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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-23331-32 December 27, 1969

HEIRS OF TEODOLO M. CRUZ, (represented by ARSENIA, FREDESWINDA,TEODOLO, JR., ERLINDA, EDGARDO and MYRNA, all surnamed CRUZ), MARYCONCEPCION and EDGARDO CRUZ, petitioners,vs.COURT OF INDUSTRIAL RELATIONS, SANTIAGO RICE MILL and KING HONGAND COMPANY, respondents.

Mary Concepcion and Eduardo P. Cruz for petitioners.Tolentino and Garcia and D. R. Cruz for respondents.

G.R. No. L-23361-62 December 27, 1969

LYDIA BULOS, PACIENCIA BATOON, NATIVIDAD V. MALGAPO, FAUSTINOABEDOZA, CARMELITA AGGASID, LYDIA ALBINO, JUANITO ANDRES,LEONILA ANDRES, AIDA BATOON, CORNELIO BANGOT, PABLO BAUTISTA,CONSOLACION GALAD, AVELINA CADUAS, ELENA DE LA CRUZ, VICTORIANODE LA CRUZ, LEOCADIO DASALLA, VIRGINIA DASALLA, FLORA S. DUCAY,CRESENCIA EVIDENCIO, CATALINO GIMENEZ, DIONISIA GUILLERMO,ARSENIA LABASAN, FRANCISCO LAPLANO, DIONISIO LABASAN, MAURICIALAZATIN, LORETA MACAPAGAL, IGNACIA LUNA, FELICITA MANGADAP,FELICIDAD MARIANO, JULIAN MELCHOR, RICARDO MELCHOR, ANITAMENDOZA, ALBERTO MIGUEL, FERNANDO NAVALTA, PEDRO NOOL,JUANITA ORANI, NEMESIA SOLA, VERONICA SOLA, CECILIA SOLIVEN,

MANUEL SAGABAIN, FILEMON SAGABAIN, ANICETA RESPONSO, FELICIANORICO, PETRONILA RIVERA, ROSALINA TULAWAN and MARIAVILLANUEVA, petitioners,vs.THE COURT OF INDUSTRIAL RELATIONS, HONORABLE EMILIANO TABIGNE,HONORABLE AMANDO BUGAYONG, HONORABLE ANSBERTO PAREDES,ASSOCIATE JUDGES, COURT OF INDUSTRIAL RELATIONS; SANTIAGO RICEMILL; KING HONG CO., INC.; SANTIAGO LABOR UNION alias MAGAT LABORUNION, respondents.

Emilio D. Castellanes for petitioners.Dioscoro P. Avancea for respondent Santiago Labor Union.

TEEHANKEE, J .:

These cases are separate appeals filed by respective petitioners from respondentCourt's Orders of November 8, 1963 and March 9, 1964 approving by a split 3 to 1vote the settlement for P100,000.00 of the estimated P423,756.74 judgmentliability of respondent firm in favor of the claimants-members of the Santiago laborUnion, executed on November 8, 1963 between respondent firm and the labor unionas represented by a majority of its board of directors. The appeals are jointly resolvedin this decision.

Petitioners in Cases L-23331-32 are the retained lawyers of the Santiago Labor Union

who question respondent Court's approval of respondent firm's settlement of theunion members' judgment claims with the union board of directors, without theirknowledge and consent, notwithstanding their duly recorded attorneys' lien, and overthe objection of a board member that the union board had no authority to compromiseor quit-claim the judgment rights of the union members.

1

Petitioners in Cases L-23361-62 are forty-nine (49) claimants-members of theSantiago Labor Union who assail respondent Court's approval of the questionedsettlement, without their authority as the real parties in interest, and who denouncethe settlement as unconscionable and having been entered into by the majority of theunion board "under circumstances of fraud, deceit, mispresentation and/orconcealment, especially where a member of the Court has actively used his officialand personal influence to effect the settlement which is manifestly unjust to laborers

who by reason of their financial disadvantages in a conflict with their employers needall the aid of the Court for their protection, consonant with law, justice and equity."

2

The factual background goes as far back as June 21, 1952, when the Santiago LaborUnion, composed of workers of the Santiago Rice Mill, a business enterprise engagedin the buying and milling of palay at Santiago, Isabela, and owned operated by KingHong Co., filed before the respondent Court of Industrial Relations Cases Nos. 709-Vand V-1 hereof, a petition for overtime pay, premium pay for night, Sunday andholiday work, and for reinstatement of workers illegally laid off. As of then, the totalsum claimed by the workers, as itemized in their amended petition of September 2,1952 P100,816.36 for overtime pay, P19,350.00 for premium pay and P3,360.00for differential pay under the Minimum Wage Law amounted to P123,526.36.

3

As recorded in this Court's decision of August 31, 1962 in Santiago Rice Mill, et al. vs.Santiago Labor Union,

4which affirmed the Court of Industrial Relations judgment in

favor of the workers, "on September 19, 1958, after a protracted hearing during whichscores of witnesses and voluminous exhibits were presented, the court, thru JudgeEmiliano G. Tabigne, rendered decision dismissing the petition of the union for lack ofmerit and want of jurisdiction; but, upon a motion for reconsideration, the Court ofIndustrial en banc, by a split decision of 3-2 vote, issued a resolution reversing thedecision of the trial judge. The dispositive part of said resolution reads:

"WHEREFORE, the respondents are hereby ordered to pay the overtimeclaim of both male and female claimants herein computed at their basic payfor each period in question; the legal premium for night, Sunday and holidaywork or services rendered by the male claimants herein computed also on

the proven basic wage or salary at the time in question; to pay the overtimeclaim of their drivers computed on their respective monthly salaries; to pay


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the differentials due each of the women claimants on their wages fromAugust 4, 1951 at the rate of P2.00 daily and P3.000 daily from August 4,1952; and to reinstate the claimants both male and female, who havetestified and proved their having been illegally laid-off, with the right ofrespondents to deduct from the back wages due each claimant any amountearned during the period of the illegal dismissal."

The worker's decade of travail was not yet to be at an end, however, despite thisCourt's affirmance of the judgment for the workers. After the remand of the records for

enforcement by respondent Court, and the corresponding examination of books, saidCourt's Chief Examiner filed his Partial Report of December 14, 1962, wherein thejudgment award in favor of the workers was determined and computed, as follows:

(a) For back wages from January 1, 1953 to April 30,1962 of all the 35 employees and laborers (26 workers, 6laborers and 3 drivers) who testified in court, perdispositive part of the judgment, "before deducting theamounts earned during the period of the back wages byeach claimant and before deduction of amountscorresponding to the back wages of claimants who diedbefore April 30, 1962" at P6,380.00 for each of the 32workers and P28,000.00 for each of the 3 drivers P288,160.00

(b) For overtime and premium pay from January 1, 1948to December 31, 1952 of some 104 workers, in varyingamounts.

5125,216.74

(c) For minimum wage differentials of P2.00 daily fromSeptember 10, 1951 to December 31, 1951 of 60 womenworkers 10,380.00

TOTAL P423,756.74

Petitioners claim, furthermore, that "in this computation, however, the filed examinersdid not include the claims of seventy (70) other laborers whose total claims (for back

wages), at the rate of P6,300.00 each, would be P441,000.00. Therefore, the correctgrand total amount due the laborers would be P864,756.74."

6

The Chief Examiner's Report showed respondent firm's total assets as at October 31,1962 to be P191.151.08 (cash account of P148,411.20, fixed assets of buildings,machinery & equipment, corn mill, etc. with a book value of P40,073.75 and deferredcharges of P2,666.14), and its net worth to be in the same amount of P191,151.08,(capital stock paid up of P232,000.00 less deficit of P40,848.92). the Report furtherstated that in January, 1962 and on August 9, 1962, respondent firm sold its trucks,jeep and one car, with a net book value of P2,628.71 for P27,000.00 or a net gain ofP24,371.29. Petitioners claim that the book value of respondent firm's fixed assets isonly one-sixth of their actual market value of P240.442.50, and that its total leviableassets therefore amounted to close to P390,000.00, without taking into account the

huge income potential of its rice mill operations. Respondent firm disputes such afigure as "completely gratuitous and without basis in fact."

7

A general opposition to the Chief Examiner's Report was filed by respondent firm.Judge Emiliano G. Tabigne, as the trial judge, supra, ordered a hearing thereon onDecember 22, 1962, as a condition precedent to execution of the judgment. SuchReport was submitted for resolution and approval at the hearing of December 22,1962, but the records before us fail to show that the trial judge ever acted on orapproved the Report.

Before and after the submittal of the Chief Examiner's Report of December 14, 1962,the union pressed for execution of the final judgment in favor of its claimants-

members. It filed, furthermore, on December 20, 1962, an Urgent Motion forPreliminary Attachment, in view of the disposition by respondent firm of its trucks andautomotive equipment and by virtue of the fact admitted by respondent firm that it hadstopped operations preparatory to liquidation, by reason of the alien nationality ofmost of its stockholders, under the provisions of Republic Act No. 3018 nationalizingthe rice and corn industry. In another motion of December 4, 1962, the union hadasked that the Court at least order respondent firm to put up a bond of P500,000.00to answer for the payment of the judgment or to deposit said amount in Court.

Petitioners assert that these motions were left hanging until the union fileda mandamus petition with this Court,

8after which the trial judge issued and released

on April 15, 1963 his Order dated March 30, 1963. In this Order, the trial Judge,recognizing that "petitioner (union) and its members concerned should be extended

the necessary protection of their rights" ordered respondent firm, within 10 days fromits finality, to deposit in Court the sum of one hundred thousand (P100,000.00) pesosand to file a surety bond ofequal amount, "to guarantee the payment of whateveramount (a) due petitioner (union) and its members concerned after this Court shallhave finally decided the obligation of herein respondents under the judgment." ThisOrder was affirmed by respondent courten banc, in its Resolution denying respondentfirm's motion for reconsideration thereof.

Respondent sought a review by this Court of the said Order and Resolution requiringit to deposit P100,000.00 and to file a surety bond of equal amount to guaranteepayment of its judgment obligation in Santiago Rice Mill et al. vs. Santiago LaborUnion, etc., docketed as Cases G.R. Nos. L-21758-59 of this Court. this Court, in itsResolution of September 20, 1963, dismissed for lack of merit respondent's petition

for review, and the dismissal became final on October 24, 1963.

Earlier, June 25, 1963, pursuant to the request of the parties, who had advised thetrial judge that they would meet at the premises of respondent firm at Santiago,Isabela, to take up direct negotiations for the possible settlement of the judgment, ateam of employees of the Court had been sent to help in the negotiations. thetranscript of the negotiations records that respondent had then offered the Union themaximum amount of P110,000.00 in full settlement of its obligations to the members-claimants of the Union under the judgment, but that the union rejected the offer andcounter-offered the minimum amount of P200,000.00.

The Union meanwhile filed to no avail a series of urgent motions on May 8, July 1,August 29 and September 6, 1963 for approval of the Chief Examiner's Partial Report

of December 14, 1962 and for enforcement, through a writ of execution or contemptproceedings, of the Order of March 30, 1963 requiring firm to deposit a total of


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P200,000 in cash and bond to guarantee payment of the judgment. Upon the finalityof this Court's Resolution dismissing respondent's petition for a review of said Orderof March 30, 1963, the union again filed on October 29, 1963 still another UrgentMotion, advising the trial judge of this Court's action rejecting respondent's appealand invoking the Court's ministerial duty of enforcing its said Order in vain again,as shall presently be seen.

The trial judge took no action on this latest Urgent Motion of the Union, wherein itemphasized that respondent, with this Court's action rejecting its appeal, no longer

had any excuse for refusing its appeal, no longer had any excuse for refusing tocomply with the deposit Order. Instead, an unscheduled conference was called andheld on October 31, 1963 in the chambers of the trial judge, and attended byrepresentatives of respondent firm, including their counsels of record, on one handand Segundino S. Maylem, president of the union and eight directors of the union, onthe other. Four of these nine union representatives, including the union presidenthimself, had no claims of rewards whatever under the judgment. Said union officialswere not assisted by counsel, as petitioner Mary Concepcion, counsel of record of theunion, was not present, not having been notified of the conference.

At this conference of October 31, 1963, respondent firm made again the same offer tosettle and quitclaim the judgment in favor of the union members for the same amountof P110,000.00, which offer had already been rejected by the union at the earlier

conference held on June 25, 1963 at Santiago, Isabela, supra. But this time, asappears from the transcript of the conference, respondent and the directors of theunion decided to settle the case amicably with the payment by the firm of the sameamount of P110,000.00 which was deposited with the Court's disbursing officer"immediately upon the signing of the settlement which will be prepared by therespondent firm through its counsel." The complete transcript of the conference, asreproduced by respondent in its brief, follows:

COURT:

The parties have solicited the intervention of the court for thesettlement of this case. They have decided to settle it amicably withthe condition that the management will pay ONE HUNDRED TEN

THOUSAND PESOS (P110,000.00) cash, and that the said amountwill be deposited with the Disbursing Officer of the Courtimmediately upon the signing of the settlement which will beprepared by the respondent firm through its counsel. Now, Mr.Maylem, make your manifestation on record.

MR. MAYLEM:

As per unanimous decision of the present members of the boardcomposing of nine, the three are not members of the board, presentbefore this Honorable Court to date, (sic) they have agreed toaccept the proffer of ONE HUNDRED TEN THOUSAND PESOS(P110,000.00) as full settlement of their claims in Cases Nos. 709-V and 709-V (1).

ATTY. GARCIA:

In behalf of the respondent and the management of the saidrespondent and also in behalf of Mr. Pino, who is the attorney-in-fact of the respondent corporation, with full power to enter into thissettlement, we wish to manifest and uniform this Honorable Courtthat the acceptance of the proffer of P110,000.00 in full settlementof the claims of petitioners is with the full agreement of the saidrespondent. We are disposed to deposit the amount of

P110,000.00 on or about Friday, November 8, 1963, and saiddeposit to be made with the Disbursing Officer of this Court andsaid deposit to be in certified checks of a local bank and which isactually equivalent to cash. In line further with the suggestion of theHonorable Judge, we ware willing to assume the payment of thedeposit fee upon our depositing the said amount of P110,000.00.There is a previous understanding which was not made of recordas to the fact that to enable the members of the board of directorsof the petitioner union to come back to Manila next week to enablethem to sign the settlement papers, we have agreed to advance thesum of TWO HUNDRED PESOS (P200.00) to the petitioner for theaccount of said settlement and which will be used by the saidpetitioners in their travelling expenses between Manila andSantiago, going and coming.

COURT:

Noted.

MR. MAYLEM:

We request the Court that Mrs. Mary Concepcion should bepresented during the signing of the agreement on or aboutNovember 8, 1963, at 2:30 P.M.

COURT:

NOTED.9

As against the official transcript of the proceedings of the conference abovereproduced, petitioner Natividad Magalpo, a director of the union, together withpetitioners Lydia Bulos and Paciencia Batoon, both union members-claimants, filedon November 5, 1963, through their present counsel, who duly entered theirappearance, their verified "Manifestation and Objection with Ex-Parte Urgent Motion",relating what transpired at the conference, charging the union president, Maylem, withbad faith in that he never previously advised the union representatives that theconference of October 31, 1963 was to discuss a compromise settlement nor that thiscourt's resolution dismissing respondent's appeal from the trial judge's Order dated

March 30, 1963 requiring respondent to deposit P200,000.00 in cash and surety bondhad already become final, and asking the trial judge to shelve the proposed


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settlement until respondent firm shall have complied with the said deposit order. Thepertinent portions of said Objection and Urgent Motion read:

3. That during the conference, the matter of amicably settling the case wasdiscussed; petitioners representatives pressed for at least P150,000.00 as afair amount and the representatives of the respondents were insisting ontheir offer of a definite sum of P110,000.00;

4. That in the course of the conference, no mention at all was made of the

entry of judgment in G.R. Nos. L-21758-59, Supreme Court of thePhilippines, entitled "Santiago Rice Mill, et al. vs. Santiago Labor Union,etc." on October 24, 1963, thereby becoming final and executory; that theaforesaid entry of judgment reads as follows:

"After a consideration of the allegation of the petition filed in casesL-21758 and L-21759 (Santiago rice Mill, etc. vs. Santiago LaborUnion, et al.) for review of the order and resolution of the Court ofIndustrial Relations referred to therein, the COURT RESOLVED todismiss the petition for lack of merit."

5. That by the terms of the afore-cited entry of judgment, the Respondent's,in effect, are ordered to deposit the sum of P100,000 in cash, PhilippineCurrency and similar amount P100,000 in surety bond, pursuant to the orderof this Honorable court of March 30, 1963, which was affirmed in theabovecited Supreme Court resolutions;

6. That as a consequence of the ignorance of the Board of Directors ofPetitioner of this entry, then present, they tentatively agreed to the offer ofP110,000.00 of Respondents, until November 8, 1963 when the finalconference before this Honorable Court will be held;

7. That movants consented to come to Manila on the understanding that theconference was to be held with the Attorney-in-fact of the petitioner, the"CREAM, INC.," formerly, Credit Research and Intelligence, its exclusive

authorized representative for the evaluation, adjustment and liquidation of itsclaim against Respondent, that they were very much taken back in havingbeen taken to the Court of Industrial Relations on October 31, 1963 by thePresident of the Petitioner, Mr. Segundino S. Maylem; that even while theywere already inside the building, they were informed that the purpose was totalk about a compromise settlements with respondent's representatives; as aresult of these circumstances, your movants although present, were not ableto register their objections to the proceedings; that immediately after theaforesaid conference, the herein movants came to know of the entry ofjudgment in the Supreme Court, infra; (sic)

8. That the herein Movant's register and manifest their objections to theproceeding held and to the tentative agreement manifested by the Board of

Directors of the Santiago Labor Union then present, on the followinggrounds:

a) That the Board of Directors did not have any express authority ofthe members of the Santiago Labor Union to enter into anycompromise for the sum of P110,000.00; on the contrary, the latestauthority granted its Attorney-in-fact, the "CREAM, INC." was forthe sum of P150,000.00 which authority was given only, veryrecently:

b) That the proceedings on October 31, 1963 was tainted byapparent bad faith on the part of the President of the Petitioner, Mr.

Segundino s. Maylem, in that there never was a time before theconference when he intimated or otherwise made known to themovants, that a conference would be held before Judge EmilianoTabigne. The only reason for the trip to Manila was the conferencewith "CREAM, Inc." officials;

c) That the effect of the entry of judgment in G.R. Nos.L-21758-59, infra, was not explained to the members of the Boardof Petitioner at any time, much less made known, although it waslater ascertained that President Segundino s. Maylem all the time,BEFORE THE CONFERENCE, knew of the existence of theorder; what was emphasized was the claim of the Respondents thatthey are unable to pay more than P110,000.00; (emphasis

supplied.)

d) That the amount of P110,000.00 is unconscionable, consideringthat the total claims of the members of the Petitioner, is more thanP400,000, not to mention that all the time the negotiations werebeing made the Supreme Court's final order makes mandatoryRespondent's deposit of P100,000, cas in Philippine Currency andP100,000 in surety bond.

9. That Movant's vehemently disagree to any settlement as tentativelyagreed upon, for, in effect, they will only get fourteen percent, (14%)approximately, or one-seventh of the amounts as computed by the ChiefExaminer of this Honorable Court;

xxx xxx xxx

WHEREFORE, it is respectfully prayed that:

a) Respondent be required to deposit the sum of P100,000.00 in cash,Philippine Currency, and P100,000.00 in surety bond, pursuant to the entryof judgment in G.R. Nos. L-21758-59;

b) That these movants be afforded opportunity by this Honorable Court to beheard regarding the surety bond to be submitted by the Respondent, beforeapproval thereof;

c) The tentative settlement be shelved;


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d) The further action on any settlement or compromise be held in abeyanceto await compliance by the Respondent of the entry of judgment in G.R. Nos.L-21758-59;

e) Hearings on the Report of the Chief Examiner be resumed immediatelyand without interruption in view of the provisions of Republic Act 3108, untilfinal termination as soon as possible long before December 31, 1963,

10

There petitioners further filed on the same date, November 4, 1963 an urgent Ex

parte Motion for the issuance of a writ of execution for the enforcement of the depositorder against respondent firm, and asked the trial judge to act on their two urgentmotions upon receipt thereof.

Both urgent motions were totally ignored by both the trial judge as well as by therespondent firm, despite due notice on the latter. The request of the union president,Maylem, at the October 31, 1963 conference that the trial judge have the unioncounsel present during the proposed signing of the settlement agreement set forNovember 8, 1963, as expressly noted by the trial judge, was likewise ignored.Notwithstanding that notice of the conference set for November 8, 1963 at 2:30 p.m.was served on November 5, 1963 on the union counsel, petitioner Mary Concepcion,the scheduled conference was never held.

Unexplained, Maylem, the union president and nine other members of the union'sboard of directors (out of 13 board members) even before the scheduled hour of theconference of November 8, 1963 at 2:30 p.m. had earlier executed a "Settlement" onsaid date, without the knowledge, advice, and conformity of the union counsel, withrespondent firm's attorney-in- fact, who was duly assisted by respondent's twocounsels, who likewise executed the "Settlement." In this "Settlement", the said unionofficials claiming to act "with the authorization of the Board of Directors and itsmembers, "in consideration of the sum of P110,000.00, or one-fourth of the estimatedP423,756.74-judgment liability of respondent firm, as computed in the respondentCourt's Chief Examiner's Partial Report of December 14, 1962, "waived andquitclaimed . . . any and all claims it (the union) may have against the respondent aswell as the claim of each and every one of the members of the said petitioner unionagainst the respondent firm." The union further "warranted" in said "Settlement" "that

aside from the petitioner (union) itselfand the members thereof, there are no otherpersons who have any interest over the judgment debt and that if it should happenthat other persons shall make a claim against the respondent and/or said judgmentdebt, that the respondent, nevertheless, shall no longer be liable therefor."

11

The "Settlement" was immediately submitted to the trial judge who forthwith on thesame day, November 8, 1963, issued his Order, approving the same, and enteredinto respondent Court's records at 1:45 p.m. of the same day, as follows:

Considering that the bases of the above quoted settlement is well foundedand justified and not contrary to law, morals and/or public policy, approval ofthe same is, therefore, in order.

WHEREFORE, the Court hereby approves the settlement of the parties inthese cases; and shall as between the parties to the same be deemed to bea decision and/or award in these matters therein treated in the aforesaidsettlement; and upon acknowledgment of the sum of money in the saidsettlement, these cases shall be deemed closed and terminated.

Petitioners-lawyers Mary Concepcion, et al. upon learning of the "Settlement" andrespondent's deposit with the Court of the sum of P110,000.00 in pursuance thereoffiled in the afternoon of November 8, 1963 a motion for withdrawal of the sum of

P33,000.00 equivalent to their 30% contingent fee, without prejudice to such action asthey may take for enforcing their lien to its full extent. The trial judge granted suchmotion in its Order of November 9, 1963. In due course, said petitioners moved forreconsideration and setting aside of the trial judge's Order of November 8, 1963approving the "Settlement" and prayed respondent Court en bancto reinstate thejudgment against respondent and to enforce the deposit order dated March 30, 1963.

Petitioners Magalpo, Bulos and Batoon, likewise moved respondent Court en banctoreconsider and set aside the trial judge's approval of the "Settlement", in disregard oftheir objection and pending motions of November 5, 1963 to shelve the proposedsettlement and to enforce the deposit Order. On December 26, 1963, they werejoined in their plea for reconsideration by forty-seven other union members-claimants,Co-petitioners at bar.

Respondent, on the other hand, filed its opposition to the motions for reconsideration,questioning the personality and interest of petitioners-movants Magalpo and her 2other co-movants and asserting that they were bound by the "Settlement" entered intoby their union's board of directors. It alleged that it had deposited with respondentCourt the sum of P110,000.00 stipulated in the "Settlement" on the same day of itsapproval by the trial judge. It filed with respondent Court on November 21, 1963 aletter of ratification dated November 10, 1963 addressed to the trial judge andpurportedly signed by some 79 union members-claimants confirming and acceptingthe settlement executed by the union board. Petitioners in their brief list 21 of thesesignatures as questionable, asserting that they are at variance with othercorresponding signatures in the Payroll dated November 8, 1963 submitted torespondent Court on November 21, 1963, such that "either one or the other signature

is a forgery." Respondent counters that there is "absolutely no truth to the claim" andthat the signers of the ratification letter "have all received their individual shares of theP110,000.00 settlement paid by respondent company and this in itself is a ratificationon their part of said settlement." Nothing appears in the record, however, as towhether and in what manner the respondent Court determined the authenticity of thesignatures. Respondent further filed on December 18, 1963 a motion forreconsideration of the trial judge's Order approving payment of P33,000.00 to thepetitioners-attorneys by way of attorneys' fees.

On August 1, 1964, and August 4, 1964, after petitioners had filed on November 29,December 2 and 17, 1963 and January 16, 1964 various urgent motions to set forhearing and for resolution, they were served with copies of respondent Court's enbancResolution dated March 9, 1964, penned by the trial judge, "finding no sufficient

justifications to set aside, disturb or modify the Order issued in these cases onNovember 8 and 9, 1963" and denying all three motions for reconsideration. Judges


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Amando C. Bugayong and Ansberto F. Paredes concurred under date of July 29,1964 with the Resolution, while Judge Arsenio Martinez took no part. No statement ofthe material allegations of, and issues raised in, the pertinent pleadings set out indetail hereinabove nor reasons for the conclusion of insufficient justification reachedby the majority resolution are given therein.

Then Presiding Judge Jose S. Bautista dissented. "Taking into account the precipitateapproval of settlement over the objection of some union members concerned andwithout hearing them, on the strength simply of the manifestation of the petitioner's

Board of Directors that it had authority to compromise when previously said unionmembers concerned had already manifested in Annex "E" (Exhibit "G", at bar) thatthere was no such authority," he voted "that the case be restored to the status quo asof October 30, 1963, but the payment already made to the union members beconsidered as partial payments on account, subject to final liquidation andadjustment; that an order of execution of the judgment in cases Nos. G.R. L-21758and L-21759 of the Supreme Court be issued (upholding the Order of March 30, 1963for deposit of P200,000.00 in cash and surety bond) be issued and that the HearingOfficer shall resume the hearing of the Examiner's Report.

Hence, the appeals of petitioners.

The Santiago Labor Union, impleaded as party respondent in Cases L-23361-62, filed

its Answer on September 24, 1964, "putting its weight behind the prayers of thepetitioners." The Answer reveals that the union members, feeling betrayed, haddisauthorized and removed from office Maylem, the union president and his board ofdirectors who had executed the "Settlement" with respondent firm and disclaimed thedocuments of ratification that they had signed at the behest of Maylem. The unionaverred in its Answer that:

a) The real parties in interest in Cases 709-V and 709 V(1), CIR, are themembers of respondent Labor Union;

b) The records of the respondent labor union do not show any grant by themembers to the former incumbency of any previous authority to negotiatethe claim or subsequent ratification of the settlement for P110,000.00for it isunthinkable and ridiculous for the real parties in interest to give awaygratuitously what had been awarded to them in a final judgment, for a muchlesser amount than that of the award;

c) The members are unanimous in the assertion that the documents theysigned at the behest of former President Segundino S. Maylem wererepresented and understood to be but an authority to collect a part of thecourt award to the members;

d) That the records of the respondent labor union disclose that the membersof the union have unanimously acted, in their individual capacities toproceed with the prosecution and collection of whatever sums they might yet

be entitled to collect, in order to show unequivocally that the negotiationmade by former President Segundino S. Maylem and his board of directors

was unauthorized, and to spotlight the betrayal of the members of the Unionby said Segundino S. Maylem and his board of directors of the former unionincumbency;

6. That fundamentally, there is no contentious issue between the petitioners andrespondent labor union; if at all, the only distinction is between the personality of thereal parties in interest, the union members who have initiated and instituted thispetition as against the limited and formal personality of the respondent labor union torepresent them when so authorized by their collective will."

12

The core question is whether this Court can give its sanction to respondent Court'smajority resolution upholding the trial judge's approval of the union board's settlementfor P110,000.00 of the estimated P423,766.74-judgment liability of respondent firm infavor of the individual union members, over the timely opposition formally filed bythree members (later joined by forty-seven other members) expressly calling attentionto the union board's bad faith in the premises and lack of any express authority toenter into the settlement, and without giving the union the opportunity of being heardand assisted by counsel and notwithstanding the fact that respondent firm, which hadsufficient cash and fixed assets, was under legal compulsion by virtue of respondentcourt's own final order to deposit P100,000.00 in cash and another P100,000.00 insurety bond to guarantee payment of the union members' judgment claims?

The question answers itself. The precipitate approval of the purported settlementunder the circumstances goes against the grain of fundamental considerations ofjustice, equity and due process.

1. To begin with, petitioners were not accorded due process of law, when, for reasonsunexplained in the record, the conference set for November 8, 1963 at 2:30 p.m. totake up formally the proposed settlement was cancelled and never held. (supra, pp.8-9) Notice thereof had been served on the union counsel, in accordance with theexpress request of the union president, as expressly noted by the trial judge. Yet,such notice was deliberately disregarded and the union was deprived of theassistance of its counsel.

13Instead, the settlement as unilaterally drafted by

respondent's counsel (supra, p. 7) was executed ahead of the scheduled hour of theconference that turned out to be a non-conference, by the union president with nine

other members of the union's board of directors, without the knowledge, advice andconformity of the union counsel, while respondent was duly assisted by its twocounsels. By 1:45 p.m. of the same day, the settlement had been approved by thetrial judge as "not contrary to law, morals and public policy." Similarly, petitionersMagalpo, a board member herself and her co-petitioners Bulos and Batoon were notaccorded an opportunity for a fair hearing on their grave charges against the unionleadership and their urgent motions to shelve the proposed settlement and to enforcethe final order of respondent court requiring respondent firm to deposit P200,000.00in cash and surety bond for satisfaction of the union members' judgment, as saidmotions were totally ignored by the trial judge and not touched upon at all in his Orderrashly approving the settlement.

2. The lack of due deliberation and caution in the trial judge's instant approval of the

settlement is seen from the stipulations therein that the union thereby waived andquitclaimed any and all claims which it may have against the respondent, as well as


7/47

the claim of each and every one of the members of the union against respondent,when precisely the authority of the union board members to enter into any suchcompromise or settlement was under express challenge by petitioner Magalpo, aboard member herself in her Objection and Urgent Motion to shelve the settlementfiled on November 5, 1963, which the trial judge completely disregarded. PetitionerMagalpo further made serious charges that Maylem, the union president, had misledthe board members into attending the unscheduled conference held on October 31,1963 before the trial judge, and had deliberately concealed from them the fact of entryon October 24, 1963 of the Order of this Court in G.R. Nos. L-21758-59 upholding theP200,000.00 deposit Order of respondent court and the effect thereof of makingmandatory upon the trial judge, in accordance with the terms of his own order, theissuance of a writ for execution or enforcement to compel respondent to so depositP100,000.00 in cash and an equal amount in surety bond to guarantee satisfaction ofthe union members' judgment against respondent. In point of facts, the union's ownUrgent Motion of October 29, 1963, emphasizing that respondent no longer had anyexcuse for not complying with the deposit order, as well as petitioner Magalpo, et al.'sUrgent ex parte motion of November 4, 1963 to the same effect were pending beforethe trial judge, unresolved and unacted upon. Petitioners Magalpo, et al. had reasontherefore, to assail the proposed settlement for P110,000.00 as unconscionable,when at the very least the union members could be assured of P200,000.00 underthe deposit order to satisfy their judgment credit, while the report of respondentcourt's examiner showed that respondent firm had sufficient assets, (supra, p. 5), andconsidering that their partial judgment credit, as estimated by respondent court's

examiner, amounted to more than P400,000.00.

3. The trial judge's rush approval of the settlement disregarded the grave adverseconsequences thereof to the union members. The settlement, as prepared byrespondent's counsel, provided for a union warranty that aside from the union itselfand the members thereof, "there are no other persons who have any interests overthe judgment debt and that if it should happen that other persons shall make a claimagainst the respondent and/or said judgment debt, that the respondent, nevertheless,shall no longer be liable therefor." Such warranty was against the very facts of record,which showed that as early as June 21, 1963, petitioners-counsels in Cases L-23331-32 had duly recorded their attorneys' lien of "30 % of whatever amount may finally beawarded in favor of the petitioner." Thus, technically, since the award in favor of theunion members amounted to more than P400,000.00, the settlement for P110,000.00

would conceivably just about cover the 30% attorneys' fees payable to the petitioners-counsels under the contract, if they were so minded to enforce it and bad faith on theunion's part were shown, with the union members left holding an empty bag.

14Such

onerous terms of the settlement could not then properly be approved by the trial judgeas "not contrary to law, morals and public policy."

4. All these underscore the failure of due process when petitioners were deprived ofthe formal conference on the proposed settlement scheduled for November 8, 1963and of their right to be assisted by the union counsel as expressly requested, so thata fair hearing could be accorded petitioners and an opportunity afforded them to airtheir serious charges of bad faith and lack of authority against the union leadership.Certainly, all these serious questions and charges made by petitioners could havebeen threshed out and verified, if the formal conference scheduled for November 8,

1963 had been held with the presence of union counsel, considering that the latterlikewise had a right to be heard, since they had duly made of record their attorneys'

lien upon the judgment.15

Respondent, in its brief, asserts that it vividly remembersthat the trial judge repeatedly made mention of the P200,000.00 deposit order duringthe unscheduled conference of October 31, 1963 and "even explained the matter tothe members of the board in their native dialect." But the transcript of the conferencereproduced above (supra, pp. 7-9) does not bear out this assertion. The transcript isobviously deficient and does not reflect the actual discussions and proceedings. Thisis to be deplored, for in a matter of such great importance, especially where the unionofficials were unassisted by counsel in an unscheduled conference, care should betaken by the trial judge that the proceedings are faithfully recorded. Thus, althoughthe transcript again fails to make any mention of it, respondent, in its brief, in effectprovides support for petitioners' plaint against the unscheduled conference andprecipitate approval of the settlement behind the back of union counsel, when it statesthat "the presiding judge tried to help the parties reach a settlement by stressing tothe union that there was no sense in demanding more than P110,000.00 from therespondent if that was all it could afford, and that any more delay in the execution ofits award to the union members might lead to their getting much less than theP110,000.00 already being offered by respondents," and "while it is true that thepresiding judge took an active part in helping the parties reach such settlement, it wasonly in line with the policy of the law encouraging settlement of cases even after finaljudgment."

16The obvious fallacy of this untenable posture assumed by the trial judge,

of course, is that with this Court having upheld his P200,000.00 deposit order, it madeevery sense to enforce execution of said order, which it was practically his ministerialduty to do so, to assure the union members of recovery of their judgment credit at the

very least to the extent of P200,000.00, as the trial judge had expressly recognizedtherein that "petitioner (union) and its members concernedshould be extended thenecessary protection of their rights." Any further delay in the execution of thejudgment award in favor of the union members could readily be obviated, if the trialjudge would but expedite the hearings for approval of the Court examiner's Reportwhich had been filed and left pending since December 14, 1962. As correctlycontended by petitioners, he could have placed the union members, unassisted asthey were by counsel, on an equal footing in negotiating with respondent by a merestroke of his pen by ordering the enforcement of his final P200,000.00 deposit order,as to which there no longer existed any obstacle. We find the forcing through of thesettlement, under such circumstances, arbitrary, unfair and unconscionable.

5. Another vital reason for striking down the settlement is the lack of any express or

specific authority of the president and majority of the union board of directors toexecute the same and scale down the estimated P423,756.74-judgment liability ofrespondent firm in favor of the individual union members to P110,000.00. On thecontrary, petitioner board member Magalpo timely challenged the authority of theunion board to execute any such settlement, expressly informing the trial judge thatthe union had specifically appointed an entity in Manila, the "CREAM, Inc.", formerlyCredit Research and Intelligence, as its attorney-in-fact and "exclusive authorizedrepresentative for the evaluation, adjustment and liquidation of its claim againstrespondent." Forty-seven other union members-claimants joined petitioner Magalpo intheir denunciation of the union board's unauthorized action, and in their plea forreconsideration with respondent court. Forty-nine union members-claimants entitledto the bulk of the judgment award have filed this appeal from the adverse rulings ofthe Court below. These union members have repudiated the former union president,

Maylem and his board of directors, for having betrayed the union members, and thenew union leadership, in its Answer filed with the Court, has joined petitioners in their


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prayer for redress, categorically asserting that the union records do not show anygrant by the members to the former union board under Maylem to "negotiate the claimor subsequent ratification of the settlement for P110,000.00" which is "unthinkableand ridiculous." (supra, p. 15) Under such circumstances, the letter of ratification ofthe settlement purportedly signed by some 79 members, many of whose signaturesthereon are denounced as forgeries and which ratification was not authenticated inthe proceedings below and has been expressly disowned by petitioners herein,cannot be given any legal significance or effect.

6. When it is further taken into consideration that the judgment award, as affirmed bythis Court's decision of August 31, 1962,

17was for the paymentof overtime, premium

and differential pay to the individualunion members as claimants and forthe reinstatementof the individualunion members who testified and proved theirhaving been illegally laid-off, which represent a personal material interest directly infavor of the individualunion members, as against the lack of material interest on thepart of the union as such, the union's lack of authority to execute the settlement, inthe absence of express or specific authorization by the union members, becomespatent. The authority of the union as such, to execute a settlement of the judgmentaward in favor of the individual union members, cannot be presumed but must beexpressly granted.

7. Recently, in the analogous case ofLa Campana Food Products, Inc. etc.

Employees Ass'n vs. Court of Industrial Relations, et al.,

18

this Court ruled upon themerits of the union's appeal, and set aside the Industrial Court's questioned orderswhich would reopen its previous judgment finding the employer guilty of unfair laborpractice and ordering the reinstatement of, and payment of back wages fromDecember 4, 1963 to, twenty-one (21) union members. In handing down its decision,this Court disregarded the petitioner union's motion to dismiss the appeal, filedthrough new counsel while the case was pending decision, alleging that the union'slegislative council had adopted a resolution relieving the former union counsel of hisservices and authorizing the dismissal of the case, on the premise that such dismissal"would serve the best interests of both parties who are now in the process offormulating a collective bargaining agreement in their earnest desire to establishindustrial peace and promote the economic well-being of all the parties concerned."For this Court ruled that the union's loss of interest in the case was no ground fordismissing the case, since " the labor union as a body in reality has not so great a

material interest in the controversy as would prejudice it in the event of dismissal. It isthe twenty-one (21) members for whose benefit the ULP case was prosecuted whostand to take tremendous losses" and suffer injustice. Upholding the individual unionmembers in their stand of vindicating their rights acquired under the final judgment asagainst the union's legislative council's resolution to dismiss the case, this Court,speaking through Mr. Justice Sanchez, thus held:

We now come to the motion to dismiss filed in this Court on March 10, 1969by new counsel for petitioner. In that motion, we read the averment that thepetitioning union, "after careful and serious consideration of their Petition,taken in the light of recent developments affecting their relationship with therespondent-company, have decided that they have lost interest in the furtherprosecution of their claims"; that the union's legislative council, on February

5, 1969, adopted a resolution authorizing the new counsel to file a motiondismissing this case; that the former counsel who directed this case before

this Court, Atty. Eulogio R. Lerum, had been relieved of his services in aletter of the union dated January 13, 1969; and that "the dismissal of thisinstant case would serve the best interests of both parties who are now inthe process of formulating a collective bargaining agreement in their earnestdesire to establish industrial peace and promote the economic well-being ofall parties concerned." This drew a reply from Atty. Eulogio R. Lerum that"while he admits that he had received termination notice from the allegedofficers of the abovenamed union, he had not been disauthorized by thecomplainants who had retained him to appear in their behalf" and that "saidcomplainants are against the dismissal of their case for the reason that theywant to vindicate their rights and it is against public policy to settle an unfairlabor practice by amicable settlement (Sec. 5 [a], Rep. Act 875)."

While it may be true that the labor union itself has lost interest in the case,we do not believe that such should give ground for the dismissal of this case.The labor union as a body in reality has not so great a material interest in thecontroversy as would prejudice it in the event of dismissal. It is the twenty-one (21) members for whose benefit the ULP case was prosecuted whostand to take tremendous losses. Nor is the argument that union andemployer are now in the process of formulating a collective bargainingagreement of any consequence. That would not be affected by the decisionwe now render as an aftermath of the ULP case. Unless of course such adismissal is a quid pro quo before the parties could sit around the bargainingtable. Which surely enough is not to the 'best interests' of the laborers.

And, as we examine the record, we observe none of the members of thelegislative council who adopted the resolution relied upon in the motion todismiss is personallyaffected by the decision rendered by the CIR in Case3985-ULP. That decision, it will be recalled, directs private respondentsherein not only to reinstate the twenty-one (21) union members without lossof seniority and other benefits and privileges but also to pay their respectivebackwages from December 4, 1963, date of filing of the charge, basis of thecomplaint, until actual reinstatement. It is easy enough to perceive theinjustice which may be visited upon these twenty-one (21) union members ifthe petition herein were to be dismissed. For then, a new trial will be had,with the consequent trouble, expense, anxiety and another long delay before

they could enjoy the fruits of their victory which theyhave legallyand definitelywon only after a long and protracted legal battle.At any rate, it is better on balance that we foreclose a flanking movementwhich could destroy rather than uphold the rights to reinstatement andmonetary award of individual laborers acquired under the final judgment.

8. Just as this Court has stricken down unjust exploitation of laborers by oppressiveemployers, so will it strike down their unfair treatment by their own unworthy leaders.The Constitution enjoins the State to afford protection to labor.

19Fair dealing is

equally demanded of unions as well as of employers in their dealings with employees.The union has been evolved as an organization of collective strength for theprotection of labor against the unjust exactions of capital, but equally important is therequirement of fair dealing between the union and its members, which is fiduciary in

nature, and arises out of two factors: "one is the degree of dependence of theindividual employee on the union organization; the other, a corollary of the first, is the


9/47

comprehensive power vested in the union with respect to the individual."20

The unionmay be considered but the agent of its members for the purpose of securing for themfair and just wages and good working conditions and is subject to the obligation ofgiving the members as its principals all information relevant to union and labormatters entrusted to it. As already discussed above, the union leadership in the caseat bar was recreant in its duty towards the union members in apparently having failedto disclose to the union members the full situation of their judgment credit againstrespondent, to wit, that they were in the advantageous position of being able torequire enforcement of the respondent court's P200,000.00-deposit order, and inpresuming that it had authority to waive and quitclaim the estimated P423,756.74-judgment credit of the union members for the unconscionable amount ofP110,000.00, which had already been previously rejected by the workers.Respondent firm could not claim that it dealt in good faith with the union officials, for ithastily executed the purported settlement notwithstanding the serious charges of badfaith against the union leadership, and the non-holding of the scheduled conferencewhere the union leaders, at their express request, could be duly assisted by unioncounsel. It is noteworthy that respondent never filed with the court below any denial orresponsive pleading traversing the factual allegations in petitioner Magalpo'sManifestation and Objection charging that at the unscheduled conference of October31, 1963, the proposed settlement was in effect railroaded with the fact of the finalityof the P200,000.00-deposit order not having been disclosed to the unionrepresentatives. Such failure on the part of respondent constitutes an impliedadmission of the material averments. Respondent's justification now that it did not file

any responsive pleading or denial because Magalpo and her co-petitioners had nopersonality to file their pleadings as they were not parties to the cases in the lowercourt is of no avail, for they were actually the awardees and beneficiaries under thejudgment against respondent and the union was but their agent. Deplorable also isthe failure of the trial judge to defer precipitate action on approval of the settlementuntil the union could be afforded the opportunity of a hearing thereon duly assisted bycounsel, and failure later of the majority of respondent court in the reconsiderationproceedings, as well, to look seriously into the grave charges of bad faith anddeception against the union officials and their lack of authority to execute thesettlement. All of these charges were just swept under the rug, and summarilydismissed, without even being mentioned, in the unreasoned en bancResolution,finding arbitrarily as against the facts herein collated by this Court from the pertinentpleadings and annexes furnished it, "no sufficient justification to set aside, disturb or

modify" the questioned approval of the settlement. .

9. The cases ofJesalva, et al. vs. Bautista,21

and Diomela, et al. vs. Court ofIndustrial Relations,

22cited by respondent, clearly have no application in the present

case. In Jesalva, seventeen cases in different stages of hearing or execution beforethe Industrial Court were settled by a compromise agreement, and this Court held thatthe three petitioners who questioned the settlement were "bound by the actions of theUnion, that is to say, a majority of the members of the union." There was no questionthere that the union had acted with the authority of the union membership. No deceitor concealment or misrepresentation tainted the settlement. Neither was the amountof the settlement denounced as unconscionable. The employer there, PremiereProductions, Inc., agreed to pay the amount of P200,000.00 which appeared to be areasonable settlement as against the judgment credit of the union workers, andfurther agreed to lease to the union its equipment and facilities for the Union toproduce two moving pictures, apparently to cover the other wage claims of the union

workers which were still pending trial and resolution. In Diomela, the labor-management disputes were settled amicably with the unfair labor practice chargeagainst the employer, Squibb and Sons, (Phil.) being withdrawn, upon motion signedby the union president and the three employees against whom the acts of unfair laborpractice charged in the complaint had been allegedly committed, to which motion theCourt's prosecutor gave his conformity, and with the employer, which had secured apermanent writ of injunction restraining the strikers who had apparently declared anillegal strike, against the commission of acts of violence, threats and intimidation,agreeing to pay three months separation pay to each striking employee. There wasno question, therefore, of the authority of the union president to withdraw the unfairlabor practice charge, as the three employees directly affected had co-signed thewithdrawal motion with him. The subsequent move of Diomela and 23 co-petitionersto disauthorize the union and its counsel of record, was by their own pleadingoverruled by the majority of the union membership. The other acts of unfair laborpractice sought to be filed by Diomela and his companions were there ruled out assplitting a cause of action and harassing the employer with subsequent charges,based upon acts committed during the same period of time and which should havebeen included in the charges first preferred. What should be borne in mind is that theinterests of the individual worker can be better protected on the whole by a strongunion aware of its moral and legal obligations to represent the rank and file faithfullyand secure for them the best wages and working terms and conditions in the processof collective bargaining. As has been aptly pointed out, the will of the majority mustprevail over that of the minority in the process, for "under the philosophy of collective

responsibility, an employer who bargains in good faith should be entitled to rely uponthe promises and agreements of the union representatives with whom he must dealunder the compulsion of law and contract. The collective bargaining process shouldbe carried on between parties who can mutually respect and rely upon the authority ofeach other."

23Where, however, collective bargaining process is not involved, and

what is at stake are back wages already earned by the individual workers by way ofovertime, premium and differential pay, and final judgment has been rendered in theirfavor, the present case, the real parties in interest with direct material interest, asagainst the union which has only served as a vehicle for collective action to enforcetheir just claims, are the individual workers themselves.

24Authority of the union to

waive or quitclaim all or part of the judgment award in favor of the individual workerscannot be lightly presumed but must be expressly granted, and the employer, asjudgment debtor, must deal in all good faith with the union as the agent of the

individual workers. The Court in turn should certainly verify and assure itself of thefact and extent of the authority of the union leadership to execute any compromise orsettlement of the judgment on behalf of the individual workers who are the realjudgment creditors.

We therefore sustain the minority opinion of then Presiding Judge Bautista ofrespondent Court that the settlement was precipitately approved without verification ofthe union board's authority to execute the compromise settlement, and find that therewas no such authority. The said sett lement is therefore set aside and the cases beloware restored to the status quo, as of October 30, 1963, with the payments alreadymade to the union members to be considered as partial payments on account, subjectto final liquidation and adjustment. It is directed that an order for the enforcement ofthe P200,000.00-deposit order dated March 30, 1963 issued in the cases below, andupheld in Cases G.R. Nos. L-21758-59 of this Court dismissing the respondent'spetition for review, be forthwith issued, and that hearings on the Chief Examiner's


10/47

Report of December 14, 1962 be resumed immediately and without interruption sothat the amounts due under the judgment to the individual union members may befinally determined without further delay. It is unfortunate that pending theseproceedings, no application for preliminary injunction restraining respondent firm fromdisposing of its assets was made, since as stated above, ( supra, p. 5) respondenthad stopped operations in 1962 preparatory to liquidation, by virtue of the provisionsof Republic Act No. 3018 nationalizing the rice and corn industry. The respondentfirm's stockholders are, however, charged with notice of the firm's liability by virtue ofthe pendency of these appeals, and should any liquidating dividends have beendistributed and paid to them in the meantime, they shall stand liable for thesatisfaction of the union workers' judgment against respondent to the extent of suchdividends respectively paid to and received by them. Similarly, any outstandingunpaid subscriptions or balances of subscriptions to the firm's capital stock, estimatedat P20,000.00,

25shall be subject to garnishment and execution in satisfaction of the

judgment. As to the contingent 30% attorneys' fees of petitioners-lawyers, the Courtdeems it proper at this stage, to direct in the exercise of its authority to control theamount of such fees, that petitioners-lawyers may collect their stipulated contingent30% attorneys' fees to the extent that additional amounts may be realized on theunion workers' judgment up to the sum of P150,000.00, including the initial paymentof P110,000.00, (on which they have already collected their corresponding fee), suchthat any further amounts collected beyond said sum of P150,000.00 shall no longerbe subject to said contingent fee.

WHEREFORE, the respondent Court's Orders of November 8, 1963 and March 9,1964 are hereby declared null and void and set aside. The respondent court isdirected to proceed immediately with the execution of the judgment rendered by itagainst respondent firm in Cases Nos. 709-V and V-1 as affirmed by this Court'sdecision of August 31,1962,

26in accordance with the directives set forth in the next preceding paragraph,

which is incorporated by reference as an integral portion of the dispositive part of thisdecision. With costs against private respondent in both cases herein decided.


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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-27113 November 19, 1974

SABINA BASA, BONIFACIO BASA, BONIFACIO CABALHIN and PRIMITIVOGALLARDO, plaintiffs-appellees,vs.FEDERACION OBRERA DE LA INDUSTRIA TABAQUERA Y OTROSTRABAJADORES DE FILIPINAS (FOITAF) and LA DICHA LA PAZ Y BUEN VIAJECIGAR AND CIGARETTE FACTORY defendants. FEDERACION OBRERA DE LAINDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE FILIPINAS(FOITAF), defendant-appellant.

Eliseo M. Cruz for plaintiffs-appellees.

Teofilo C. Villarico for defendant-appellant.

ANTONIO, J .:p

Appeal from the decision, dated March 31, 1966, of the Court of First Instance,Branch IV, Quezon City, (1) enjoining defendant La Dicha La Paz y Buen Viaje Cigarand Cigarette Factory from dismissing plaintiffs-appellees Sabina Basa, BonifacioBasa, Bonifacio Cabalhin and Primitivo Gallardo from their employment in saidcompany; and (2) ordering both the company and defendant-appellant FederacionObrera de la Industria Tabaquera y Otros Trabajadores de Filipinos(FOITAF) to

reimburse all union dues and assessments collected from plaintiffs-appellees from thedate of their resignation as members in defendant union until the date of the lastcollection, to pay attorney's fees in the amount of P900.00 and the costs of suit.

The records show that plaintiffs-appellees Sabina Basa, Bonifacio Basa, BonifacioCabalhin and Primitivo Gallardo, who are members of "Iglesia ni Cristo", have beenemployed with the defendant company, La Dicha La Paz y Buen Viaje Cigar andCigarette Factory, since 1949, 1952, 1960 and 1957, respectively, and were thereforeemployees of that company on April 21, 1961, when the collective bargaining contractbetween the company and the defendant union, Federacion Obrera de la IndustriaTabaquera y Otros Trabajadores de Filipinas (FOITAF) was executed. Thisagreement provided for a union shop clause, thus:

RECOGNITION AND UNION SECURITY: (2) All workers andlaborers who are members of the FOITAF shall remain and

maintain their membership in good standing in the Union as acondition of their continued employment with the Company. Newworkers whom the Management may employ shall, as a conditionof continued employment with the company, become members ofthe FOITAF after 60 working days of continuous employment.

The plaintiffs-appellees were members in good standing of the labor union untilAugust 28, 1964, when they formally resigned from the Union (Annex "A", Complaint),invoking their constitutional right to freedom of religion, the free exercise of which

exempts them from being compelled to join any labor organization, when such iscontrary to their religious beliefs and convictions, as provided by Republic Act No.3350,

1which became a law on June 18, 1961. In its answer dated August 31, 1964,

to the resignation of the plaintiffs-appellees (Annex "B", ibid.), the Union, through itspresident Severino Tabalno, gave them fifteen (15) days from receipt of said letter toreconsider their resignation, otherwise it would ask the Company to enforce theabove-quoted union shop agreement. Thereafter, or on October 14, 1964, theCompany, through its president Bienvenido A. Tan, Jr., formally gave the plaintiffs-appellees up to October 23, 1964 within which to re-affiliate with the Union on pain ofdismissal (Annex "C", ibid.). Instead of reconsidering their resignation, the plaintiffs-appellees filed on October 20, 1964 the present action for injunction, which wasamended on January 30, 1965, alleging, among others, that (1) they have a right toremain in their employment, which is properly within the meaning of constitutionalguarantees,

2for they cannot be legally dismissed by defendant Company for failing to

maintain their membership in the defendant Union, being old employees of theformer;

3(2) their resignation from the labor Union is but an exercise of their right to

freedom of religion guaranteed by the Constitution, which guarantee is implementedby Republic Act No. 3350; and (3) being no longer members of the labor Union, theywere no longer obliged to pay said dues and assessments through payrolldeductions;

4Plaintiffs-appellees, therefore, prayed that judgment be rendered (1) to

enjoin immediately ex-parte the defendants from dismissing plaintiffs from theiremployment, and from collecting union dues and assessments through payrolldeduction from plaintiffs' earned wages; (2) to order defendants to reimburse, jointlyand severally, all union dues and assessments collected from plaintiffs since theirresignation from defendant Union and to pay moral and exemplary damages,attorney's fees of P900.00 and costs.

Both defendants filed their respective answers. In its answer with special andaffirmative defenses, dated November 13, 1964, defendant Company averred, amongothers, that (1) there is an existing working agreement between defendant Union anddefendant Company providing for a "Closed shop"; (2) plaintiffs resigned from theUnion; (3) defendant Union insists that defendant Company comply with the contractrecognizing a closed shop; and (4) if defendant Company does not comply with thecollective bargaining agreement with the Union, it will be subjected to a suit fordamages or risk the possibility of a strike for violation of the collective bargainingagreement. Defendant Company then prayed that plaintiffs and defendant Union berequired to interplead their respective cases and that judgment be rendered in favorof whomsoever is entitled to just relief as may be proper under the circumstances.

Defendant-appellant Union, in its amended answer with affirmative and special

defenses, dated March 26, 1965, to the amended complaint, alleged, among others,that the plaintiffs are covered by the collective bargaining contract as Republic Act


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No. 3350 under which they seek exemption from membership in the Union, isunconstitutional for it (1) impairs the obligations of contracts (Sec. 1[10], Art. III, 1935Constitution); (2) denies to workers the right to equal protection of the laws (Sec. 1[1],Art. III, id.); (3) abridges the freedom of workers to form associations (Sec. 1[6], Art.III, id.); and (4) contravenes the constitutional mandate that the State shall affordprotection to labor (Sec. 6, Art. XIV, id.); and that this Act was declaredunconstitutional by the Court of Industrial Relations in the case of National LaborUnion vs. Hacienda Luisita, et al., Case No. 49-IPA. Defendant-appellant Union thenprayed that the complaint be dismissed.

Subsequently, or on March 31, 1966, the lower court rendered the aforementioneddecision. From the aforesaid decision, defendant Union has appealed to this Court,contending that the lower court erred in not declaring Republic Act No. 3350 asunconstitutional, reiterating the arguments it advanced before the court a quo.

We find the appeal to be without merit.

To begin with, House Bill No. 5859, which later became Republic Act No. 3350, wasenacted into law with the explicit purpose of safeguarding and maintaining inviolatethe religious freedom of all individuals.

5

In this appeal, appellant labor union contends that Republic Act No. 3350 is violativeof the fundamental charter, as (a) it infringes on the constitutional bar against a lawrespecting an establishment of religion or a religious test for the exercise of civil andpolitical rights (Sec. 1[7] of Article III, 1935 Constitution, (b) impairs the obligation ofcontracts (Sec. 1[10], Art. III, id.), (c) denies the equal, protection of the laws (Sec.1[1], Art. III, id.), (d) abridges the freedom to form associations not contrary to law(Sec. 1[6], Art. III, id.), and (e) impairs the constitutional mandate that the State shallafford protection to labor (Sec. 5, Art. III; Sec. 6, Art. XIV, id.).

Recently, in Benjamin Victoriano Elizalde Rope Workers' Union, et al.,6

a unanimousCourt sustained the constitutionality of Republic Act No. 3350. In rejecting thearguments advanced by appellant labor union, imputing to said statute allegedconstitutional infirmities similar to those now asserted by the defendant-appellant inthe case at bar, We declared:

Both the Constitution and Republic Act No. 875 recognizedfreedom of association. Section 1[6] of Article III of the Constitutionof 1935, as well as Section 7 of Article IV of the Constitution of1973, provide that the right to form associations or societies forpurposes not contrary to law shall not be abridged. Section 3 ofRepublic Act No. 875 provides that employees shall have the rightto self-organization and to form, join or assist labor organizations oftheir own choosing for the purpose of collective bargaining and toengage in concerted activities for the purpose of collectivebargaining and other mutual aid or protection. What theConstitution and the Industrial Peace Act recognize and guaranteeis the "right" to form or join associations. Notwithstanding the

different theories propounded by the different schools ofjurisprudence regarding the nature and contents of a "right", it can

be safely said that whatever theory one subscribes to, a rightcomprehends at least two broad notions, namely: first, liberty orfreedom, i.e., the absence of legal restraint, whereby an employeemay act for himself without being prevented by law; and second,power, whereby an employee may, as he pleases, join or refrainfrom joining an association. It is, therefore, the employee whoshould decide for himself whether he should join or not anassociation; and should he choose to join, he himself makes up hismind as to which association he would join; and even after he hasjoined, he still retains the liberty and the power to leave and cancelhis membership with said organization at any time. It is clear,therefore, that the right to join a union includes the right to abstainfrom joining any union. Inasmuch as what both the Constitution andthe Industrial Peace Act have recognized, and guaranteed to theemployee, is the "right" to join associations of his choice, it wouldbe absurd to say that the law also imposes, in the same breath,upon the employee the duty to join associations. The law does notenjoin an employee to sign up with any association.

The right to refrain from joining labor organizations recognized bySection 3 of the Industrial Peace Act is, however, limited. The legalprotection granted to such right to refrain from joining is withdrawnby operation of law, where a labor union and an employer haveagreed on a closed shop, by virtue of which the employer mayemploy only members of the collective bargaining union, and theemployees must continue to be members of the union for theduration of the contract in order to keep their jobs. Thus Section4[a] (4) of the Industrial Peace Act, before its amendment byRepublic Act No. 3350, provides that although it would be an unfairlabor practice for an employer "to discriminate in regard to hire ortenure of employment or any term or condition of employment toencourage or discouraged membership in any labor organization"the employer is, however, not precluded "from making anagreement with a labor organization to require as a condition ofemployment membership therein, if such labor organization is therepresentative of the employees". By virtue, therefore, of a closed

shop agreement, before the enactment of Republic Act No. 3350, ifany person, regardless of his religious beliefs, wishes to beemployed or to keep his employment, he must become a memberof the collective bargaining union. Hence, the right of saidemployee not to join the labor union is curtailed and withdrawn.

To that all-embracing coverage of the closed shop arrangement,Republic Act No. 3350 introduced an exception, when it added toSection 4[al (4) of the Industrial Peace Act the following proviso:"but such agreement shall not cover members of any religious sectswhich prohibit affiliation of their members in any such labororganization". Republic Act No. 3350 merely excludes ipso jurefrom the application and coverage of the closed shop agreement

the employees belonging to any religious sects which prohibitaffiliation of their members with any labor organization. What the


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exception provides, therefore, is that members of said religioussects cannot be compelled or coerced to join labor unions evenwhen said unions have closed shop agreements with theemployers; that in spite of any closed shop agreement, members ofsaid religious sects cannot be refused employment or dismissedfrom their jobs on the sole ground that they are not members of thecollective bargaining union. It is clear, therefore, that the assailedAct, far from infringing the constitutional provision on freedom ofassociation, upholds and reinforces it. It does not prohibit themembers of said religious sects from affiliating with labor unions. Itstill leaves to said members the liberty and the power to affiliate, ornot to affiliate, with labor unions. If, notwithstanding their religiousbeliefs, the members of said religious sects prefer to sign up withthe labor union, they can do so. If in deference and fealty to theirreligious faith, they refuse to sign up, they can do so; the law doesnot coerce them to join; neither does the law prohibit them fromjoining; and neither may the employer or labor union compel themto join. Republic Act No. 3350, therefore, does not violate theconstitutional provision on freedom of association.

2. Appellant Union also contends that the Act is unconstitutional forimpairing the obligation of its contract, specifically, the "unionsecurity clause" embodied in its Collective Bargaining Agreementwith the Company, by virtue of which "membership in the union wasrequired as a condition for employment for all permanentemployees workers". This agreement was already in existence atthe time Republic Act No. 3350 was enacted on June 18, 1961, andit cannot, therefore, be deemed to have been incorporated into theagreement. But by reason of this amendment, Appellee, as well asothers similarly situated, could no longer be dismissed from his jobeven if he should cease to be a member, or disaffiliate from theUnion, and the Company could continue employing himnotwithstanding his disaffiliation from the Union. The Act, therefore,introduced a change into the express terms of the union securityclause; the Company was partly absolved by law from thecontractual obligation it had with the Union of employing only Union

members in Permanent Positions. It cannot be denied, therefore,that there was indeed an impairment of said union security clause. .

xxx xxx xxx

"It should not be overlooked, however, that the prohibition to impairthe obligation of contracts is not absolute and unqualified. Theprohibition is general, affording a broad outline and requiringconstruction to fill in the details. The prohibition is not to be readwith literal exactness like a mathematical formula, for it prohibitsunreasonable impairment only. In spite of the constitutionalprohibition, the State continues to possess authority to safeguardthe vital interests of its people. Legislation appropriate to

safeguarding said interests may modify or abrogate contractsalready in effect. For not only are existing laws read into contracts

in order to fix the obligations as between the parties, but thereservation of essential attributes of sovereign power is also readinto contracts as a postulate of the legal order. All contracts madewith reference to any matter that is subject to regulation under thepolice power must be understood as made in reference to thepossible exercise of that power. Otherwise, important and valuablereforms may be precluded by the simple device of entering intocontracts for the purpose of doing that which otherwise may beprohibited. The policy of protecting contracts against impairmentpresupposes the maintenance of a government by virtue of whichcontractual relations are worthwhile a government which retainsadequate authority to secure the peace and good order of society.The contract clause of the Constitution must, therefore, be not onlyin harmony with, but also in subordination to, in appropriateinstances, the reserved power of the state to safeguard the vitalinterests of the people. It follows that not all legislations, which havethe effect of impairing a contract are obnoxious to the constitutionalprohibition as to impairment, and a statute passed in the legitimateexercise of police power, although it incidentally destroys existingcontract rights, must be upheld by the courts. This has specialapplication to contracts regulating relations between capital andlabor which are not merely contractual, and said labor contracts, forbeing impressed with public interest, must yield to the common

good.

xxx xxx xxx

In order to determine whether legislation unconstitutionally impairscontract obligations, no unchanging yardstick, applicable at alltimes and under all circumstances, by which the validity of eachstatute may be measured or determined, has been fashioned, butevery case must be determined upon its own circumstances.Legislation impairing the obligation of contracts can be sustainedwhen it is enacted for the promotion of the general good of thepeople, and when the means adopted to secure that end arereasonable. Both the end sought and the means adopted must be

legitimate, i.e., within the scope of the reserved power of the stateconstrued in harmony with the constitutional limitation of thatpower.

What then was the purpose sought to be achieved by Republic ActNo. 3350? Its purpose was to insure freedom of belief and religion,and to promote the general welfare by; preventing discriminationagainst those members of religious sects which prohibit theirmembers from joining labor unions, confirming thereby their naturalstatutory and constitutional right to work, the fruits of which workare usually the only means whereby they can maintain their own lifeand the life of their dependents. It cannot be gainsaid that saidpurpose is legitimate.


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The questioned Act also provides protection to members of saidreligious sects against two aggregates of group strength from whichthe individual needs protection. The individual, employee, atvarious times in his working life, is confronted by two aggregates ofpower collective labor directed by a union, and collective capital,directed by management. The union, an institution develop toorganize labor into a collective force and thus protect the individualemployee from the power of collective capital, is, paradoxically,both the champion of employee rights, and a new source of theirfrustration. Moreover, when the Union interacts with management,it produces yet a third aggregate of group strength from which theindividual also needs protection the collective bargainingrelationship.

It may not be amiss to point out here that the free exercise ofreligious profession or belief is superior to contract rights. In case ofconflict, the latter must, therefore, yield to the former. The SupremeCourt of the United States has also declared on several occasionsthat the rights in the First Amendment, which include freedom ofreligion, enjoy a preferred position in the constitutional system.Religious freedom, although not unlimited, is a fundamentalpersonal right and liberty, and has a preferred position in thehierarchy of values. Contractual rights, therefore, must yield to

freedom of religion. It is only where unavoidably necessary toprevent an immediate and grave danger to the security and welfareof the community that infringement of religious freedom may bejustified, and only to the smallest extent necessary to avoid thedanger.

3. In further support of its contention that Republic Act No. 3350 isunconstitutional, appellant Union averred that said Actdiscriminates in favor of members of said religious sects in violationof Section 1[7] of Article III of the 1935 Constitution, and which isnow Section 8 of Article IV of the 1973 Constitution, which provides:

No law shall be made respecting anestablishment of religion, or prohibiting the freeexercise thereof, and the free exercise andenjoyment of religious profession and worship,without discrimination and preference, shallforever be allowed. No religious test shall berequired for the exercise of civil or political rights.

The constitutional provision not only prohibits legislation for thesupport of any religious tenets or the modes of worship of any sect,thus forestalling compulsion by law of the acceptance of any creedor the practice of any form of worship, but also assures the freeexercise of one's chosen form of religion within limits of utmostamplitude. It has been said that the religion clauses of theConstitution are all designed to protect the broadest possible liberty

of conscience, to allow each man to believe as his consciencedirects, to profess his beliefs, and to live as he believes he ought tolive, consistent with the liberty of others and with the common good.Any legislation whose effect or purpose is to impede theobservance of one or all religions, or to discriminate inviciouslybetween the religions, is invalid, even though the burden may becharacterized as being only indirect. But if the state regulatesconduct by enacting, within its power, a general law which has forits purpose and effect to advance the state's secular goals, thestatute is valid despite its indirect burden on religious observance,unless the state can accomplish its purpose without imposing suchburden.

In Aglipay v. Ruiz, this Court had occasion to state that thegovernment precluded from pursuing valid objectives secular incharacter even if the incidental result would be favorable to areligion or sect. It has likewise been held that the statute, in order towithstand the strictures of constitutional prohibition, must have asecular legislative purpose and a primary effect that neitheradvances nor inhibits religion. Assessed by these criteria, RepublicAct No. 3350 cannot be said to violate the constitutional inhibition ofthe "no establishment" (of religion) clause of the Constitution.

The purpose of Republic Act No. 3350 is secular, wordly, andtemporal, not spiritual or religious or holy and eternal. It wasintended to serve the secular purpose of advancing theconstitutional right to the free exercise of religion, by averting thatcertain persons be refused work, or be dismissed from work, or bedispossessed of their right to work and of being impeded to pursuea modest means of livelihood, by reason of union securityagreements. To help its citizens to find gainful employmentwhereby they can make a living to support themselves and theirfamilies is a valid objective of the state. In fact, the state isenjoined, in the 1935 Constitution, to afford protection to labor, andregulate the relations between labor and capital and industry. Moreso now in the 1973 Constitution where it is mandated that "the

State shall afford protection to labor, promote full employment andequality in employment, ensure equal work opportunities regardlessof sex, race or creed and regulate the relation between workers andemployers.

The primary effects of the exemption from closed shop agreementsin favor of members of religious sects that prohibit their membersfrom affiliating with a labor organization, is the protection of saidemployees against the aggregate force of the collective bargainingagreement, and relieving certain citizens of a burden on theirreligious beliefs; and by eliminating to a certain extent economicinsecurity due to unemployment, which is a serious menace to thehealth, morals, and welfare of the people of the State, the Act also

promotes the well-being of society. It is our view that the exemptionfrom the effects of closed shop agreement does not directly


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advance, or diminish, the interests of any particular religion.Although the exemption may benefit those who are members ofreligious sects that prohibit their members from joining labor unions,the benefit upon the religious sects is merely incidental and indirect.The "establishment clause" (of religion) does not ban regulation onconduct whose reason or effect merely happens to coincide orharmonize with the tenets of some or all religions. The free exerciseclause of the Constitution has been interpreted to require thatreligious exercise be preferentially aided.

We believe that in enacting Republic Act No. 3350, Congress actedconsistently with the spirit of the constitutional provision. It actedmerely to relieve the exercise of religion, by certain persons, of aburden that is imposed by union security agreements. It wasCongress itself that imposed that burden when it enacted theIndustrial Peace Act (Republic Act 875), and, certainly, Congress, ifit so deems advisable, could take away the same burden. It iscertain that not every conscience can be accomodated by all thelaws of the land; but when general laws conflict with scrupples ofconscience, exemptions ought to be granted unless some"compelling state interest" intervenes. In the instant case, We seeno such compelling state interest to withhold the exemption.

Appellant bewails that while Republic Act No. 3350 protectsmembers of certain religious sects, it leaves no right to, and is silentas to the protection of, labor organizations. The purpose ofRepublic Act No. 3350 was not to grant rights to labor unions. Therights of labor unions are amply provided for in Republic Act No.875 and the new Labor Code. As to the lamented silence of the Actregarding the rights and protection of labor unions, suffice it to say,first, that the validity of a statute is determined by its provisions, notby its silence; and, second, the fact that the law may work hardshipdoes not render it unconstitutional.

It would not be amiss to state, regarding this matter, that to compel

persons to join and remain members of a union to keep their jobs inviolation of their religious scrupples, would hurt, rather than help,labor unions. Congress has seen it fit to exempt religious objectorslest their resistance spread to other workers, for religious objectionshave contagious potentialities more than political and philosophicobjections.

Furthermore, let it be noted unity and loyalty even to the country,and a fortiorarito a labor union assuming that such unity andloyalty can be attained through coercion is not a goal that isconstitutionally obtainable at the expense of religious liberty. Adesirable end cannot be promoted by prohibited means.

4. Appellant's fourth contention, that Republic Act No. 335

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