 November 2008 Decision, which was unreversed as a result of the tie-vote on the respondents second motion for reconsideration, nevertheless remains binding on the parties.9 Conclusion

Section 10, Article X of the Constitution expressly provides that "no x x x city shall be created x x x except in accordance with the criteria established in the local government code." This provision can only be interpreted in one way, that is, all the criteria for the creation of cities must be embodied exclusively in the Local Government Code. In this case, the Cityhood Laws, which are unmistakably laws other than the Local Government Code, provided an exemption from the increased income requirement for the creation of cities under Section 450 of the Local Government Code, as amended by RA 9009. Clearly, the Cityhood Laws contravene the letter and intent of Section 10, Article X of the Constitution. Adhering to the explicit prohibition in Section 10, Article X of the Constitution does not cripple Congress power to make laws. In fact, Congress is not prohibited from amending the Local Government Code itself, as what Congress did by enacting RA 9009. Indisputably, the act of amending laws comprises an integral part of the Legislatures law-making power. The unconstitutionality of the Cityhood Laws lies in the fact that Congress provided an exemption contrary to the express language of the Constitution that "[n]o x x x city x x x shall be created except in accordance with the criteria established in the local government code." In other words, Congress exceeded and abused its law-making power, rendering the challenged Cityhood Laws void for being violative of the Constitution. WHEREFORE, we GRANT the motions for reconsideration of the 21 December 2009 Decision and REINSTATEthe 18 November 2008 Decision declaring UNCONSTITUTIONAL the Cityhood Laws, namely: Republic Act Nos. 9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408, 9409, 9434, 9435, 9436, and 9491. We NOTE petitioners motion to annul the Decision of 21 December 2009. SO ORDERED. ANTONIO T. CARPIO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice CONCHITA CARPIO MORALES Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice ARTURO D. BRION Associate Justice LUCAS P. BERSAMIN Associate Justice ROBERTO A. ABAD PRESBITERO J. VELASCO, JR. Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice DIOSDADO M. PERALTA Associate Justice MARIANO C. DEL CASTILLO Associate Justice MARTIN S. VILLARAMA, JR.

Associate Justice JOSE PORTUGAL PEREZ Associate Justice

Associate Justice JOSE C. MENDOZA Associate Justice

MARIA LOURDES P. A. SERENO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court. RENATO C. CORONA Chief Justice Footnotes
1

Republic Act No. 7160, as amended. See Francisco v. Court of Appeals, 313 Phil. 241, 258 (1995). G.R. No. 166006, 14 March 2008, 548 SCRA 485, 516-517.

In Fortich v. Corona, G.R. No. 131457, 19 August 1999, 312 SCRA 751, 766, retired Justice Jose Melo, in his Separate Opinion on the motion for reconsideration, stated that "in our 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 (for reconsideration) shall, of course, not be carried because that is the end of the line." (Emphasis supplied)
5

Michael Coenen, Original Jurisdiction Deadlocks, Yale Law Journal, March, 2009, 118 Yale L.J. 1003, citing Durant v. Essex Co., 74 U.S. (7 Wall.) 107, 112 (1868).
6

Id.

In 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 issue was not ripe for adjudication, denied the motion for reconsideration. The case of Lambino v. COMELEC, G.R. Nos. 174153 and 174299, cited Defensor-Santiago v. COMELEC. See Chief Justice Punos separate opinion in Lambino v. COMELEC, G.R. Nos. 174153 and 174299, 25 October 2006, 505 SCRA 160.
8 9

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

Republic of the Philippines Supreme Court Manila

EN BANC

PHILIPPINE NATIONAL BANK, Petitioner,

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,*** and ABAD, JJ. Promulgated:

versus -

CAYETANO A. TEJANO, JR., Respondent.

x--------------------------------------------------x

October 16, 2009

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

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.

10

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]

11

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 re solution 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 Majority of the Voting Equity of the Bank. When the ownership of the majority of the issued common voting shares passes to private investors, 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).

12

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 usually divests 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.

13

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 enactment particularly that provision which treats of the jurisdiction of the CSC.[33]

The argument is unconvincing. In Latchme 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 of Bengzon 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]

14

Petitioner

derives

support

from

the

exceptions

laid

down

in

the

cases

of Latchme

Motoomull and Bengzon 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 CAG.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. PERALTA Associate Justice

WE CONCUR:

On Official Leave REYNATO S. PUNO Chief Justice

LEONARDO A. QUISUMBING Associate Justice Acting Chief Justice

ANTONIO T. CARPIO Associate Justice

15

RENATO C. CORONA Associate Justice

CONCHITA CARPIO MORALES Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

On Official Leave PRESBITERO J. VELASCO, JR. Associate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

ARTURO D. BRION Associate Justice

LUCAS P. BERSAMIN Associate Justice

On leave MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

LEONARDO A. QUISUMBING Acting Chief Justice

16

Republic of the Philippines SUPREME 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 NESTL PHILIPPINES, 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 the change 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 National Labor Relations Commission (NLRC) a petition for declaratory relief seeking a ruling on its rights and obligations respecting claims of its monthly paid employees for holiday pay in the light of the Court's decision in Chartered Bank Employees Association v. Ople (138 SCRA 273 [1985]). Both Filipro and the Union of Filipino Employees (UFE) agreed to submit the case for voluntary arbitration 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) the exclusion of salesmen, sales representatives, truck drivers, merchandisers and medical representatives (hereinafter referred to as sales personnel) from the award of the holiday pay, and (3) deduction from the holiday pay award of overpayment for overtime, night differential, vacation and sick leave benefits due to the use of 251 divisor. (Rollo, pp. 138-145)

17

Petitioner UFE answered that the award should be made effective from the date of effectivity of the Labor Code, that their sales personnel are not field personnel and are therefore entitled to holiday pay, and that the use of 251 as divisor is an established employee benefit which cannot be diminished. 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. He adjudged, however, that the company's sales personnel are field personnel and, as such, are not entitled to holiday pay. He likewise ruled that with the grant of 10 days' holiday pay, the divisor should 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 Arbitrator treated the two motions as appeals and forwarded the case to the NLRC which issued a resolution dated 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 Labor Code as amended by Section 10, Batas Pambansa Blg. 130 and as implemented by Section 5 of the rules implementing B.P. Blg. 130. However, in a letter dated July 6, 1987, the respondent arbitrator refused to take cognizance of the case reasoning that he had no more jurisdiction to continue as arbitrator because he had resigned from 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 for overtime, night differential, vacation and sick leave pay. The petitioner insists that respondent's sales personnel are not field personnel under Article 82 of the Labor Code. The respondent company controverts this assertion. Under Article 82, field personnel are not entitled to holiday pay. Said article defines field personnel as "non-agritultural employees who regularly perform their duties away from the principal place of business or branch office of the employer and whose actual hours of work in the field cannot be determined with reasonable certainty." The controversy centers on the interpretation of the clause "whose actual hours of work in the field cannot be determined with reasonable certainty." It is undisputed that these sales personnel start their field work at 8:00 a.m. after having reported to the 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 sales personnel's working hours which can be determined with reasonable certainty.

18

The Court does not agree. The law requires that the actual hours of work in the field be reasonably ascertained. The company has no way of determining whether or not these sales personnel, even if they report to the office before 8:00 a.m. prior to field work and come back at 4:30 p.m, really spend the 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 report for work at the office at 8:00 a.m. and return at 4:00 or 4:30 p.m. is not within the realm of work in the field as defined in the Code but an exercise of purely management prerogative of providing administrative control over such personnel. This does not in any manner provide a reasonable level of determination on the actual field work of the employees which can be reasonably ascertained. The theoretical analysis that salesmen and other similarly-situated workers regularly report 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 field itinerary, and ends immediately before 4:00 or 4:30 p.m. when they report back to their office. The period between 8:00 a.m. and 4:00 or 4:30 p.m. comprises their hours of work in the field, the extent or scope and result of which are subject to their individual capacity and industry and which "cannot be determined with reasonable certainty." This is the reason why effective supervision over field work of salesmen and medical representatives, truck drivers and merchandisers is practically a physical impossibility. Consequently, they are excluded from the ten holidays with pay award. (Rollo, pp. 36-37) Moreover, the requirement that "actual hours of work in the field cannot be determined with reasonable certainty" must be read in conjunction with Rule IV, Book III of the Implementing Rules which 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 is unsupervised by the employer . . . (Emphasis supplied) While contending that such rule added another element not found in the law (Rollo, p. 13), the petitioner nevertheless attempted to show that its affected members are not covered by the abovementioned rule. The petitioner asserts that the company's sales personnel are strictly supervised 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 add another element to the Labor Code definition of field personnel. The clause "whose time and performance is unsupervised by the employer" did not amplify but merely interpreted and expounded the 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

19

with reasonable certainty, query must be made as to whether or not such employee's time and performance is constantly supervised by the employer. The SOD schedule adverted to by the petitioner does not in the least signify that these sales personnel's time and performance are supervised. The purpose of this schedule is merely to ensure that 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 in field work by an employee through the imposition of sanctions on absenteeism contained in the company circular of March 15, 1984. The petitioner claims that the fact that these sales personnel are given incentive bonus every quarter based on their performance is proof that their actual hours of work in the field can be determined with reasonable certainty. The Court thinks otherwise. The criteria for granting incentive bonus are: (1) attaining or exceeding sales volume based on sales target; (2) good collection performance; (3) proper compliance with good market hygiene; (4) good merchandising 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 precisely because of the difficulty in measuring their actual hours of field work. These employees are evaluated by the result of their work and not by the actual hours of field work which are hardly susceptible to determination. In San Miguel Brewery, Inc. v. Democratic Labor Organization (8 SCRA 613 [1963]), the Court had occasion to discuss the nature of the job of a salesman. Citing the case of Jewel Tea Co. v. Williams, C.C.A. Okla., 118 F. 2d 202, the Court stated: The reasons for excluding an outside salesman are fairly apparent. Such a salesman, to a greater extent, works individually. There are no restrictions respecting the time he shall work and he can earn as much or as little, within the range of his ability, as his ambition dictates. In lieu of overtime he ordinarily receives commissions as extra compensation. He works away from his employer's place of business, is not subject to the personal supervision of his employer, and his employer 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 same rationale 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 award of holiday pay, the divisor should be changed from 251 to 261 days to include the additional 10 holidays and the employees should reimburse the amounts overpaid by Filipro due to the use of 251 days' divisor. Arbitrator Vivar's rationale for his decision is as follows: . . . The new doctrinal policy established which ordered payment of ten holidays certainly adds to or accelerates the basis of conversion and computation by ten days.

20

With the inclusion of ten holidays as paid days, the divisor is no longer 251 but 261 or 262 if election day is counted. This is indeed an extremely difficult legal question of 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 an impossible situation where the employees would benefit with additional ten days with pay but would simultaneously enjoy higher benefits by discarding the same ten days for purposes of computing overtime and night time services and considering sick and vacation leave credits. Therefore, reimbursement of such overpayment with the use of 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 included in the monthly paid employee's salary and in the computation of his daily rate. This is the thrust of our 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 policy instruction, the company practice indicates that the monthly salaries of the employees are so computed as to include the holiday pay provided by law. The petitioner contends otherwise. One strong argument in favor of the petitioner's stand is the fact that the Chartered Bank, in computing overtime compensation for its employees, employs a "divisor" of 251 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 a year. If the employees are already paid for all non-working days, the divisor should be 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 Bank case, the use of 251 days' divisor by respondent Filipro indicates that holiday pay is not yet included in the employee's salary, otherwise the divisor should have been 261. It must be stressed that the daily rate, assuming there are no intervening salary increases, is a constant figure for the purpose of computing overtime and night differential pay and commutation of sick and vacation leave credits. Necessarily, the daily rate should also be the same basis for computing the 10 unpaid holidays. The respondent arbitrator's order to change the divisor from 251 to 261 days would result in a lower daily rate which is violative of the prohibition on non-diminution of benefits found in Article 100 of the Labor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the dividend, which represents the employee's annual salary, should correspondingly be increased to incorporate

21

the holiday pay. To illustrate, if prior to the grant of holiday pay, the employee's annual salary is P25,100, then dividing such figure by 251 days, his daily rate is P100.00 After the payment of 10 days' holiday pay, his annual salary already includes holiday pay and totals P26,100 (P25,100 + 1,000). Dividing this by 261 days, the daily rate is still P100.00. There is thus no merit in respondent Nestle's claim of overpayment of overtime and night differential pay and sick and vacation leave benefits, 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 of solutio indebiti, or payment by mistake, due to its use of 251 days as divisor must fail in light of the Labor Code mandate that "all doubts in the implementation and interpretation of this Code, including its implementing rules and regulations, shall be resolved in favor of labor." (Article 4). Moreover, prior to September 1, 1980, when the company was on a 6-day working schedule, the divisor used by the company was 303, indicating that the 10 holidays were likewise not paid. When Filipro shifted to a 5-day working schebule on September 1, 1980, it had the chance to rectify its error, if ever there was one but did not do so. It is now too late to allege payment by mistake. Nestle also questions the voluntary arbitrator's ruling that holiday pay should be computed from November 1, 1974. This ruling was not questioned by the petitioner union as obviously said decision was favorable to it. Technically, therefore, respondent Nestle should have filed a separate petition raising the issue of effectivity of the holiday pay award. This Court has ruled that an appellee who is not an appellant may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless he has also appealed. (Franco v. Intermediate Appellate Court, 178 SCRA 331 [1989], citing La 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 decision in this case may not be needlessly delayed by another petition, the Court resolved to take up the matter 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 when the Chartered Bank decision, 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 the implementing rules and Policy Instruction No. 9, issued by the then Secretary of Labor on February 16, 1976 and April 23, 1976, respectively, and which excluded monthly paid employees from holiday pay benefits, are null and void. The Court therein reasoned that, in the guise of clarifying the Labor Code's provisions on holiday pay, the aforementioned implementing rule and policy instruction amended them by enlarging the scope of their exclusion. The Chartered Bank case reiterated the above ruling and added the "divisor" test. However, prior to their being declared null and void, the implementing rule and policy instruction enjoyed the presumption of validity and hence, Nestle's non-payment of the holiday benefit up to the promulgation of the IBAA case on October 23, 1984 was in compliance with these presumably valid rule and policy instruction. In the case of De Agbayani v. Philippine National Bank, 38 SCRA 429 [1971], the Court discussed the effect to be given to a legislative or executive act subsequently declared invalid: xxx xxx xxx

22

. . . 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." (Chicot County Drainage Dist. v. Baxter States Bank, 308 US 371, 374 [1940]). This language has been quoted with approval in a resolution in Araneta v. Hill (93 Phil. 1002 [1952]) and the decision in Manila Motor Co., Inc. v. Flores (99 Phil. 738 [1956]). An even more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. (21 SCRA 1095 [1967]. (At pp. 434-435) The "operative fact" doctrine realizes that in declaring a law or rule null and void, undue harshness and resulting unfairness must be avoided. It is now almost the end of 1991. To require various companies to reach back to 1975now and nullify acts done in good faith is unduly harsh. 1984 is a fairer reckoning period under the facts of this case. Applying the aforementioned doctrine to the case at bar, it is not far-fetched that Nestle, relying on the implicit validity of the implementing rule and policy instruction before this Court nullified them, and thinking that it was not obliged to give holiday pay benefits to its monthly paid employees, may have been moved to grant other concessions to its employees, especially in the collective bargaining agreement. This possibility is bolstered by the fact that respondent Nestle's employees are among the highest paid in the industry. With this consideration, it would be unfair to impose additional burdens on Nestle when the non-payment of the holiday benefits up to 1984 was not in any way attributed to Nestle's fault. The Court thereby resolves that the grant of holiday pay be effective, not from the date of promulgation of the Chartered Bank case nor from the date of effectivity of the Labor Code, but from October 23, 1984, the date of promulgation of the IBAA case. WHEREFORE, the order of the voluntary arbitrator in hereby MODIFIED. The divisor to be used in computing holiday pay shall be 251 days. The holiday pay as above directed shall be computed from October 23, 1984. In all other respects, the order of the respondent arbitrator is hereby AFFIRMED. SO ORDERED.

23

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 FLORENCIO BURGOS,respondents.SYLLABUS

1. REMEDIAL LAW; JURISDICTION; JURISDICTION OVER THE SUBJECT MATTER, DETERMINED BY LAW IN FORCE AT THE COMMENCEMENT OF ACTION; LABOR ARBITER HAS JURISDICTION OVER MONEY CLAIMS OF OVERSEAS WORKER FILED ON MARCH 31, 1982. - The rule is that jurisdiction over the subject matter is determined by 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 the Regional 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." At the 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); WITHOUT RETROACTIVE APPLICATION; LABOR ARBITER NOT DIVESTED OF JURISDICTION BY 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 is expressly 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 Development Board, 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 of or 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.

24

3. STATUTORY CONSTRUCTION; STATUTES; CURATIVE STATUTE; DEFINED. - A curative 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 for want 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. DECISION 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 nonpayment of overtime pay filed by private respondent Florencio Burgos, an overseas contract worker. The facts are undisputed: In September 1979, petitioner recruited private respondent to work as service contract driver in Saudi Arabia for a period of twelve (12) months with a salary of US$165.00 and an allowance 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 his employment contract without availing of his vacation or home leave. Their contract dated September 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 December 14, 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 accordance with 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 his first employment contract. He demanded from the petitioner the difference between his salary 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 against the 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) took effect. 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 overseas employment.[2]

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Despite E.O. No. 797, respondent Labor Arbiter proceeded to try the case on the merits. 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 difference between 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 his contractual bonus. The complaints for non-payment/underpayment of overtime pay and unpaid wages or commission 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's appeal 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 no dispute that the Labor Arbiter had the legal authority over the case on hand, which accrued and was filed when the two above mentioned Presidential Decrees were in force. [6] Petitioner filed this special civil action for certiorari reiterating 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. 797 applies 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 at the time of the commencement of the action.[9] On March 31, 1982, at the time private respondent 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 over all 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 the filing of the complaint, the Labor Arbiter had clear jurisdiction over the same.

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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 is expressly declared or is necessarily implied from the language used.[13] We fail to perceive in the language of E.O. No. 797 an intention to give it retroactive effect. The case of Briad Agro Development Corp. vs. Dela Cerna[14] cited by the petitioner is not applicable to the case at bar. In Briad, the Court applied the exception rather than the general rule. In this case, Briad Agro Development Corp. and L.M. Camus Engineering Corp. challenged the jurisdiction of the Regional Director of the Department of Labor and Employment over cases involving workers' money claims, since Article 217 of the Labor Code, the law in force at the time of the filing of the complaint, vested in the Labor Arbiters exclusive jurisdiction over such cases. The Court dismissed the petition in its Decision dated June 29, 1989.[15] It ruled that the enactment of E.O. No. 111, amending Article 217 of the Labor Code, cured the Regional Director's lack of jurisdiction by giving the Labor Arbiter and the Regional Director concurrent jurisdiction over all cases involving money claims. However, on November 9,1989, the Court, in a Resolution, [16]reconsidered and set aside its June 29 Decision and referred the case to the Labor Arbiter for proper proceedings, in view of the promulgation of Republic Act (R.A.) 6715 which divested the Regional Directors of the power to hear money claims. It bears emphasis that the Court accorded E.O. No. 111 and R.A. 6715 a retroactive application because as curative statutes, they fall under the exceptions to the rule on prospectivity of laws. E.O. No.111, amended Article 217 of the Labor Code to widen the workers' access to the government for redress of grievances by giving the Regional Directors and Labor Arbiters concurrent jurisdiction over cases involving money claims. This amendment, however, created a situation where the jurisdiction of the Regional Directors and the Labor Arbiters overlapped. As a remedy, R.A. 6715 further amended Article 217 by delineating their respective jurisdictions. Under R.A. 6715, the Regional Director has exclusive original jurisdiction over cases involving money claims provided: (1) the claim is presented by an employer or person employed in domestic or household service, or househelper under the Code; (2) the claimant, no longer being employed, does not seek reinstatement; and (3) the aggregate money claim of the employee or househelper does not exceed P5,000.00. All other cases are within the exclusive and original jurisdiction of the Labor Arbiter. E.O. No. 111 and R.A. 6715 are therefore curative statutes. A curative 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 for want of conformity with certain existing legal requirements. 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 Development Board, 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 employeremployee relations arising out of or by virtue of any law or contract involving Filipino workers for overseas employment, including seamen." [17] 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. Our ruling in Philippine-Singapore Ports Corp. vs. NLRC[18] is more apt to the case at bar. In this case, PSPC hired Jardin to work in Saudi Arabia. Jardin filed a complaint against PSPC for illegal dismissal and recovery of backwages on January 31, 1979 with the Labor Arbiter. PSPC questioned the jurisdiction of the Labor Arbiter because at that time,

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the power to hear and decide cases involving overseas workers was vested in the Bureau of Employment Services. We held:
"When Jardin filed the complaint for illegal dismissal on January 31, 1979, Art. 217 (5) of the Labor Code provided that Labor Arbiters and the NLRC shall have exclusive jurisdiction to hear and decide all cases arising from employer-employee relations unless expressly excluded by this Code. At that time Art. 15 of the same Code had been amended by P.D. No. 1412 which took effect on June 9, 1978. The pertinent provision of the said presidential decree states: Article 15. Bureau of Employment Services. (a) xxx xxx xxx

(b) The Bureau shall have the original and exclusive jurisdiction over all matters or cases involving employer-employee relations including money claims, arising out of or by virtue of any law or contracts involving Filipino workers for overseas employment, except seamen. The decisions of the Bureau shall be final and executory subject to appeal to the Secretary of Labor whose decision shall be final and inappealable. Considering that private respondent Jardin's claims undeniably arose out of an employer-employee relationship with petitioner PSPC and that private respondent worked overseas or in Saudi Arabia, the Bureau of Employment Services and not the Labor Arbiter had jurisdiction over the case. x x x Art. 15 was further amended by P.D. No. 1691 which took effect on May 1, 1990. Such amendment qualifies the jurisdiction of the Bureau of Employment Services as follows: (b) The regional offices of the Ministry of Labor shall have the original and exclusive jurisdiction over all matters or cases involving employer-employee relations including money claims, arising out of or by virtue of any law or contracts involving Filipino workers for overseas employment except seamen: Provided that the Bureau of Employment Services may, in the case of the National Capital Region, exercise such power, whenever the Minister of Labor deems it appropriate. The decisions of the regional offices or the Bureau of Employment Services if so authorized by the Minister of Labor as provided in this Article, shall be appealable to the National Labor Relations Commission upon the same grounds provided in Article 223 hereof. The decisions of the National Labor Relations Commission shall be final and inappealable. Hence, as further amended, Art. 15 provided for concurrent jurisdiction between the regional offices of the then Ministry of Labor and Bureau of Employment Services in the National Capital Region. It is noteworthy that P.D. No. 1691, while likewise amending Art. 217 of the Labor Code, did not alter the provision that Labor Arbiters shall have jurisdiction over all claims arising from employer-employee relations unless expressly excluded by this Code.The functions of the Bureau of Employment Services were subsequently assumed by the Philippine Overseas Employment Administration (POEA) on May 1, 1982 by virtue of Executive Order No. 797 by granting the POEA 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 overseas employment, including seamen. (Sec. 4 (a); Eastern Shipping Lines v. Philippine Overseas Employment Administration [POEA], 200 SCRA 663 [1991]). This development showed the legislative authority's continuing intent to exclude from the Labor Arbiter's jurisdiction claims arising from overseas employment. These amendments notwithstanding, when the complaint for illegal dismissal was filed on January 31, 1979, under Art. 15, as amended by P.D. No. 1412, it was the Bureau of Employment Services which had jurisdiction over the case and not the Labor Arbiters. It is a settled rule that jurisdiction is determined by the statute in force at the time of the commencement of the action (Municipality of Sogod v. Rosal, 201 SCRA 632, 637 [1991]). P.D. 1691 which gave the regional offices of the Ministry of Labor concurrent jurisdiction with the Bureau of

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Employment Services, was promulgated more than a year after the complaint was filed. (Italics supplied) In sum, we hold that respondent NLRC did not commit grave abuse of discretion in upholding the jurisdiction of respondent Labor Arbiter over the complaint filed by private respondent against the petitioner. IN VIEW WHEREOF, the Petition is DISMISSED. Costs against petitioner. SO ORDERED. Regalado (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

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