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[ GR No. L-29769, Oct 28, 1977 ]



170 Phil. 107


[ G.R. No. L-29769, October 28, 1977 ]




This is a petition to review the decision of the Court of Appeals in CA-G.R. No. 37134-R (Miguel Bunda, et al. vs. Insular Lumber Company), the dispositive part of which reads:

"WHEREFORE, with the modifica­tion that each of the plaintiffs is entitled to separation pay equi­valent to his salary corresponding to one-half month for every year of service, the judgment a quo is af­firmed, with costs."[1]

In a complaint dated March 22, 1963 filed against In­sular Lumber Company in the Court of First Instance of Negros Occidental, Miguel Bunda, Hilarion Catamin, Marcos Dictado, Anastacio Jarina and Jose Lechago sought the recovery of ter­mination pay, damages and attorney's fees.[2] The complaint was docketed as Civil Case No. 187.

The parties submitted in the trial court the fol­lowing:

The Parties, through their res­pective Counsel, hereby agree and stipulate:
1.  That the allegations of Par. 1 of the Complaint are hereby admitted regarding Plaintiffs' civil capacities, status and residences;
2. That defendant Company is a private American Corporation authorized to do business in the Philippines; It is engaged in the manufacture of lumber at its mill site at Barrio Fabrica, Municipa­lity of Sagay, Province of Negros Occidental, where it also maintains its Office, although the Head Office of Defendant Company is in the City of Philadelphia, United States of America; that it employs around 1500 laborers in connection with its business operation; and that Court summons could be served with said Defendant Company at the said Barrio Fabrics, through its General Manager, Richard S. Kearns;
3.  That all the above Plaintiffs were employed in various jobs with Defendant Company until their respective services were terminated on the follow­ing dates, as follows:
NAMES                                                DATE OF SEPARATION
1. Miguel Bunda                                  September 6, 1960
2. Hilarion Catamin                             March 14, 1960
3. Marcos Dictado                               November 27, 1956
4. Anastacio Jarina                             December 1, 1959
5. Jose Lechago                                 April 1, 1960
4.  That the reason for the termi­nation of plaintiffs' services was due to 'reduction of labor force';
5. That all the Plaintiffs, some­times on January, 1955, received from the Defendant Company, 'Certificates of Appreciation', all dated December 31, 1954, like Exh. 'A' - Plaintiff (Hila­rion Catamin) which is attached hereto, wherein the following service data appear as follows:
NAMES                                                LENGTH OF SERVICES
AS OF DEC. 31, 1954
1. Miguel Bunda                                              21 years
2. Hilarion Catamin                                         21 years
3. Marcos Dictado                                          26 years
4. Anastacio Jarina                                         24 years
5. Jose Lechago                                             35 years
6.  That the Defendant Company, including the various departments where Plaintiffs used to work before, are still operating;
7. That upon Plaintiffs' se­paration from the Defendant Com­pany, they received from the said Defendant the respective sums indi­cated below as follows:
NAMES                                                            AMOUNTS
1. Miguel Bunda                                              P351.00
2. Hilarion Catamin                                         P539.50
3. Marcos Dictado                                          P303.75
4. Anastacio Jarina                                         P539.50 - 232.70
5. Jose Lechago                                             P870.00
Payments of the above amounts to the plaintiffs are evidenced by cash vouchers is much the same terms as the cash vouchers signed by Plaintiff, Hilarion Catamin (Exh. '1' Defendant) attached hereto as an integral part of this stipulation.
8.  That the amounts received by Plaintiffs as above stated were com­puted in accordance with the provi­sions of the Collective Bargaining Contract between the Defendant Com­pany and the Allied Workers' Asso­ciation, the latter being the union chosen by the majority of the laborers of defendant Company in a certifica­tion election ordered by the Court of Industrial Relations.  The perti­nent provision of the said Collective Bargaining Agreement reads as follows:

'Section 1.  With the exception of Employees and Workers entitled to benefits under the Workmen's Compen­sation Act and the Termina­tion Pay Law, the COMPANY agrees to give death and sepa­ration gratuities after one (1) year's service to all its employees and workers in case of death or honorable discharge from the service due to (1) old age, (2) reduction of force, and (3) disablement due to phy­sical reasons.

'Section 2.  The gratuity payments mentioned in Section 1 above, shall be exclusive of Social Security System benefits and shall be based on the following schedule:

'Over 1 to 8 years' ser­vice (excluding war years) -? 1 Mo's Pay

'Over 8 to 16 years' ser­vice (excluding war years) -? 2 Mo's Pay

'Over 16 to 24 years' ser­vice (excluding war years) 3 Mo's Pay

'Over 24 to years' service and up (excluding war years) -- 5 Mo's Pay.

It is understood and agreed that such month's gratuity pay provided hereinabove, is to be computed by multiplying the Worker's daily basic rate by twenty-six (26) working days.'

9.  That at the time of the termina­tion of Plaintiffs' services, they were receiving as their respective daily wages, as follows:
NAMES                                        DAILY WAGES
1. Miguel Sunda                                              P4.50
2. Hilarion Catamin                                         P4.00
3. Marcos Dictado                                          P4.00
4. Anastacio Jarina                                         P5.00
5. Jose Lechago                                             P5.75
10.  That Defendant admits that Plaintiffs were not given notice of termination for the corresponding periods provided for in Rep. Act 1787.
11. That to eliminate unnecessary repetitions of presenting evidence of the same tenor by both parties herein and to expedite the proceeding of this particular case, the parties herein agree that the testimony of Mr. Hans Ettisberger in Civil Case No. 6241, entitled 'Isaac Aguisando et al vs. Insular Lumber Company to reduce its labor force and the means by which the same was carried out, as well as the testimony of said witness brought in the cross-examination thereof, shall be the same testimony that said witness will give in this particular case.
12. That, likewise, the par­ties hereby agree that the testi­monies of the following plaintiffs, namely, Alejandro Ardo, in Civil Case No. 110 (6863); Felipe Espolong, in Civil Case No. 36 (6221); Anacleto Llavore in Civil Case No. 51 (6486); Esperidion Samaniego, in Civil Case No. 86 (6763) and Felix Bantigue, Jr., in Civil Case No. 6764, previously heard before the Honorable Court in connection with their claim for damages, attorney's fees and also as to the continued operation as of this date, of Defendant Company in­cluding the several departments where Plaintiffs used to work before their terminations (shall be the same testimonies that said witnesses will give in this case).
HILADO & HILADO                                                                                  (SGD.) LEONARDO C. FERNANDEZ
P. O. Box 199                                                                                          1233 Tecson?Tindalo
Bacolod City                                                                                            Tondo, Manila
Counsel for Defendant                                                                            Counsel for Plaintiffs

The trial Court rendered its decision dated October 25, 1965, the dispositive part of which reads:

"In view of the foregoing, judg­ment is hereby rendered as follows:
(1)  The defendant, Insular Lum­ber Company, is ordered to pay Miguel Bunda the sum of P857.50 for his 21 years of service at the rate of P4.50 per day minus P351.00 which he received by way of compensation;
(2)  Hilarion Catamin shall be paid the sum of P552.50 for his 21 years of service at a daily wage of P4.00 minus P539.50 for which he re­ceived by way of compensation from the Company;
(3)  Anastacio Jarina shall be paid the sum of P787.80 for his 24 years of service at a daily wage of P5.00 minus the sum of P772.20 which he received by way of compen­sation from the defendant;
(4)  Jose Lechago shall be paid the sum of P1,746.25 for his 35 years of service at a daily wage of P5.75 minus the sum of P870.00 which he received from the defendant Com­pany by way of compensation;
(5)  The case of Marcos Dictado is ordered dismissed as he was se­parated on November 27, 1956, before, the passage of Republic Act 1787 and the compensation he received from the Company in the sum of P303.75 was in accordance with law then in force at the time;
(6)  The plaintiffs are not en­titled to any award for damages for the reason that the Company acted in good faith and there is no evidence of bad faith or intent to circumvent the law;
(7)  The defendant Company is ordered to pay the additional sum of P500.00 for attorney's fees and to pay the costs.
Bacolod City, Philippines, October 25, 1965.

The parties appealed to the Court of Appeals where the case was docketed as CA-G. R. No. 37134-R.  On August 30, 1968 the Court of Appeals[5] affirmed the judgment appealed from with the modification that each of the plaintiffs is entitled to separation pay equivalent to his salary corresponding to one half month for every year of service.

The Insular Lumber Co. (Phil.), Inc. submits that the Court of Appeals committed the following errors:

"First Assignment of Error
Second Assignment of Error

According to the petitioner, the testimony of Mr. Ettisberger established that the private respondents were laid off from their employment in the Insular Lumber Company in pursuance of a program for reduction of per­sonnel; and that the company was forced to adopt the re­trenchment program because it was losing money and could no longer compete in the foreign market for its products of sawn lumber.[7]

Anent the first error assigned, the petitioner sub­mits that "From the testimony of Mr. Hans Ettisberger which was accepted by the parties in the trial court and from which the factors which compelled the appellant com­pany to retrench and in the process dismiss some 600 workers were fully established, it is clear that the causes therefore are not attributable to any fault or whim of the appellant."[8] The petitioner goes on to state that "In the instant case, the undisputed testimony of Mr. Ettis­berger established that unless the Company reduced its per­sonnel it faced closure of its establishment in the face of the many unfavorable business factors then prevailing."[9]

The just causes for termination of employment by the employer under Republic Act No. 1787 are:

"SECTION 1.  Section one of Re­public Act Numbered Ten hundred and fifty-two is hereby amended to read as follows:
SECTION 1.  In cases of employ­ment, without a definite period, in a commercial, industrial, or agricultural establishment, or enterprise, the employer or the employee may terminate at any time the employ­ment with just cause; or without just cause in the case of an employee by serving written notice on the employer at least one month in advance, or in the case of an employer, by serving such notice to the employee at least one month in advance or one-half month for every year of service of the em­ployee, whichever is longer, a frac­tion of at least six months being considered as one whole year.
The employer, upon whom no such notice was served in case of termi­nation of employment without just cause may hold the employee liable for damages.
The employee, upon whom no such notice was served in case of termi­nation of employment without just cause shall be entitled to compensation from the date of termination of his employment in an amount equi­valent to his salaries or wages cor­responding to the required period of notice.
The following are just causes for terminating an employment with­out a definite period:
1.  By the employer -?

a.   The closing or cessa­tion of operation of the es­tablishment or enterprise, un­less the closing is for the purpose of defeating the inten­tion of this law;

b.   Serious misconduct or wilful disobedience by the em­ployee of the orders of his em­ployer or representative in con­nection with his work;

c.   Gross and habitual neg­lect by the employee of his duties.

d.   Fraud or wilfull breach by the employee of the trust re­posed in him by his employer or representative;

e.  Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family, or representative; and

f.   Other causes analo­gous to any of the foregoing.

x     x     x"

The submission of the petitioner that termination of employment by reason of economy to prevent closure of business is analogous to "closing or cessation of operation of the establishment or enterprise" provided in Section 1 (a) of Republic Act No. 1787 has no merit.  It is now set­tled that the just cause for terminating an employment with­out a definite period is the closing or cessation of the operation of the establishment or enterprise.  Thus this Court has held that:

"True, appellant's film ex­change business where appellees worked was closed as of February 28, 1962 but what the law consi­ders as just cause for terminating an employment without a definite period is the closing or cessation of operation of the establishment or enterprise of the employer, and not merely the closing or cessation of operation of any particular di­vision or department of the employer's business.  To sustain appellant's contention in this regard would amount to reading this into the law - something which we are not ready to do, considering its adverse effects upon the rights of the employees.  If it must be so, let the law say it clearly."[10]

The Court of Appeals found that the cases cited by the petitioner are not applicable to the instant case because:

"Resolving first the appeal of the defendant it is argued by said appellant that the trial court erred in holding that the termina­tion of employment of plaintiffs could not be justified as an analo­gous just cause for terminating employment under Republic Act No. 1787.  In short, defendant-appellant takes issues with the interpretation made by the said trial court in making the defendant-appellant com­pany liable under the provisions of Republic Act 1787, particular­ly in holding that the reason for terminating plaintiffs-appellants' employment cannot be made analogous to 'closing or cessation of operation' under par. (a).
In support of the contention, defendant-appellant cited the case of Amador Capiral vs. Manila Elec­tric Co., Inc., et al., G. R. No. L-15721, promulgated by the Supreme Court on December 27, 1963, interpreting the application of sub­-paragraph (f) of Section of Re­public Act 1787 in relation to said sub-paragraph (a) thereof.  In said case, the Supreme Court in declining to apply the benefits of Republic Act 1787 to the plaintiff herein whose position as news photographer had been abolished, sustained the view of the Meralco that it was more economical to engage the services of an outside photographer.  The case of Union of Philippine Education Employees vs. Philippine Education Co., Inc., G. R. No. L-7161, May 19, 1955, of the Supreme Court was also cited.
It is observed that the facts in the first cited decision by the defendant-appellant (Capiral vs. Manila Electric Co., et al) as well as the second case of Union of Phil­ippine Education Employees vs. Phil­ippine Education Co., Inc.), and the third, the Philippine Sheet Metal Workers's Union (CLU) vs. Court of Industrial Relations, et al.) are not the same as the facts of the instant case.  In case at bar, the plaintiffs have rendered services to the defendant company for not less than twenty years and in the case of Jose Lechago, he had served the com­pany for thirty five years as of the time they were dismissed.  It also ap­pears that the department to which the plaintiffs were connected have not been abolished and that defendant company is still existing with a labor force of 1,500.  Thus, while in the Capiral case the position of news photographer was abolished, in this particular case the position was not abolished but only the persons occupying the positions were dis­missed.  Of course, Mr. Ettisber­ger of the defendant company, gave as a cause of the dismissal of plaintiffs the fact that the com­pany adopted a policy of modernizing and mechanizing the operations of the company thus necessitating the reduction in the labor force.  We do not subscribe to the view that this purpose is one of the analo­gous causes mentioned under sub­-paragraph f (1) of Republic Act 1787, justifying the dismissal of an employee, We can glean from the records that plaintiffs in this par­ticular case have spent the best years of their lives in the service of the company.  Precisely, one of the purposes behind the enactment of the termination pay law is to afford protection to this kind of employees against the unbridled right of the employer to dismiss his employees.  At least, Republic Act 1787 extends this gratification or separation pay to employees who have been unjustly dismissed from the service."[11]

As correctly stated by the Court of Appeals, "In case of doubt all labor legislation x x x x shall be construed in favor of the safety and decent living for the laborer."[12]

The submission of the petitioner that assuming that Republic Act No. 1787 is applicable to the case at bar, only those services of the private respondent after June 21, 1957 when the law took effect should be considered because the said law partakes of a penalty and should not be given retroactive effect deserves scant consideration.

That Republic Act No. 1787 utilized years of service does not mean retroactive application of the law if the time previous to June 21, 1957 were included.  Moreover, Republic Act No. 1787 was enacted in the exercise of the police power of the State.  Hence, it may be given retroactive effect.  This Court has explained that:

"4.  Petitioner further contends that in applying the law, only those services of private respondents after June 21, 1957 should be reckoned in the computation of their termination pay.  Because, so petitioner avers, a contrary interpretation would have the effect of giving the law retroactive application.
This theory is short of being compelling.  The right of employees to separation pay in the case before us attached after, not before, June 21, 1957.  How separation pay is to be computed lies within the permis­sible prerogatives of Congress.  Con­gress considered the number of years of service of an employee as the basis in determining the amount to be paid as separation pay.  It could have fixed a different criterion. That it utilized years of service does not mean retroactive application of the law if the time previous to June 21, 1957 were included.  The determination of the amount is to be made after said date when right to separation pay was granted to dismissed employees.  There should thus be no room for the notion that the law has been applied retroactively in this case.
More to this.  An idea difficult to pigeonhole is that Republic Act 1787 was enacted in the exercise of the police power of the State.  And, legislative acts or measures enacted pursuant to the police power of the State may have retroactive effect.  What needs stressing is the fact that in this case, at the time of the passage of Republic Act 1787, an employer-employee relationship existed between petitioner and private res­pondents.  Dismissal was effected after said law came into being.  By the law, termination pay must be given said employees."[13]

The assertion that the petitioner "being an American Company, went out of business after the Island of Negros was over-run by the Japanese x x x" is challenged.  Accord­ing to the respondents, "The records will show that the Pe­titioner Company was in continuous operation even during the Japanese enemy occupation period from 1942 to 1945, under its own corporate name although temporarily administered by the enemy occupation forces."[14] The employment of the private respondents was not deemed terminated by the alleged fact that the petitioner went out of business.

The Court of Appeals did not commit the errors assigned.  However, it should be made clear that the modification of the Court of Appeals of the decision appealed from should not apply to the plaintiff Marcos Dictado who was separated on November 27, 1956 before the passage of Republic Act 1787 and who had received as compensation from the company the sum of P303.75.

WHEREFORE, the decision sought to be reviewed is hereby affirmed except as to the plaintiff Marcos Dictado who as stated above was separated before the passage of Republic Act. 1787 and had received the compensation from the company in the sum of P303.75, with costs against the petitioner.


Teehankee, (Chairman), Makasiar, Martin, and Guerrero, JJ., concur.
Muñoz Palma, J., concurs with a separate opinion.

[1] Annex "A" to petition, Rollo, pp. 11-23.  The decision was written by Justice Nicasio Yatco and con­curred in by Justice Salvador V. Esguerra and Justice Eulogio S. Serrano.

[2] Annex "C" to petition, Rollo, pp. 25-28.

[3] Idem., Rollo, pp. 29-32.

[4] Idem., Rollo, pp. 40-41.

[5] Justice Nicasio Yatco, ponente, concurred in by Justice Salvador V. Esguerra and Justice Eulogio S. Serrano.

[6] Brief for Petitioner, pp. A-B, Rollo, p. 137.

[7] Idem., p. 7, Rollo, p. 137.

[8] Idem., p. 20, Rollo, p. 137.

[9] Idem., p. 25, Rollo, p. 137.

[10] Benjamin Wenceslao, et al. vs. Carmen Zaragoza, Inc., G. R. No. L-22577, July 31, 1968, 24 SCRA 554, 558.

[11] Annex "A" to Petition, pp. 7-9, Rollo, pp. 17-20.

[12] Article 1702, Civil Code of the Philippines.

[13] Insular Lumber Co. vs. Court of Appeals, 29 SCRA 371, 382-383.

[14] Brief for the Respondents, Rollo, p. 177.