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TOPIC:HIERARCHY OF RELIGIOUS FREEDOM Appellee from the service in view of the fact that he was resigning from the

vice in view of the fact that he was resigning from the Union as a
member. The management of the Company in turn notified Appellee and his counsel
VICTORIANO V ELIZALDE ROPE WORKERS UNION that unless the Appellee could achieve a satisfactory arrangement with the Union, the
G.R. No. L-25246 September 12, 1974 Company would be constrained to dismiss him from the service. This prompted
Appellee to file an action for injunction, docketed as Civil Case No. 58894 in the Court
of First Instance of Manila to enjoin the Company and the Union from dismissing
Appellee.1 In its answer, the Union invoked the "union security clause" of the collective
ZALDIVAR, J.:p
bargaining agreement; assailed the constitutionality of Republic Act No. 3350; and
Appeal to this Court on purely questions of law from the decision of the Court of First contended that the Court had no jurisdiction over the case, pursuant to Republic Act
Instance of Manila in its Civil Case No. 58894. No. 875, Sections 24 and 9 (d) and (e).2 Upon the facts agreed upon by the parties
during the pre-trial conference, the Court a quo rendered its decision on August 26,
The undisputed facts that spawned the instant case follow: 1965, the dispositive portion of which reads:
Benjamin Victoriano (hereinafter referred to as Appellee), a member of the religious IN VIEW OF THE FOREGOING, judgment is rendered enjoining the defendant Elizalde
sect known as the "Iglesia ni Cristo", had been in the employ of the Elizalde Rope Rope Factory, Inc. from dismissing the plaintiff from his present employment and
Factory, Inc. (hereinafter referred to as Company) since 1958. As such employee, he sentencing the defendant Elizalde Rope Workers' Union to pay the plaintiff P500 for
was a member of the Elizalde Rope Workers' Union (hereinafter referred to as Union) attorney's fees and the costs of this action.3
which had with the Company a collective bargaining agreement containing a closed
shop provision which reads as follows: From this decision, the Union appealed directly to this Court on purely questions of
law, assigning the following errors:
Membership in the Union shall be required as a condition of employment for all
permanent employees workers covered by this Agreement. I. That the lower court erred when it did not rule that Republic Act No. 3350 is
unconstitutional.
The collective bargaining agreement expired on March 3, 1964 but was renewed the
following day, March 4, 1964. II. That the lower court erred when it sentenced appellant herein to pay plaintiff the sum
of P500 as attorney's fees and the cost thereof.
Under Section 4(a), paragraph 4, of Republic Act No. 875, prior to its amendment by
Republic Act No. 3350, the employer was not precluded "from making an agreement In support of the alleged unconstitutionality of Republic Act No. 3350, the Union
with a labor organization to require as a condition of employment membership therein, contented, firstly, that the Act infringes on the fundamental right to form lawful
if such labor organization is the representative of the employees." On June 18, 1961, associations; that "the very phraseology of said Republic Act 3350, that membership
however, Republic Act No. 3350 was enacted, introducing an amendment to — in a labor organization is banned to all those belonging to such religious sect prohibiting
paragraph (4) subsection (a) of section 4 of Republic Act No. 875, as follows: ... "but affiliation with any labor organization"4 , "prohibits all the members of a given religious
such agreement shall not cover members of any religious sects which prohibit affiliation sect from joining any labor union if such sect prohibits affiliations of their members
of their members in any such labor organization". thereto"5 ; and, consequently, deprives said members of their constitutional right to
form or join lawful associations or organizations guaranteed by the Bill of Rights, and
Being a member of a religious sect that prohibits the affiliation of its members with any thus becomes obnoxious to Article III, Section 1 (6) of the 1935 Constitution. 6
labor organization, Appellee presented his resignation to appellant Union in 1962, and
when no action was taken thereon, he reiterated his resignation on September 3, 1974. Secondly, the Union contended that Republic Act No. 3350 is unconstitutional for
Thereupon, the Union wrote a formal letter to the Company asking the latter to separate impairing the obligation of contracts in that, while the Union is obliged to comply with
its collective bargaining agreement containing a "closed shop provision," the Act the right not to join or to resign from a labor organization, if one's conscience does not
relieves the employer from its reciprocal obligation of cooperating in the maintenance allow his membership therein, and the Act has given substance to such right by
of union membership as a condition of employment; and that said Act, furthermore, prohibiting the compulsion of workers to join labor organizations; 14 that said Act does
impairs the Union's rights as it deprives the union of dues from members who, under not impair the obligation of contracts for said law formed part of, and was incorporated
the Act, are relieved from the obligation to continue as such members.7 into, the terms of the closed shop agreement; 15 that the Act does not violate the
establishment of religion clause or separation of Church and State, for Congress, in
Thirdly, the Union contended that Republic Act No. 3350 discriminatorily favors those enacting said law, merely accommodated the religious needs of those workers whose
religious sects which ban their members from joining labor unions, in violation of Article religion prohibits its members from joining labor unions, and balanced the collective
Ill, Section 1 (7) of the 1935 Constitution; and while said Act unduly protects certain rights of organized labor with the constitutional right of an individual to freely exercise
religious sects, it leaves no rights or protection to labor organizations.8 his chosen religion; that the constitutional right to the free exercise of one's religion has
Fourthly, Republic Act No. 3350, asserted the Union, violates the constitutional primacy and preference over union security measures which are merely contractual 16;
provision that "no religious test shall be required for the exercise of a civil right," in that that said Act does not violate the constitutional provision of equal protection, for the
the laborer's exercise of his civil right to join associations for purposes not contrary to classification of workers under the Act depending on their religious tenets is based on
law has to be determined under the Act by his affiliation with a religious sect; that substantial distinction, is germane to the purpose of the law, and applies to all the
conversely, if a worker has to sever his religious connection with a sect that prohibits members of a given class; 17 that said Act, finally, does not violate the social justice
membership in a labor organization in order to be able to join a labor organization, said policy of the Constitution, for said Act was enacted precisely to equalize employment
Act would violate religious freedom.9 opportunities for all citizens in the midst of the diversities of their religious beliefs." 18

Fifthly, the Union contended that Republic Act No. 3350, violates the "equal protection I. Before We proceed to the discussion of the first assigned error, it is necessary to
of laws" clause of the Constitution, it being a discriminately legislation, inasmuch as by premise that there are some thoroughly established principles which must be followed
exempting from the operation of closed shop agreement the members of the "Iglesia in all cases where questions of constitutionality as obtains in the instant case are
ni Cristo", it has granted said members undue advantages over their fellow workers, involved. All presumptions are indulged in favor of constitutionality; one who attacks a
for while the Act exempts them from union obligation and liability, it nevertheless statute, alleging unconstitutionality must prove its invalidity beyond a reasonable doubt,
entitles them at the same time to the enjoyment of all concessions, benefits and other that a law may work hardship does not render it unconstitutional; that if any reasonable
emoluments that the union might secure from the employer. 10 basis may be conceived which supports the statute, it will be upheld, and the challenger
must negate all possible bases; that the courts are not concerned with the wisdom,
Sixthly, the Union contended that Republic Act No. 3350 violates the constitutional justice, policy, or expediency of a statute; and that a liberal interpretation of the
provision regarding the promotion of social justice. 11 constitution in favor of the constitutionality of legislation should be adopted. 19
Appellant Union, furthermore, asserted that a "closed shop provision" in a collective 1. Appellant Union's contention that Republic Act No. 3350 prohibits and bans the
bargaining agreement cannot be considered violative of religious freedom, as to call members of such religious sects that forbid affiliation of their members with labor
for the amendment introduced by Republic Act No. 3350; 12and that unless Republic unions from joining labor unions appears nowhere in the wording of Republic Act No.
Act No. 3350 is declared unconstitutional, trade unionism in this country would be 3350; neither can the same be deduced by necessary implication therefrom. It is not
wiped out as employers would prefer to hire or employ members of the Iglesia ni Cristo surprising, therefore, that appellant, having thus misread the Act, committed the error
in order to do away with labor organizations. 13 of contending that said Act is obnoxious to the constitutional provision on freedom of
association.
Appellee, assailing appellant's arguments, contended that Republic Act No. 3350 does
not violate the right to form lawful associations, for the right to join associations includes
Both the Constitution and Republic Act No. 875 recognize freedom of association. of a closed shop agreement, before the enactment of Republic Act No. 3350, if any
Section 1 (6) of Article III of the Constitution of 1935, as well as Section 7 of Article IV person, regardless of his religious beliefs, wishes to be employed or to keep his
of the Constitution of 1973, provide that the right to form associations or societies for employment, he must become a member of the collective bargaining union. Hence, the
purposes not contrary to law shall not be abridged. Section 3 of Republic Act No. 875 right of said employee not to join the labor union is curtailed and withdrawn.
provides that employees shall have the right to self-organization and to form, join of
assist labor organizations of their own choosing for the purpose of collective bargaining To that all-embracing coverage of the closed shop arrangement, Republic Act No. 3350
and to engage in concerted activities for the purpose of collective bargaining and other introduced an exception, when it added to Section 4 (a) (4) of the Industrial Peace Act
mutual aid or protection. What the Constitution and the Industrial Peace Act recognize the following proviso: "but such agreement shall not cover members of any religious
and guarantee is the "right" to form or join associations. Notwithstanding the different sects which prohibit affiliation of their members in any such labor organization".
theories propounded by the different schools of jurisprudence regarding the nature and Republic Act No. 3350 merely excludes ipso jure from the application and coverage of
contents of a "right", it can be safely said that whatever theory one subscribes to, a the closed shop agreement the employees belonging to any religious sects which
right comprehends at least two broad notions, namely: first, liberty or freedom, i.e., the prohibit affiliation of their members with any labor organization. What the exception
absence of legal restraint, whereby an employee may act for himself without being provides, therefore, is that members of said religious sects cannot be compelled or
prevented by law; and second, power, whereby an employee may, as he pleases, join coerced to join labor unions even when said unions have closed shop agreements with
or refrain from Joining an association. It is, therefore, the employee who should decide the employers; that in spite of any closed shop agreement, members of said religious
for himself whether he should join or not an association; and should he choose to join, sects cannot be refused employment or dismissed from their jobs on the sole ground
he himself makes up his mind as to which association he would join; and even after he that they are not members of the collective bargaining union. It is clear, therefore, that
has joined, he still retains the liberty and the power to leave and cancel his membership the assailed Act, far from infringing the constitutional provision on freedom of
with said organization at any time. 20 It is clear, therefore, that the right to join a union association, upholds and reinforces it. It does not prohibit the members of said religious
includes the right to abstain from joining any union. 21 Inasmuch as what both the sects from affiliating with labor unions. It still leaves to said members the liberty and
Constitution and the Industrial Peace Act have recognized, and guaranteed to the the power to affiliate, or not to affiliate, with labor unions. If, notwithstanding their
employee, is the "right" to join associations of his choice, it would be absurd to say that religious beliefs, the members of said religious sects prefer to sign up with the labor
the law also imposes, in the same breath, upon the employee the duty to join union, they can do so. If in deference and fealty to their religious faith, they refuse to
associations. The law does not enjoin an employee to sign up with any association. sign up, they can do so; the law does not coerce them to join; neither does the law
prohibit them from joining; and neither may the employer or labor union compel them
The right to refrain from joining labor organizations recognized by Section 3 of the to join. Republic Act No. 3350, therefore, does not violate the constitutional provision
Industrial Peace Act is, however, limited. The legal protection granted to such right to on freedom of association.
refrain from joining is withdrawn by operation of law, where a labor union and an
employer have agreed on a closed shop, by virtue of which the employer may employ 2. Appellant Union also contends that the Act is unconstitutional for impairing the
only member of the collective bargaining union, and the employees must continue to obligation of its contract, specifically, the "union security clause" embodied in its
be members of the union for the duration of the contract in order to keep their jobs. Collective Bargaining Agreement with the Company, by virtue of which "membership
Thus Section 4 (a) (4) of the Industrial Peace Act, before its amendment by Republic in the union was required as a condition for employment for all permanent employees
Act No. 3350, provides that although it would be an unfair labor practice for an workers". This agreement was already in existence at the time Republic Act No. 3350
employer "to discriminate in regard to hire or tenure of employment or any term or was enacted on June 18, 1961, and it cannot, therefore, be deemed to have been
condition of employment to encourage or discourage membership in any labor incorporated into the agreement. But by reason of this amendment, Appellee, as well
organization" the employer is, however, not precluded "from making an agreement with as others similarly situated, could no longer be dismissed from his job even if he should
a labor organization to require as a condition of employment membership therein, if cease to be a member, or disaffiliate from the Union, and the Company could continue
such labor organization is the representative of the employees". By virtue, therefore, employing him notwithstanding his disaffiliation from the Union. The Act, therefore,
introduced a change into the express terms of the union security clause; the Company merely contractual, and said labor contracts, for being impressed with public interest,
was partly absolved by law from the contractual obligation it had with the Union of must yield to the common good. 27
employing only Union members in permanent positions, It cannot be denied, therefore,
that there was indeed an impairment of said union security clause. In several occasions this Court declared that the prohibition against impairing the
obligations of contracts has no application to statutes relating to public subjects within
According to Black, any statute which introduces a change into the express terms of the domain of the general legislative powers of the state involving public
the contract, or its legal construction, or its validity, or its discharge, or the remedy for welfare. 28 Thus, this Court also held that the Blue Sunday Law was not an
its enforcement, impairs the contract. The extent of the change is not material. It is not infringement of the obligation of a contract that required the employer to furnish work
a question of degree or manner or cause, but of encroaching in any respect on its on Sundays to his employees, the law having been enacted to secure the well-being
obligation or dispensing with any part of its force. There is an impairment of the contract and happiness of the laboring class, and being, furthermore, a legitimate exercise of
if either party is absolved by law from its performance. 22 Impairment has also been the police power. 29
predicated on laws which, without destroying contracts, derogate from substantial
contractual rights. 23 In order to determine whether legislation unconstitutionally impairs contract
obligations, no unchanging yardstick, applicable at all times and under all
It should not be overlooked, however, that the prohibition to impair the obligation of circumstances, by which the validity of each statute may be measured or determined,
contracts is not absolute and unqualified. The prohibition is general, affording a broad has been fashioned, but every case must be determined upon its own circumstances.
outline and requiring construction to fill in the details. The prohibition is not to be read Legislation impairing the obligation of contracts can be sustained when it is enacted
with literal exactness like a mathematical formula, for it prohibits unreasonable for the promotion of the general good of the people, and when the means adopted to
impairment only. 24 In spite of the constitutional prohibition, the State continues to secure that end are reasonable. Both the end sought and the means adopted must be
possess authority to safeguard the vital interests of its people. Legislation appropriate legitimate, i.e., within the scope of the reserved power of the state construed in
to safeguarding said interests may modify or abrogate contracts already in harmony with the constitutional limitation of that power. 30
effect. 25 For not only are existing laws read into contracts in order to fix the obligations
as between the parties, but the reservation of essential attributes of sovereign power What then was the purpose sought to be achieved by Republic Act No. 3350? Its
is also read into contracts as a postulate of the legal order. All contracts made with purpose was to insure freedom of belief and religion, and to promote the general
reference to any matter that is subject to regulation under the police power must be welfare by preventing discrimination against those members of religious sects which
understood as made in reference to the possible exercise of that power. 26 Otherwise, prohibit their members from joining labor unions, confirming thereby their natural,
important and valuable reforms may be precluded by the simple device of entering into statutory and constitutional right to work, the fruits of which work are usually the only
contracts for the purpose of doing that which otherwise may be prohibited. The policy means whereby they can maintain their own life and the life of their dependents. It
of protecting contracts against impairment presupposes the maintenance of a cannot be gainsaid that said purpose is legitimate.
government by virtue of which contractual relations are worthwhile a government which The questioned Act also provides protection to members of said religious sects against
retains adequate authority to secure the peace and good order of society. The contract two aggregates of group strength from which the individual needs protection. The
clause of the Constitution must, therefore, be not only in harmony with, but also in individual employee, at various times in his working life, is confronted by two
subordination to, in appropriate instances, the reserved power of the state to safeguard aggregates of power — collective labor, directed by a union, and collective capital,
the vital interests of the people. It follows that not all legislations, which have the effect directed by management. The union, an institution developed to organize labor into a
of impairing a contract, are obnoxious to the constitutional prohibition as to impairment, collective force and thus protect the individual employee from the power of collective
and a statute passed in the legitimate exercise of police power, although it incidentally capital, is, paradoxically, both the champion of employee rights, and a new source of
destroys existing contract rights, must be upheld by the courts. This has special their frustration. Moreover, when the Union interacts with management, it produces yet
application to contracts regulating relations between capital and labor which are not
a third aggregate of group strength from which the individual also needs protection — worship, without discrimination and preference, shall forever be allowed. No religious
the collective bargaining relationship. 31 test shall be required for the exercise of civil or political rights.

The aforementioned purpose of the amendatory law is clearly seen in the Explanatory The constitutional provision into only prohibits legislation for the support of any religious
Note to House Bill No. 5859, which later became Republic Act No. 3350, as follows: tenets or the modes of worship of any sect, thus forestalling compulsion by law of the
acceptance of any creed or the practice of any form of worship, 35 but also assures
It would be unthinkable indeed to refuse employing a person who, on account of his the free exercise of one's chosen form of religion within limits of utmost amplitude. It
religious beliefs and convictions, cannot accept membership in a labor organization has been said that the religion clauses of the Constitution are all designed to protect
although he possesses all the qualifications for the job. This is tantamount to punishing the broadest possible liberty of conscience, to allow each man to believe as his
such person for believing in a doctrine he has a right under the law to believe in. The conscience directs, to profess his beliefs, and to live as he believes he ought to live,
law would not allow discrimination to flourish to the detriment of those whose religion consistent with the liberty of others and with the common good. 36 Any legislation
discards membership in any labor organization. Likewise, the law would not commend whose effect or purpose is to impede the observance of one or all religions, or to
the deprivation of their right to work and pursue a modest means of livelihood, without discriminate invidiously between the religions, is invalid, even though the burden may
in any manner violating their religious faith and/or belief. 32 be characterized as being only indirect. 37 But if the stage regulates conduct by
It cannot be denied, furthermore, that the means adopted by the Act to achieve that enacting, within its power, a general law which has for its purpose and effect to advance
purpose — exempting the members of said religious sects from coverage of union the state's secular goals, the statute is valid despite its indirect burden on religious
security agreements — is reasonable. observance, unless the state can accomplish its purpose without imposing such
burden. 38
It may not be amiss to point out here that the free exercise of religious profession or
belief is superior to contract rights. In case of conflict, the latter must, therefore, yield In Aglipay v. Ruiz 39 , this Court had occasion to state that the government should not
to the former. The Supreme Court of the United States has also declared on several be precluded from pursuing valid objectives secular in character even if the incidental
occasions that the rights in the First Amendment, which include freedom of religion, result would be favorable to a religion or sect. It has likewise been held that the statute,
enjoy a preferred position in the constitutional system. 33 Religious freedom, although in order to withstand the strictures of constitutional prohibition, must have a secular
not unlimited, is a fundamental personal right and liberty, 34 and has a preferred legislative purpose and a primary effect that neither advances nor inhibits
position in the hierarchy of values. Contractual rights, therefore, must yield to freedom religion. 40 Assessed by these criteria, Republic Act No. 3350 cannot be said to violate
of religion. It is only where unavoidably necessary to prevent an immediate and grave the constitutional inhibition of the "no-establishment" (of religion) clause of the
danger to the security and welfare of the community that infringement of religious Constitution.
freedom may be justified, and only to the smallest extent necessary to avoid the The purpose of Republic Act No. 3350 is secular, worldly, and temporal, not spiritual
danger. or religious or holy and eternal. It was intended to serve the secular purpose of
3. In further support of its contention that Republic Act No. 3350 is unconstitutional, advancing the constitutional right to the free exercise of religion, by averting that certain
appellant Union averred that said Act discriminates in favor of members of said persons be refused work, or be dismissed from work, or be dispossessed of their right
religious sects in violation of Section 1 (7) of Article Ill of the 1935 Constitution, and to work and of being impeded to pursue a modest means of livelihood, by reason of
which is now Section 8 of Article IV of the 1973 Constitution, which provides: union security agreements. To help its citizens to find gainful employment whereby
they can make a living to support themselves and their families is a valid objective of
No law shall be made respecting an establishment of religion, or prohibiting the free the state. In fact, the state is enjoined, in the 1935 Constitution, to afford protection to
exercise thereof, and the free exercise and enjoyment of religious profession and labor, and regulate the relations between labor and capital and industry. 41 More so
now in the 1973 Constitution where it is mandated that "the State shall afford protection
to labor, promote full employment and equality in employment, ensure equal work determined by its provisions, not by its silence 46 ; and, second, the fact that the law
opportunities regardless of sex, race or creed and regulate the relation between may work hardship does not render it unconstitutional. 47
workers and employers. 42
It would not be amiss to state, regarding this matter, that to compel persons to join and
The primary effects of the exemption from closed shop agreements in favor of remain members of a union to keep their jobs in violation of their religious scrupples,
members of religious sects that prohibit their members from affiliating with a labor would hurt, rather than help, labor unions, Congress has seen it fit to exempt religious
organization, is the protection of said employees against the aggregate force of the objectors lest their resistance spread to other workers, for religious objections have
collective bargaining agreement, and relieving certain citizens of a burden on their contagious potentialities more than political and philosophic objections.
religious beliefs; and by eliminating to a certain extent economic insecurity due to
unemployment, which is a serious menace to the health, morals, and welfare of the Furthermore, let it be noted that coerced unity and loyalty even to the country, and
people of the State, the Act also promotes the well-being of society. It is our view that a fortiori to a labor — union assuming that such unity and loyalty can be attained
the exemption from the effects of closed shop agreement does not directly advance, through coercion — is not a goal that is constitutionally obtainable at the expense of
or diminish, the interests of any particular religion. Although the exemption may benefit religious liberty. 48 A desirable end cannot be promoted by prohibited means.
those who are members of religious sects that prohibit their members from joining labor 4. Appellants' fourth contention, that Republic Act No. 3350 violates the constitutional
unions, the benefit upon the religious sects is merely incidental and indirect. The prohibition against requiring a religious test for the exercise of a civil right or a political
"establishment clause" (of religion) does not ban regulation on conduct whose reason right, is not well taken. The Act does not require as a qualification, or condition, for
or effect merely happens to coincide or harmonize with the tenets of some or all joining any lawful association membership in any particular religion or in any religious
religions. 43 The free exercise clause of the Constitution has been interpreted to sect; neither does the Act require affiliation with a religious sect that prohibits its
require that religious exercise be preferentially aided. 44 members from joining a labor union as a condition or qualification for withdrawing from
We believe that in enacting Republic Act No. 3350, Congress acted consistently with a labor union. Joining or withdrawing from a labor union requires a positive act.
the spirit of the constitutional provision. It acted merely to relieve the exercise of Republic Act No. 3350 only exempts members with such religious affiliation from the
religion, by certain persons, of a burden that is imposed by union security agreements. coverage of closed shop agreements. So, under this Act, a religious objector is not
It was Congress itself that imposed that burden when it enacted the Industrial Peace required to do a positive act — to exercise the right to join or to resign from the union.
Act (Republic Act 875), and, certainly, Congress, if it so deems advisable, could take He is exempted ipso jure without need of any positive act on his part. A conscientious
away the same burden. It is certain that not every conscience can be accommodated religious objector need not perform a positive act or exercise the right of resigning from
by all the laws of the land; but when general laws conflict with scrupples of conscience, the labor union — he is exempted from the coverage of any closed shop agreement
exemptions ought to be granted unless some "compelling state interest" that a labor union may have entered into. How then can there be a religious test
intervenes. 45 In the instant case, We see no such compelling state interest to withhold required for the exercise of a right when no right need be exercised?
exemption. We have said that it was within the police power of the State to enact Republic Act No.
Appellant bewails that while Republic Act No. 3350 protects members of certain 3350, and that its purpose was legal and in consonance with the Constitution. It is
religious sects, it leaves no right to, and is silent as to the protection of, labor never an illegal evasion of a constitutional provision or prohibition to accomplish a
organizations. The purpose of Republic Act No. 3350 was not to grant rights to labor desired result, which is lawful in itself, by discovering or following a legal way to do
unions. The rights of labor unions are amply provided for in Republic Act No. 875 and it. 49
the new Labor Code. As to the lamented silence of the Act regarding the rights and 5. Appellant avers as its fifth ground that Republic Act No. 3350 is a discriminatory
protection of labor unions, suffice it to say, first, that the validity of a statute is legislation, inasmuch as it grants to the members of certain religious sects undue
advantages over other workers, thus violating Section 1 of Article III of the 1935
Constitution which forbids the denial to any person of the equal protection of the security agreements, into those who by reason of their religious beliefs and convictions
laws. 50 cannot sign up with a labor union, and those whose religion does not prohibit
membership in labor unions. Tile classification rests on real or substantial, not merely
The guaranty of equal protection of the laws is not a guaranty of equality in the imaginary or whimsical, distinctions. There is such real distinction in the beliefs,
application of the laws upon all citizens of the state. It is not, therefore, a requirement, feelings and sentiments of employees. Employees do not believe in the same religious
in order to avoid the constitutional prohibition against inequality, that every man, faith and different religions differ in their dogmas and cannons. Religious beliefs,
woman and child should be affected alike by a statute. Equality of operation of statutes manifestations and practices, though they are found in all places, and in all times, take
does not mean indiscriminate operation on persons merely as such, but on persons so many varied forms as to be almost beyond imagination. There are many views that
according to the circumstances surrounding them. It guarantees equality, not identity comprise the broad spectrum of religious beliefs among the people. There are diverse
of rights. The Constitution does not require that things which are different in fact be manners in which beliefs, equally paramount in the lives of their possessors, may be
treated in law as though they were the same. The equal protection clause does not articulated. Today the country is far more heterogenous in religion than before,
forbid discrimination as to things that are different. 51 It does not prohibit legislation differences in religion do exist, and these differences are important and should not be
which is limited either in the object to which it is directed or by the territory within which ignored.
it is to operate.
Even from the phychological point of view, the classification is based on real and
The equal protection of the laws clause of the Constitution allows classification. important differences. Religious beliefs are not mere beliefs, mere ideas existing only
Classification in law, as in the other departments of knowledge or practice, is the in the mind, for they carry with them practical consequences and are the motives of
grouping of things in speculation or practice because they agree with one another in certain rules. of human conduct and the justification of certain acts. 60 Religious
certain particulars. A law is not invalid because of simple inequality. 52 The very idea sentiment makes a man view things and events in their relation to his God. It gives to
of classification is that of inequality, so that it goes without saying that the mere fact of human life its distinctive character, its tone, its happiness or unhappiness its enjoyment
inequality in no manner determines the matter of constitutionality. 53 All that is required or irksomeness. Usually, a strong and passionate desire is involved in a religious belief.
of a valid classification is that it be reasonable, which means that the classification To certain persons, no single factor of their experience is more important to them than
should be based on substantial distinctions which make for real differences; that it must their religion, or their not having any religion. Because of differences in religious belief
be germane to the purpose of the law; that it must not be limited to existing conditions and sentiments, a very poor person may consider himself better than the rich, and the
only; and that it must apply equally to each member of the class. 54 This Court has man who even lacks the necessities of life may be more cheerful than the one who has
held that the standard is satisfied if the classification or distinction is based on a all possible luxuries. Due to their religious beliefs people, like the martyrs, became
reasonable foundation or rational basis and is not palpably arbitrary. 55 resigned to the inevitable and accepted cheerfully even the most painful and
In the exercise of its power to make classifications for the purpose of enacting laws excruciating pains. Because of differences in religious beliefs, the world has witnessed
over matters within its jurisdiction, the state is recognized as enjoying a wide range of turmoil, civil strife, persecution, hatred, bloodshed and war, generated to a large extent
discretion. 56 It is not necessary that the classification be based on scientific or marked by members of sects who were intolerant of other religious beliefs. The classification,
differences of things or in their relation. 57 Neither is it necessary that the classification introduced by Republic Act No. 3350, therefore, rests on substantial distinctions.
be made with mathematical nicety. 58 Hence legislative classification may in many The classification introduced by said Act is also germane to its purpose. The purpose
cases properly rest on narrow distinctions, 59 for the equal protection guaranty does of the law is precisely to avoid those who cannot, because of their religious belief, join
not preclude the legislature from recognizing degrees of evil or harm, and legislation is labor unions, from being deprived of their right to work and from being dismissed from
addressed to evils as they may appear. their work because of union shop security agreements.
We believe that Republic Act No. 3350 satisfies the aforementioned requirements. The
Act classifies employees and workers, as to the effect and coverage of union shop
Republic Act No. 3350, furthermore, is not limited in its application to conditions maintenance of a proper economic and social equilibrium in the inter-relations of the
existing at the time of its enactment. The law does not provide that it is to be effective members of the community. 64 Republic Act No. 3350 insures economic stability to the
for a certain period of time only. It is intended to apply for all times as long as the members of a religious sect, like the Iglesia ni Cristo, who are also component
conditions to which the law is applicable exist. As long as there are closed shop elements of society, for it insures security in their employment, notwithstanding their
agreements between an employer and a labor union, and there are employees who failure to join a labor union having a closed shop agreement with the employer. The
are prohibited by their religion from affiliating with labor unions, their exemption from Act also advances the proper economic and social equilibrium between labor unions
the coverage of said agreements continues. and employees who cannot join labor unions, for it exempts the latter from the
compelling necessity of joining labor unions that have closed shop agreements and
Finally, the Act applies equally to all members of said religious sects; this is evident equalizes, in so far as opportunity to work is concerned, those whose religion prohibits
from its provision. The fact that the law grants a privilege to members of said religious membership in labor unions with those whose religion does not prohibit said
sects cannot by itself render the Act unconstitutional, for as We have adverted to, the membership. Social justice does not imply social equality, because social inequality
Act only restores to them their freedom of association which closed shop agreements will always exist as long as social relations depend on personal or subjective
have taken away, and puts them in the same plane as the other workers who are not proclivities. Social justice does not require legal equality because legal equality, being
prohibited by their religion from joining labor unions. The circumstance, that the other a relative term, is necessarily premised on differentiations based on personal or natural
employees, because they are differently situated, are not granted the same privilege, conditions. 65 Social justice guarantees equality of opportunity 66 , and this is
does not render the law unconstitutional, for every classification allowed by the precisely what Republic Act No. 3350 proposes to accomplish — it gives laborers,
Constitution by its nature involves inequality. irrespective of their religious scrupples, equal opportunity for work.
The mere fact that the legislative classification may result in actual inequality is not 7. As its last ground, appellant contends that the amendment introduced by Republic
violative of the right to equal protection, for every classification of persons or things for Act No. 3350 is not called for — in other words, the Act is not proper, necessary or
regulation by law produces inequality in some degree, but the law is not thereby desirable. Anent this matter, it has been held that a statute which is not necessary is
rendered invalid. A classification otherwise reasonable does not offend the constitution not, for that reason, unconstitutional; that in determining the constitutional validity of
simply because in practice it results in some inequality. 61 Anent this matter, it has legislation, the courts are unconcerned with issues as to the necessity for the
been said that whenever it is apparent from the scope of the law that its object is for enactment of the legislation in question. 67 Courts do inquire into the wisdom of
the benefit of the public and the means by which the benefit is to be obtained are of laws. 68 Moreover, legislatures, being chosen by the people, are presumed to
public character, the law will be upheld even though incidental advantage may occur understand and correctly appreciate the needs of the people, and it may change the
to individuals beyond those enjoyed by the general public. 62 laws accordingly. 69 The fear is entertained by appellant that unless the Act is declared
6. Appellant's further contention that Republic Act No. 3350 violates the constitutional unconstitutional, employers will prefer employing members of religious sects that
provision on social justice is also baseless. Social justice is intended to promote the prohibit their members from joining labor unions, and thus be a fatal blow to unionism.
welfare of all the people. 63 Republic Act No. 3350 promotes that welfare insofar as it We do not agree. The threat to unionism will depend on the number of employees who
looks after the welfare of those who, because of their religious belief, cannot join labor are members of the religious sects that control the demands of the labor market. But
unions; the Act prevents their being deprived of work and of the means of livelihood. there is really no occasion now to go further and anticipate problems We cannot judge
In determining whether any particular measure is for public advantage, it is not with the material now before Us. At any rate, the validity of a statute is to be determined
necessary that the entire state be directly benefited — it is sufficient that a portion of from its general purpose and its efficacy to accomplish the end desired, not from its
the state be benefited thereby. effects on a particular case. 70 The essential basis for the exercise of power, and not
a mere incidental result arising from its exertion, is the criterion by which the validity of
Social justice also means the adoption by the Government of measures calculated to a statute is to be measured. 71
insure economic stability of all component elements of society, through the
II. We now pass on the second assignment of error, in support of which the Union Neither does Article 2208 of the Civil Code, invoked by the Union, serve as its shield.
argued that the decision of the trial court ordering the Union to pay P500 for attorney's The article provides that attorney's fees and expenses of litigation may be awarded
fees directly contravenes Section 24 of Republic Act No. 875, for the instant action "when the defendant's act or omission has compelled the plaintiff ... to incur expenses
involves an industrial dispute wherein the Union was a party, and said Union merely to protect his interest"; and "in any other case where the court deems it just and
acted in the exercise of its rights under the union shop provision of its existing collective equitable that attorney's fees and expenses of litigation should be recovered". In the
bargaining contract with the Company; that said order also contravenes Article 2208 instant case, it cannot be gainsaid that appellant Union's act in demanding Appellee's
of the Civil Code; that, furthermore, Appellee was never actually dismissed by the dismissal caused Appellee to incur expenses to prevent his being dismissed from his
defendant Company and did not therefore suffer any damage at all . 72 job. Costs according to Section 1, Rule 142, of the Rules of Court, shall be allowed as
a matter of course to the prevailing party.
In refuting appellant Union's arguments, Appellee claimed that in the instant case there
was really no industrial dispute involved in the attempt to compel Appellee to maintain WHEREFORE, the instant appeal is dismissed, and the decision, dated August 26,
its membership in the union under pain of dismissal, and that the Union, by its act, 1965, of the Court of First Instance of Manila, in its Civil Case No. 58894, appealed
inflicted intentional harm on Appellee; that since Appellee was compelled to institute from is affirmed, with costs against appellant Union. It is so ordered.
an action to protect his right to work, appellant could legally be ordered to pay
attorney's fees under Articles 1704 and 2208 of the Civil Code. 73

The second paragraph of Section 24 of Republic Act No. 875 which is relied upon by
appellant provides that:

No suit, action or other proceedings shall be maintainable in any court against a labor
organization or any officer or member thereof for any act done by or on behalf of such
organization in furtherance of an industrial dispute to which it is a party, on the ground
only that such act induces some other person to break a contract of employment or
that it is in restraint of trade or interferes with the trade, business or employment of
some other person or with the right of some other person to dispose of his capital or
labor. (Emphasis supplied)

That there was a labor dispute in the instant case cannot be disputed for appellant
sought the discharge of respondent by virtue of the closed shop agreement and under
Section 2 (j) of Republic Act No. 875 a question involving tenure of employment is
included in the term "labor dispute". 74 The discharge or the act of seeking it is the
labor dispute itself. It being the labor dispute itself, that very same act of the Union in
asking the employer to dismiss Appellee cannot be "an act done ... in furtherance of
an industrial dispute". The mere fact that appellant is a labor union does not necessarily
mean that all its acts are in furtherance of an industrial dispute. 75 Appellant Union,
therefore, cannot invoke in its favor Section 24 of Republic Act No. 875. This case is
not intertwined with any unfair labor practice case existing at the time when Appellee
filed his complaint before the lower court.
TOPIC: IS BSP GOVERNMENT OR PRIVATE
BSP V COA xxxx

LEONARDO-DE CASTRO, J.: BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy
Scouts of the Philippines shall be classified among the government corporations
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the belonging to the Educational, Social, Scientific, Civic and Research Sector under the
Philippines (BSP) is the subject matter of this controversy that reached us via petition Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by
for prohibition[1] filed by the BSP under Rule 65 of the 1997 Rules of Court. In this employing the team audit approach.[8] (Emphases supplied.)
petition, the BSP seeks that the COA be prohibited from implementing its June 18,
2002 Decision,[2] its February 21, 2007 Resolution,[3]as well as all other issuances
arising therefrom, and that all of the foregoing be rendered null and void. [4]

The BSP sought reconsideration of the COA Resolution in a letter[9] dated November
Antecedent Facts and Background of the Case 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice
President of the Republic, wherein he wrote:
This case arose when the COA issued Resolution No. 99-011[5] on August 19, 1999
(the COA Resolution), with the subject Defining the Commissions policy with respect
to the audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA
Resolution stated that the BSP was created as a public corporation under It is the position of the BSP, with all due respect, that it is not subject to the
Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Commissions jurisdiction on the following grounds:
Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor
Relations Commission,[6] the Supreme Court ruled that the BSP, as constituted under
its charter, was a government-controlled corporation within the meaning of Article 1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National
IX(B)(2)(1) of the Constitution; and that the BSP is appropriately regarded as a Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a
government instrumentality under the 1987 Administrative Code.[7] The COA government-controlled corporation is anchored on the substantial Government
Resolution also cited its constitutional mandate under Section 2(1), Article IX participation in the National Executive Board of the BSP. It is to be noted that the case
(D). Finally, the COA Resolution reads: was decided when the BSP Charter is defined by Commonwealth Act No. 111 as
amended by Presidential Decree 460.

NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION


PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs
financial audit of the Boy Scouts of the Philippines in accordance with generally charter after the cited case was decided. The most salient of all amendments in RA
accepted auditing standards, and express an opinion on whether the financial No. 7278 is the alteration of the composition of the National Executive Board of the
statements which include the Balance Sheet, the Income Statement and the Statement BSP.
of Cash Flows present fairly its financial position and results of operations.
The said RA virtually eliminated the substantial government participation in the
National Executive Board by removing: (i) the President of the Philippines and
executive secretaries, with the exception of the Secretary of Education, as members It may be argued also that the BSP is not an agency of the Government. The 1987
thereof; and (ii) the appointment and confirmation power of the President of the Administrative Code, merely referred the BSP as an attached agency of the DECS as
Philippines, as Chief Scout, over the members of the said Board. distinguished from an actual line agency of departments that are included in the
National Budget. The BSP believes that an attached agency is different from an
agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined as
any of the various units of the Government including a department, bureau, office,
The BSP believes that the cited case has been superseded by RA 7278. Thereby instrumentality, government-owned or controlled corporation or local government or
weakening the cases conclusion that the BSP is a government-controlled corporation distinct unit therein.
(sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for
some terms, defines government-owned and controlled corporations as agencies
organized as stock or non-stock corporations which the BSP, under its present charter,
is not. Under the above definition, the BSP is neither a unit of the Government; a department
which refers to an executive department as created by law (Section 2[7] of the
Administrative Code); nor a bureau which refers to any principal subdivision or unit of
any department (Section 2[8], Administrative Code).[10]
Also, the Government, like in other GOCCs, does not have funds invested in the BSP.
What RA 7278 only provides is that the Government or any of its subdivisions,
branches, offices, agencies and instrumentalities can from time to time donate and
contribute funds to the BSP. Subsequently, requests for reconsideration of the COA Resolution were also made
separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region,
Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog City.[11]

xxxx

In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit


Officer (CAO) I of the COA, furnished the BSP with a copy of
Also the BSP respectfully believes that the BSP is not appropriately regarded as a the Memorandum[13] dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA
government instrumentality under the 1987 Administrative Code as stated in the COA General Counsel. In said Memorandum, the COA General Counsel opined that
resolution. As defined by Section 2(10) of the said code, instrumentality refers to any Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the
agency of the National Government, not integrated within the department framework, Philippines v. National Labor Relations Commission, even though said law eliminated
vested with special functions or jurisdiction by law, endowed with some if not all the substantial government participation in the selection of members of the National
corporate powers, administering special funds, and enjoying operational autonomy, Executive Board of the BSP. The Memorandum further provides:
usually through a charter.

Analysis of the said case disclosed that the substantial government participation is only
The BSP is not an entity administering special funds. It is not even included in the one (1) of the three (3) grounds relied upon by the Court in the resolution of the case.
DECS National Budget. x x x Other considerations include the character of the BSPs purposes and functions which
has a public aspect and the statutory designation of the BSP as a public corporation. operations and accounting system/records shall be conducted on November 21 to 22,
These grounds have not been deleted by R.A. No. 7278. On the contrary, these were 2000.[16]
strengthened as evidenced by the amendment made relative to BSPs purposes stated
in Section 3 of R.A. No. 7278.
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed
a Petition for Review with Prayer for Preliminary Injunction and/or Temporary
On the argument that BSP is not appropriately regarded as a government Restraining Order before the COA. This was denied by the COA in its questioned
instrumentality and agency of the government, such has already been answered and Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for
clarified. The Supreme Court has elucidated this matter in the BSP case when it reconsideration but this was likewise denied under its questioned Resolution.[17]
declared that BSP is regarded as, both a government-controlled corporation with an
original charter and as an instrumentality of the Government. Likewise, it is not
disputed that the Administrative Code of 1987 designated the BSP as one of the This led to the filing by the BSP of this petition for prohibition with preliminary injunction
attached agencies of DECS. Being an attached agency, however, it does not change and temporary restraining order against the COA.
its nature as a government-controlled corporation with original charter and, necessarily,
subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution
provides that COA shall have the power, authority, and duty to examine, audit and
The Issue
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses
of funds and property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies or instrumentalities, including government-owned or
controlled corporations with original charters.[14] As stated earlier, the sole issue to be resolved in this case is whether the BSP falls
under the COAs audit jurisdiction.

The Parties Respective Arguments


Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
In view of the points clarified by said Memorandum upholding COA Resolution No. 99- Commission is inapplicable for purposes of determining the audit jurisdiction of the
011, we have to comply with the provisions of the latter, among which is to conduct an COA as the issue therein was the jurisdiction of the National Labor Relations
annual financial audit of the Boy Scouts of the Philippines.[15] Commission over a case for illegal dismissal and unfair labor practice filed by certain
BSP employees.[18]

While the BSP concedes that its functions do relate to those that the government might
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO
otherwise completely assume on its own, it avers that this alone was not determinative
I, the COA informed the BSP that a preliminary survey of its organizational structure,
of the COAs audit jurisdiction over it. The BSP further avers that the Court in Boy
Scouts of the Philippines v. National Labor Relations Commission simply stated x x x municipalities, or government-owned and controlled corporations, such as Land Bank
that in respect of functions, the BSP is akin to a public corporation but this was not of the Philippines and the Development Bank of the Philippines, the assets and funds
synonymous to holding that the BSP is a government corporation or entity subject to of BSP are not derived from any government grant. For its operations, BSP is not
audit by the COA. [19] dependent in any way on any government appropriation; as a matter of fact, it has not
even been included in any appropriations for the government. To be sure, COA has
not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel,
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its that BSP received, receives or continues to receive assets and funds from any agency
charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National of the government. The foregoing simply point to the private nature of the funds and
Labor Relations Commission are no longer valid as the government has ceased to play assets of petitioner BSP.
a controlling influence in it. The BSP claims that the pronouncements of the Court
therein must be taken only within the context of that case; that the Court had
categorically found that its assets were acquired from the Boy Scouts of America and xxxx
not from the Philippine government, and that its operations are financed chiefly from
membership dues of the Boy Scouts themselves as well as from property rentals; and
that the BSP may correctly be characterized as non-governmental, and hence, beyond As stated in petitioners third argument, BSPs assets and funds were never acquired
the audit jurisdiction of the COA. It further claims that the designation by the Court of from the government. Its operations are not in any way financed by the government,
the BSP as a government agency or instrumentality is mere obiter dictum.[20] as BSP has never been included in any appropriations act for the government. Neither
has the government invested funds with BSP. BSP, has not been, at any time, a user
of government property or funds; nor have properties of the government been held in
The BSP maintains that the provisions of Republic Act No. 7278 suggest that trust by BSP. This is precisely the reason why, until this time, the COA has not
governance of BSP has come to be overwhelmingly a private affair or nature, with attempted to subject BSP to its audit jurisdiction. x x x.[25]
government participation restricted to the seat of the Secretary of Education, Culture
and Sports.[21] It cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the
Court declared that, PAL, having ceased to be a government-owned or controlled
corporation is no longer under the audit jurisdiction of the COA.[23] Claiming that the
amendments introduced by Republic Act No. 7278 constituted a supervening event To summarize its other arguments, the BSP contends that it is not a government-
that changed the BSPs corporate identity in the same way that the governments owned or controlled corporation; neither is it an instrumentality, agency, or subdivision
privatization program changed PALs, the BSP makes the case that the government no of the government.
longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines
v. National Labor Relations Commission as its basis for the exercise of its jurisdiction
and the issuance of COA Resolution No. 99-011.[24] The BSP further claims as In its Comment,[26] the COA argues as follows:
follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111
It is not far-fetched, in fact, to concede that BSPs funds and assets are private in dated October 31, 1936, and whose functions relate to the fostering of public virtues of
character. Unlike ordinary public corporations, such as provinces, cities, and citizenship and patriotism and the general improvement of the moral spirit and fiber of
the youth. The manner of creation and the purpose for which the BSP was created The COA concludes that being a government agency, the funds and property owned
indubitably prove that it is a government agency. or held by the BSP are subject to the audit authority of the COA pursuant to Section
2(1), Article IX (D) of the 1987 Constitution.

2. Being a government agency, the funds and property owned or held in trust
by the BSP are subject to the audit authority of respondent Commission on Audit In support of its arguments, the COA cites The Veterans Federation of the Philippines
pursuant to Section 2 (1), Article IX-D of the 1987 Constitution. (VFP) v. Reyes,[30] wherein the Court held that among the reasons why the VFP is a
public corporation is that its charter, Republic Act No. 2640, designates it as
one. Furthermore, the COA quotes the Court as saying in that case:
3. Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government instrumentality.[27]
In several cases, we have dealt with the issue of whether certain specific activities can
be classified as sovereign functions. These cases, which deal with activities not
immediately apparent to be sovereign functions, upheld the public sovereign nature of
operations needed either to promote social justice or to stimulate patriotic sentiments
The COA maintains that the functions of the BSP that include, among others, the and love of country.
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are
undeniably sovereign functions enshrined under the Constitution and discussed by the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The xxxx
COA contends that any attempt to classify the BSP as a private corporation would be
incomprehensible since no less than the law which created it had designated it as a
public corporation and its statutory mandate embraces performance of sovereign
functions.[28] Petitioner claims that its funds are not public funds because no budgetary
appropriations or government funds have been released to the VFP directly or
indirectly from the DBM, and because VFP funds come from membership dues and
lease rentals earned from administering government lands reserved for the VFP.
The COA claims that the only reason why the BSP employees fell within the scope of
the Civil Service Commission even before the 1987 Constitution was the fact that it
was a government-owned or controlled corporation; that as an attached agency of the
Department of Education, Culture and Sports (DECS), the BSP is an agency of the The fact that no budgetary appropriations have been released to the VFP does not
government; and that the BSP is a chartered institution under Section 1(12) of the prove that it is a private corporation. The DBM indeed did not see it fit to propose
Revised Administrative Code of 1987, embraced under the term government budgetary appropriations to the VFP, having itself believed that the VFP is a private
instrumentality.[29] corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature
of VFP's incorporation, its previous assertions will not prevent future budgetary
appropriations to the VFP. The erroneous application of the law by public officers does
not bar a subsequent correct application of the law.[31] (Citations omitted.)
the present controversy on the COAs audit jurisdiction over petitioner, and in fact, the
controversy may be resolved on other grounds; thus, the requisites before a judicial
The COA points out that the government is not precluded by law from extending inquiry may be made, as set forth in Commissioner of Internal Revenue v. Court of Tax
financial support to the BSP and adding to its funds, and that as a government Appeals,[36] have not been fully met.[37] Moreover, the COA maintains that behind
instrumentality which continues to perform a vital function imbued with public interest every law lies the presumption of constitutionality.[38] The COA likewise argues that
and reflective of the governments policy to stimulate patriotic sentiments and love of contrary to the BSPs position, repeal of a law by implication is not favored.[39] Lastly,
country, the BSPs funds from whatever source are public funds, and can be used solely the COA claims that there was no violation of Section 16, Article XII of the 1987
for public purpose in pursuance of the provisions of Republic Act No. [7278].[32] Constitution with the creation or declaration of the BSP as a government
corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit,[40] the COA further alleges:
The COA claims that the fact that it has not yet audited the BSPs funds may not bar
the subsequent exercise of its audit jurisdiction.
The true criterion, therefore, to determine whether a corporation is public or private is
found in the totality of the relation of the corporation to the State. If the corporation is
The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory created by the State as the latters own agency or instrumentality to help it in carrying
designation as a public corporation and the public character of its purpose and out its governmental functions, then that corporation is considered public; otherwise, it
functions are not determinative of the COAs audit jurisdiction; reiterating its stand is private. x x x.[41]
that Boy Scouts of the Philippines v. National Labor Relations Commission is not
applicable anymore because the aspect of government ownership and control has
been removed by Republic Act No. 7278; and concluding that the funds and property
that it either owned or held in trust are not public funds and are not subject to the COAs
audit jurisdiction. For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that its
charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP
Thereafter, considering the BSPs claim that it is a private corporation, this Court, in alleges that while [it] is not a public corporation within the purview of COAs audit
a Resolution[34] dated July 20, 2010, required the parties to file, within a period of jurisdiction, neither is it a private corporation created by special law falling within the
twenty (20) days from receipt of said Resolution, their respective comments on the ambit of the constitutional prohibition x x x.[43] The BSP further alleges:
issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278,
is constitutional.
Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by Section
1 of R.A. No. 7278, thus:
In compliance with the Courts resolution, the parties filed their respective Comments.

xxxx
In its Comment[35] dated October 22, 2010, the COA argues that the constitutionality
of Commonwealth Act No. 111, as amended, is not determinative of the resolution of
A reading of the foregoing provision shows that petitioner was created to advance the Finally, the BSP states that the presumption of constitutionality of a legislative
interest of the youth, specifically of young boys, and to mold them into becoming good enactment prevails absent any clear showing of its repugnancy to the Constitution.[51]
citizens. Ultimately, the creation of petitioner redounds to the benefit, not only of those
boys, but of the public good or welfare. Hence, it can be said that petitioners purpose
and functions are more of a public rather than a private character. Petitioner caters to The Ruling of the Court
all boys who wish to join the organization without any distinction. It does not limit its
membership to a particular class of boys. Petitioners members are trained in scoutcraft
and taught patriotism, civic consciousness and responsibility, courage, self-reliance,
After looking at the legislative history of its amended charter and carefully studying the
discipline and kindred virtues, and moral values, preparing them to become model
applicable laws and the arguments of both parties, we find that the BSP is a public
citizens and outstanding leaders of the country.[44]
corporation and its funds are subject to the COAs audit jurisdiction.

The BSP reiterates its stand that the public character of its purpose and functions do
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
not place it within the ambit of the audit jurisdiction of the COA as it lacks the
entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the
government ownership or control that the Constitution requires before an entity may
Philippines, and to Define its Powers and Purposes created the BSP as a public
be subject of said jurisdiction.[45] It avers that it merely stated in its Reply that the
corporation to serve the following public interest or purpose:
withdrawal of government control is akin to privatization, but it does not necessarily
mean that petitioner is a private corporation.[46] The BSP claims that it has a unique
characteristic which neither classifies it as a purely public nor a purely private
corporation;[47] that it is not a quasi-public corporation; and that it may belong to a Sec. 3. The purpose of this corporation shall be to promote through organization and
different class altogether.[48] cooperation with other agencies, the ability of boys to do useful things for themselves
and others, to train them in scoutcraft, and to inculcate in them patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts.
The BSP claims that assuming arguendo that it is a private corporation, its creation is
not contrary to the purpose of Section 16, Article XII of the Constitution; and that the
evil sought to be avoided by said provision is inexistent in the enactment of the BSPs
charter,[49] as, (i) it was not created for any pecuniary purpose; (ii) those who will
primarily benefit from its creation are not its officers but its entire membership
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth
consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all
Act No. 111 and provided substantial changes in the BSP organizational structure.
boys who wish to join the organization without any distinction; and (iv) it does not limit
Pertinent provisions are quoted below:
its membership to a particular class or group of boys. Thus, the enactment of its charter
confers no special privilege to particular individuals, families, or groups; nor does it
bring about the danger of granting undue favors to certain groups to the prejudice of
others or of the interest of the country, which are the evils sought to be prevented by Section II. Section 5 of the said Act is also amended to read as follows:
the constitutional provision involved.[50]
The governing body of the said corporation shall consist of a National Executive Board "Sec. 2. The said corporation shall have the powers of perpetual succession, to sue
composed of (a) the President of the Philippines or his representative; (b) the charter and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of
and life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board such real and personal estate, land grants, rights and choses in action as shall be
of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the necessary for corporate purposes, and to accept and receive funds, real and personal
Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the property by gift, devise, bequest or other means, to conduct fund-raising activities; to
Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, adopt and use a seal, and the same to alter and destroy; to have offices and conduct
the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local its business and affairs in Metropolitan Manila and in the regions, provinces, cities,
Government and Community Development; (f) an equal number of individuals from the municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and
private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one regulations not inconsistent with this Act and the laws of the Philippines, and generally
Scout of Senior age from each Scout Region to represent the boy membership; and (i) to do all such acts and things, including the establishment of regulations for the election
three representatives of the cultural minorities. Except for the Regional Chairman who of associates and successors, as may be necessary to carry into effect the provisions
shall be elected by the Regional Scout Councils during their annual meetings, and the of this Act and promote the purposes of said corporation: Provided, That said
Scouts of their respective regions, all members of the National Executive Board shall corporation shall have no power to issue certificates of stock or to declare or pay
be either by appointment or cooption, subject to ratification and confirmation by the dividends, its objectives and purposes being solely of benevolent character and not for
Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall pecuniary profit of its members.
be filled by a majority vote of the remaining members, subject to ratification and
confirmation by the Chief Scout. The by-laws may prescribe the number of members
of the National Executive Board necessary to constitute a quorum of the board, which "Sec. 3. The purpose of this corporation shall be to promote through organization and
number may be less than a majority of the whole number of the board. The National cooperation with other agencies, the ability of boys to do useful things for themselves
Executive Board shall have power to make and to amend the by-laws, and, by a two- and others, to train them in scoutcraft, and to inculcate in them patriotism, civic
thirds vote of the whole board at a meeting called for this purpose, may authorize and consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
cause to be executed mortgages and liens upon the property of the corporation. and moral values, using the method which are in common use by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended in lieu thereof, Section 4 shall read as follows:
Commonwealth Act No. 111 by strengthening the volunteer and democratic
character of the BSP and reducing government representation in its governing body,
as follows: "Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of
the Philippines."

Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby


amended to read as follows: Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby
amended to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of a National be held immediately after the meeting of the National Council wherein the twelve (12)
Executive Board, the members of which shall be Filipino citizens of good moral regular members and the one (1) charter member were elected.
character. The Board shall be composed of the following:

xxxx
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected
by the members of the National Council at its meeting called for this purpose;
"Sec. 8. Any donation or contribution which from time to time may be made to the Boy
Scouts of the Philippines by the Government or any of its subdivisions, branches,
"(b) The regional chairmen of the scout regions who shall be elected by the offices, agencies or instrumentalities or by a foreign government or by private, entities
representatives of all the local scout councils of the region during its meeting called for and individuals shall be expended by the National Executive Board in pursuance of this
this purpose: Provided, That a candidate for regional chairman need not be the Act.
chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;


The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code

"(d) The National President of the Girl Scouts of the Philippines;


There are three classes of juridical persons under Article 44 of the Civil Code and the
BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification.Article 44 reads:
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected
by the senior scout delegates of the local scout councils to the scout youth forums in
their respective areas, in its meeting called for this purpose, to represent the boy scout Art. 44. The following are juridical persons:
membership;

(1) The State and its political subdivisions;


"(f) Twelve (12) regular members to be elected by the members of the National Council
in its meeting called for this purpose; (2) Other corporations, institutions and entities for public interest or purpose created
by law; their personality begins as soon as they have been constituted according to
law;

"(g) At least ten (10) but not more than fifteen (15) additional members from the private (3) Corporations, partnerships and associations for private interest or purpose to which
sector who shall be elected by the members of the National Executive Board referred the law grants a juridical personality, separate and distinct from that of each
to in the immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the shareholder, partner or member. (Emphases supplied.)
organizational meeting of the newly reconstituted National Executive Board which shall
The BSPs Classification Under the Administrative Code of 1987

The BSP, which is a corporation created for a public interest or purpose, is subject to
the law creating it under Article 45 of the Civil Code, which provides:
The public, rather than private, character of the BSP is recognized by the fact that,
along with the Girl Scouts of the Philippines, it is classified as an attached agency of
the DECS under Executive Order No. 292, or the Administrative Code of 1987, which
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are states:
governed by the laws creating or recognizing them.

Private corporations are regulated by laws of general application on the subject.


TITLE VI EDUCATION, CULTURE AND SPORTS
Partnerships and associations for private interest or purpose are governed by the
provisions of this Code concerning partnerships. (Emphasis and underscoring
supplied.)
Chapter 8 Attached Agencies

SEC. 20. Attached Agencies. The following agencies are hereby attached to the
The purpose of the BSP as stated in its amended charter shows that it was created in Department:
order to implement a State policy declared in Article II, Section 13 of the Constitution,
which reads:
xxxx

ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall (12) Boy Scouts of the Philippines;
promote and protect their physical, moral, spiritual, intellectual, and social well-being.
It shall inculcate in the youth patriotism and nationalism, and encourage their
involvement in public and civic affairs. (13) Girl Scouts of the Philippines.

Evidently, the BSP, which was created by a special law to serve a public purpose in The administrative relationship of an attached agency to the department is defined in
pursuit of a constitutional mandate, comes within the class of public corporations the Administrative Code of 1987 as follows:
defined by paragraph 2, Article 44 of the Civil Code and governed by the law which
creates it, pursuant to Article 45 of the same Code.
BOOK IV
THE EXECUTIVE BRANCH Art. XII, Sec. 16 of the Constitution refers to private corporations created by
government for proprietary or economic/business purposes

Chapter 7 ADMINISTRATIVE RELATIONSHIP

At the outset, it should be noted that the provision of Section 16 in issue is found
SEC. 38. Definition of Administrative Relationship. Unless otherwise expressly stated in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1
in the Code or in other laws defining the special relationships of particular agencies, of Article XII is quoted as follows:
administrative relationships shall be categorized and defined as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of
xxxx opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged.
(3) Attachment. (a) This refers to the lateral relationship between the department or its
equivalent and the attached agency or corporation for purposes of policy and program
coordination. The coordination may be accomplished by having the department The State shall promote industrialization and full employment based on sound
represented in the governing board of the attached agency or corporation, either as agricultural development and agrarian reform, through industries that make full and
chairman or as a member, with or without voting rights, if this is permitted by the efficient use of human and natural resources, and which are competitive in both
charter; having the attached corporation or agency comply with a system of periodic domestic and foreign markets. However, the State shall protect Filipino enterprises
reporting which shall reflect the progress of programs and projects; and having the against unfair foreign competition and trade practices.
department or its equivalent provide general policies through its representative in the
board, which shall serve as the framework for the internal policies of the attached
corporation or agency. (Emphasis ours.)
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.
As an attached agency, the BSP enjoys operational autonomy, as long as policy and
program coordination is achieved by having at least one representative of government
in its governing board, which in the case of the BSP is the DECS Secretary. In this
sense, the BSP is not under government control or supervision and control. Still this
characteristic does not make the attached chartered agency a private corporation The scope and coverage of Section 16, Article XII of the Constitution can be seen from
covered by the constitutional proscription in question. the aforementioned declaration of state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic development.
institutions which are otherwise known as public corporations. These corporations are
treated by law as agencies or instrumentalities of the government which are not subject
Section 16, Article XII deals with the formation, organization, or regulation of private to the tests of ownership or control and economic viability but to different criteria
corporations,[52] which should be done through a general law enacted by Congress, relating to their public purposes/interests or constitutional policies and objectives and
provides for an exception, that is: if the corporation is government owned or controlled; their administrative relationship to the government or any of its Departments or Offices.
its creation is in the interest of the common good; and it meets the test of economic
viability. The rationale behind Article XII, Section 16 of the 1987 Constitution was
explained in Feliciano v. Commission on Audit,[53] in the following manner:
Classification of Corporations Under Section 16, Article XII of the Constitution on
The Constitution emphatically prohibits the creation of private corporations except by National Economy and Patrimony
a general law applicable to all citizens. The purpose of this constitutional provision is
to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other
citizens.[54] (Emphasis added.)
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of
cases, insists that the Constitution recognizes only two classes of
corporations: private corporations under a generallaw, and government-owned or
controlled corporations created by special charters.
It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of private corporations by special law. The said constitutional provision should
not be construed so as to prohibit the creation of public corporations or a corporate We strongly disagree. Section 16, Article XII should not be construed so as to prohibit
agency or instrumentality of the government intended to serve a public interest or Congress from creating public corporations. In fact, Congress has enacted numerous
purpose, which should not be measured on the basis of economic viability, but laws creating public corporations or government agencies or instrumentalities vested
according to the public interest or purpose it serves as envisioned by paragraph (2), of with corporate powers. Moreover, Section 16, Article XII, which relates to National
Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of Economy and Patrimony, could not have tied the hands of Congress in creating public
1987. corporations to serve any of the constitutional policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces a totally different
The BSP is a Public Corporation Not Subject to the Test of Government Ownership or species of corporation, which is neither a private corporation nor a government owned
Control and Economic Viability or controlled corporation and, in so doing, is missing the fact that the BSP, which was
created as a non-stock, non-profit corporation, can only be either a private corporation
or a government owned or controlled corporation.

The BSP is a public corporation or a government agency or instrumentality with juridical


personality, which does not fall within the constitutional prohibition in Article XII, Section
16, notwithstanding the amendments to its charter. Not all corporations, which Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the
are not government owned or controlled, are ipso facto to be considered private BSP, under its former charter, was regarded as both a government owned or controlled
corporations as there exists another distinct class of corporations or chartered corporation with original charter and a public corporation. The said case pertinently
stated:
We believe that the BSP is appropriately regarded as "a government instrumentality"
under the 1987 Administrative Code.
While the BSP may be seen to be a mixed type of entity, combining aspects of both
public and private entities, we believe that considering the character of its purposes
and its functions, the statutory designation of the BSP as "a public corporation" and the
substantial participation of the Government in the selection of members of the National It thus appears that the BSP may be regarded as both a "government controlled
Executive Board of the BSP, the BSP, as presently constituted under its charter, is a corporation with an original charter" and as an "instrumentality" of the Government
government-controlled corporation within the meaning of Article IX (B) (2) (1) of the within the meaning of Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases
Constitution. supplied.)

We are fortified in this conclusion when we note that the Administrative Code of 1987
designates the BSP as one of the attached agencies of the Department of Education, The existence of public or government corporate or juridical entities or chartered
Culture and Sports ("DECS"). An "agency of the Government" is defined as referring institutions by legislative fiat distinct from private corporations and government owned
to any of the various units of the Government including a department, bureau, office, or controlled corporation is best exemplified by the 1987 Administrative Code cited
instrumentality, government-owned or -controlled corporation, or local government or above, which we quote in part:
distinct unit therein. "Government instrumentality" is in turn defined in the 1987
Administrative Code in the following manner:
Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as
a whole, or a particular statute, shall require a different meaning:
Instrumentality - refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and
xxxx
enjoying operational autonomy usually through a charter. This term includes regulatory
agencies, chartered institutions and government-owned or controlled corporations.

(10) "Instrumentality" refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by
The same Code describes a "chartered institution" in the following terms:
law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned or controlled
Chartered institution - refers to any agency organized or operating under a special corporations. 

charter, and vested by law with functions relating to specific constitutional policies or
objectives. This term includes the state universities and colleges, and the monetary
authority of the State.
xxxx
(12) "Chartered institution" refers to any agency organized or operating under a special the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a
charter, and vested by law with functions relating to specific constitutional policies or private corporation which is required to be owned or controlled by the government and
objectives. This term includes the state universities and colleges and the monetary be economically viable to justify its existence under a special law.
authority of the State.

(13) "Government-owned or controlled corporation" refers to any agency organized as


a stock or non-stock corporation, vested with functions relating to public needs The dissent of Justice Carpio also submits that by recognizing a new class of public
whether governmental or proprietary in nature, and owned by the Government directly corporation(s) created by special charter that will not be subject to the test of economic
or through its instrumentalities either wholly, or, where applicable as in the case of viability, the constitutional provision will be circumvented.
stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock:
Provided, That government-owned or controlled corporations may be further
categorized by the Department of the Budget, the Civil Service Commission, and the However, a review of the Record of the 1986 Constitutional Convention reveals the
Commission on Audit for purposes of the exercise and discharge of their respective intent of the framers of the highest law of our land to distinguish between government
powers, functions and responsibilities with respect to such corporations. corporations performing governmental functions and corporations involved in business
or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by
the government because of reduction of the number of representatives of the MR. FOZ. Madam President, I support the proposal to insert ECONOMIC VIABILITY
government in the BSP Board, it does not follow that it also ceases to be a government as one of the grounds for organizing government corporations. x x x.
instrumentality as it still retains all the characteristics of the latter as an attached agency
of the DECS under the Administrative Code. Vesting corporate powers to an attached
agency or instrumentality of the government is not constitutionally prohibited and is MR. OPLE. Madam President, the reason for this concern is really that when the
allowed by the above-mentioned provisions of the Civil Code and the 1987 government creates a corporation, there is a sense in which this corporation becomes
Administrative Code. exempt from the test of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon the taxpayers money
through new equity infusions from the government and what is always invoked is the
Economic Viability and Ownership and Control Tests Inapplicable to Public common good. x x x
Corporations

Therefore, when we insert the phrase ECONOMIC VIABILITY together with the
common good, this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they
As presently constituted, the BSP still remains an instrumentality of the national become viable. x x x.
government. It is a public corporation created by law for a public purpose, attached to
MS. QUESDA. Sometimes this Commission would just refer to Congress to provide
the particular requirements when the government would get into corporations. But this
xxxx time around, we specifically mentioned economic viability. x x x.

THE PRESIDENT. Commissioner Quesada is recognized. MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that
amendment.

MS. QUESADA. Madam President, may we be clarified by the committee on what is


meant by economic viability? MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular
amendment jointly with Commissioner Foz. During the past three decades, there had
been a proliferation of government corporations, very few of which have succeeded,
THE PRESIDENT. Please proceed. and many of which are now earmarked by the Presidential Reorganization Commission
for liquidation because they failed the economic test. x x x.

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that


takes into consideration all benefits, including economic external as well as internal xxxx
benefits. These are what they call externalities in economics, so that these are not
strictly financial criteria. Economic viability involves what we call economic returns or
benefits of the country that are not quantifiable in financial terms. x x x. MS. QUESADA. But would not the Commissioner say that the reason why many of the
government-owned or controlled corporations failed to come up with the economic test
is due to the management of these corporations, and not the idea itself of government
xxxx corporations? It is a problem of efficiency and effectiveness of management of these
corporations which could be remedied, not by eliminating government corporations or
the idea of getting into state-owned corporations, but improving management which
MS. QUESADA. So, would this particular formulation now really limit the entry of our technocrats should be able to do, given the training and the experience.
government corporations into activities engaged in by corporations?

MR. OPLE. That is part of the economic viability, Madam President.


MR. MONSOD. Yes, because it is also consistent with the economic philosophy that
this Commission approved that there should be minimum government participation and
intervention in the economy. MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit
more if these government-controlled corporations were given to private hands, and that
there will be more goods and services that will be affordable and within the reach of
the ordinary citizens?
seems that under this provision the only qualification is economic viability and common
good, but shall government, through government-controlled corporations, compete
MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the with private enterprise?
formation of a government corporation in accordance with a special charter given by
Congress. However, we are raising the standard a little bit so that, in the future,
corporations established by the government will meet the test of the common good but
within that framework we should also build a certain standard of economic viability. MR. MONSOD. No, Madam President. As we said, the government should not engage
in activities that private enterprise is engaged in and can do better. x x
x.[56] (Emphases supplied.)

xxxx

THE PRESIDENT. Commissioner Padilla is recognized. Thus, the test of economic viability clearly does not apply to public corporations dealing
with governmental functions, to which category the BSP belongs. The discussion
above conveys the constitutional intent not to apply this constitutional ban on the
MR. PADILLA. This is an inquiry to the committee. With regard to corporations created creation of public corporations where the economic viability test would be
by a special charter for government-owned or controlled corporations, will these be in irrelevant. The said test would only apply if the corporation is engaged in some
the pioneer fields or in places where the private enterprise does not or cannot enter? economic activity or business function for the government.
Or is this so general that these government corporations can compete with private
corporations organized under a general law?
It is undisputed that the BSP performs functions that are impressed with public
interest. In fact, during the consideration of the Senate Bill that eventually became
MR. MONSOD. Madam President, x x x. There are two types of government Republic Act No. 7278, which amended the BSP Charter, one of the bills sponsors,
corporations those that are involved in performing governmental functions, like Senator Joey Lina, described the BSP as follows:
garbage disposal, Manila waterworks, and so on; and those government corporations
that are involved in business functions. As we said earlier, there are two criteria that
should be followed for corporations that want to go into business. First is for Senator Lina. Yes, I can only think of two organizations involving the masses of our
government corporations to first prove that they can be efficient in the areas of their youth, Mr. President, that should be given this kind of a privilege the Boy Scouts of the
proper functions. This is one of the problems now because they go into all kinds of Philippines and the Girl Scouts of the Philippines. Outside of these two groups, I do not
activities but are not even efficient in their proper functions. Secondly, they should not think there are other groups similarly situated.
go into activities that the private sector can do better.

The Boy Scouts of the Philippines has a long history of providing value formation to
MR. PADILLA. There is no question about corporations performing governmental our young, and considering how huge the population of the young people is, at this
functions or functions that are impressed with public interest. But the question is with point in time, and also considering the importance of having an organization such as
regard to matters that are covered, perhaps not exhaustively, by private enterprise. It this that will inculcate moral uprightness among the young people, and further
considering that the development of these young people at that tender age of seven to government offices, and civic leaders in the communities all over the land, and not only
sixteen is vital in the development of the country producing good citizens, I believe that in our country but all over the world many if not most of them have at one time or
we can make an exception of the Boy Scouting movement of the Philippines from this another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr.
general prohibition against providing tax exemption and privileges.[57] Chairman, that we would like to have the early approval of this measure if only to pay
back what we owe much to the Scouting Movement. Now, going to the meat of the
matter, Mr. Chairman, if I may just the Scouting Movement was enacted into law in
October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged
as the third biggest scouting organization in the world x x x. And to our mind, Mr.
Furthermore, this Court cannot agree with the dissenting opinion which equates the Chairman, this erratic growth and this decrease in membership [number] is because of
changes introduced by Republic Act No. 7278 to the BSP Charter as clear the bad policy measures that were enunciated with the enactment or promulgation by
manifestation of the intent of Congress to return the BSP to the private sector. It was the President before of Presidential Decree No. 460 which we feel is the culprit of the
not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in ills that is flagging the Boy Scout Movement today. And so, this is specifically what we
this basic youth organization, which has been its partner in forming responsible citizens are attacking, Mr. Chairman, the disenfranchisement of the National Council in the
for decades. election of the national board. x x x. And so, this is what we would like to be appraised
of by the officers of the Boy [Scouts] of the Philippines whom we are also confident,
have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted Chairman, that we see no impediment towards working together, the Boy Scout of the
to Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the Philippines officers working together with the House of Representatives in coming out
organization, to bring it back to its former glory reached under its original charter, with a measure that will put back the vigor and enthusiasm of the Boy Scout Movement.
Commonwealth Act No. 111, and to correct the perceived ills introduced by the x x x.[59] (Emphasis ours.)
amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different
departments in government who were too busy to attend the meetings of the BSPs
National Executive Board (the Board) sent representatives who, as it turned out,
changed from meeting to meeting. Thus, the Scouting Councils established in the The following is another excerpt from the discussion on the House version of the bill,
provinces and cities were not in touch with what was happening on the national level, in the Committee on Government Enterprises:
but they were left to implement what was decided by the Board.[58]

HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that
A portion of the legislators discussion is quoted below to clearly show their intent: have created the Boy Scouts of the Philippines did not provide for any direct
government support by way of appropriation from the national budget to support the
activities of this organization. The point here is, and at the same time they have been
subjected to a governmental intervention, which to their mind has been inimical to the
HON. DEL MAR. x x x I need not mention to you the value and the tremendous good
objectives and to the institution per se, that is why they are seeking legislative fiat to
that the Boy Scout Movement has done not only for the youth in particular but for the
restore back the original mandate that they had under Commonwealth Act 111. Such
country in general. And that is why, if we look around, our past and present national
having been the experience in the hands of government, meaning, there has been
leaders, prominent men in the various fields of endeavor, public servants in
negative interference on their part and inasmuch as their mandate is coming from a
legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be better for this simply another quasi-judicial body. But, I think, the first point would be very interesting,
organization to seek a mandate from, lets say, the government the Corporation Code the first point that you raised. In effect, what you are saying is that with the legislative
of the Philippines and register with the SEC as non-profit non-stock corporation so that mandate creating your charter, in effect, you have been given some sort of a franchise
government intervention could be very very minimal. Maybe thats a rhetorical question, with this movement.
they may or they may not answer, ano. I dont know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a registration with
the SEC under the Corporation Code of the Philippines inasmuch as they dont get MR. ESCUDERO: Yes.
anything from the government anyway insofar as direct funding. In fact, the only thing
that they got from government was intervention in their affairs. Maybe we can solicit HON. AQUINO: Exclusive franchise of that movement?
some commentary comments from the resource persons. Incidentally, dont take that
MR. ESCUDERO: Yes.
as an objection, Im not objecting. Im all for the objectives of these two bills. It just
occurred to me that since you have had very bad experience in the hands of HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr.
government and you will always be open to such possible intervention even in the Chairman. x x x.[60] (Emphases added.)
future as long as you have a legislative mandate or your mandate or your charter
coming from legislative action.

xxxx Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly promote the
BSPs objectives, which were not supported under Presidential Decree No. 460. The
BSP objectives, as pointed out earlier, are consistent with the public purpose of the
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the
promotion of the well-being of the youth, the future leaders of the country. The
Philippines will be required to register with the SEC. If we are registered with the SEC,
amendments were not done with the view of changing the character of the BSP into a
there could be a danger of proliferation of scout organization. Anybody can organize
privatized corporation. The BSP remains an agency attached to a department of the
and then register with the SEC. If there will be a proliferation of this, then the
government, the DECS, and it was not at all stripped of its public character.
organization will lose control of the entire organization. Another disadvantage, Mr.
Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the
Philippines and the SEC may suspend the operation or freeze the assets of the
organization and hamper the operation of the organization. I dont know, Mr. Chairman, The ownership and control test is likewise irrelevant for a public corporation like the
how you look at it but there could be a danger for anybody filing a complaint against BSP. To reiterate, the relationship of the BSP, an attached agency, to the government,
the organization in the SEC and the SEC might suspend the registration permit of the through the DECS, is defined in the Revised Administrative Code of 1987. The BSP
organization and we will not be able to operate. meets the minimum statutory requirement of an attached government agency as the
DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and
program coordination between the BSP and the DECS.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to Requisites for Declaration of Unconstitutionality Not Met in this Case
corporations registered with the SEC because even if you are government corporation,
court action may be taken against you in other judicial bodies because the SEC is
The dissenting opinion of Justice Carpio improperly raised the issue of
unconstitutionality of certain provisions of the BSP Charter. Even if the parties were
asked to Comment on the validity of the BSP charter by the Court, this alone does not
comply with the requisites for judicial review, which were clearly set forth in a recent The sources of funds to maintain the BSP were identified before the House Committee
case: on Government Enterprises while the bill was being deliberated, and the pertinent
portion of the discussion is quoted below:

When questions of constitutional significance are raised, the Court can exercise its
power of judicial review only if the following requisites are present: (1) the existence of MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the
an actual and appropriate case; (2) the existence of personal and substantial interest organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive
on the part of the party raising the constitutional question; (3) recourse to judicial review annual allotment from the government. The organization has to raise its own funds
is made at the earliest opportunity; and (4) the constitutional question is the lis mota of through fund drives and fund campaigns or fund raising activities. Aside from this, we
the case.[61] (Emphasis added.) have some revenue producing projects in the organization that gives us funds to
support the operation. x x x From time to time, Mr. Chairman, when we have special
activities we request for assistance or financial assistance from government agencies,
from private business and corporations, but this is only during special activities that the
Boy Scouts of the Philippines would conduct during the year. Otherwise, we have to
Thus, when it comes to the exercise of the power of judicial review, the constitutional raise our own funds to support the organization.[62]
issue should be the very lis mota, or threshold issue, of the case, and that it should be
raised by either of the parties. These requirements would be ignored under the
dissents rather overreaching view of how this case should have been decided. True, it
was the Court that asked the parties to comment, but the Court cannot be the one to
raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in The nature of the funds of the BSP and the COAs audit jurisdiction were likewise
the exercise of its power to pass upon the validity of a law. brought up in said congressional deliberations, to wit:

Re: the COAs Jurisdiction HON. AQUINO: x x x Insofar as this organization being a government created
organization, in fact, a government corporation classified as such, are your funds or
your finances subjected to the COA audit?
Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows
the BSP to receive contributions or donations from the government. Section 8 reads:

Section 8. Any donation or contribution which from time to time may be made to the MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall
Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, under the jurisdiction of the COA.
offices, agencies or instrumentalities shall be expended by the Executive Board in HON. AQUINO: All right, but before were you?
pursuance of this Act.
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by
by then Secretary Jorge Vargas and before and up to the middle of the Martial Law the charter we are required to submit a financial report at the end of each year to the
years, the BSP was receiving a subsidy in the form of an annual a one draw from the National Executive Board. So all the funds donated or otherwise is accounted for at the
Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then end of the year by our external auditor. In this case the SGV.[63]
this was and the Boy Scouts then because of this funding partly from government was
being subjected to audit in the contributions being made in the part of the
Sweepstakes. But this was removed later during the Martial Law years with the
creation of the Human Settlements Commission. So the situation right now is that the
Boy Scouts does not receive any funding from government, but then in the case of the Historically, therefore, the BSP had been subjected to government audit in so far as
local councils and this legislative charter, so to speak, enables the local councils even public funds had been infused thereto. However, this practice should not preclude the
the national headquarters in view of the provisions in the existing law to receive exercise of the audit jurisdiction of COA, clearly set forth under the Constitution, which
donations from the government or any of its instrumentalities, which would be difficult pertinently provides:
if the Boy Scouts is registered as a private corporation with the Securities and
Exchange Commission. Government bodies would be estopped from making
donations to the Boy Scouts, which at present is not the case because there is the Boy
Scouts charter, this Commonwealth Act 111 as amended by PD 463.
Section 2. (1) The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to,
xxxx
the Government, or any of its subdivisions, agencies, or instrumentalities, including
HON. AMATONG: Mr. Chairman, in connection with that. government-owned and controlled corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions and offices that have been granted
fiscal autonomy under this Constitution; (b) autonomous state colleges and
THE CHAIRMAN: Yeah, Gentleman from Zamboanga. universities; (c) other government-owned or controlled corporations with original
charters and their subsidiaries; and (d) such non-governmental entities receiving
subsidy or equity, directly or indirectly, from or through the Government, which are
required by law of the granting institution to submit to such audit as a condition of
HON. AMATONG: There is no auditing being made because theres no money put in subsidy or equity. x x x. [64]
the organization, but how about donated funds to this organization? What are the
remedies of the donors of how will they know how their money are being spent?

MR. ESCUDERO: May I answer, Mr. Chairman? Since the BSP, under its amended charter, continues to be a public corporation or a
government instrumentality, we come to the inevitable conclusion that it is subject to
the exercise by the COA of its audit jurisdiction in the manner consistent with the
THE CHAIRMAN: Yes, gentleman. provisions of the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition
is DISMISSED.

SO ORDERED.

TOPIC: MERGER’S EFFECT ON ABSORBED EMPLOYEES,ARE THEY


REQUIRED TO JOUN NEW UNION

BPI V BPI EMPLOYEES UNION

LEONARDO-DE CASTRO, J.:

May a corporation invoke its merger with another corporation as a valid ground to
exempt its absorbed employees from the coverage of a union shop clause contained
in its existing Collective Bargaining Agreement (CBA) with its own certified labor
union? That is the question we shall endeavor to answer in this petition for review filed
by an employer after the Court of Appeals decided in favor of respondent union, which
is the employees recognized collective bargaining representative.

At the outset, we should call to mind the spirit and the letter of the Labor Code
provisions on union security clauses, specifically Article 248 (e), which states, x x
x Nothing in this Code or in any other law shall stop the parties from requiring
membership in a recognized collective bargaining agent as a condition for
employment, except those employees who are already members of another union at
the time of the signing of the collective bargaining agreement.[1] This case which
involves the application of a collective bargaining agreement with a union shop clause
should be resolved principally from the standpoint of the clear provisions of our labor The antecedent facts are as follows:
laws, and the express terms of the CBA in question, and not by inference from the
general consequence of the merger of corporations under the Corporation Code, which
obviously does not deal with and, therefore, is silent on the terms and conditions of On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger
employment in corporations or juridical entities. executed on January 20, 2000 by and between BPI, herein petitioner, and
FEBTC.[5] This Article and Plan of Merger was approved by the Securities and
Exchange Commission on April 7, 2000.[6]
This issue must be resolved NOW, instead of postponing it to a future time when the
CBA is renegotiated as suggested by the Honorable Justice Arturo D. Brion because
the same issue may still be resurrected in the renegotiation if the absorbed employees Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were
insist on their privileged status of being exempt from any union shop clause or any transferred to and absorbed by BPI as the surviving corporation. FEBTC employees,
variant thereof. including those in its different branches across the country, were hired by petitioner as
its own employees, with their status and tenure recognized and salaries and benefits
maintained.
We find it significant to note that it is only the employer, Bank of the Philippine Islands
(BPI), that brought the case up to this Court via the instant petition for review; while the
employees actually involved in the case did not pursue the same relief, but had instead Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI
chosen in effect to acquiesce to the decision of the Court of Appeals which effectively Unibank (hereinafter the Union, for brevity) is the exclusive bargaining agent of BPIs
required them to comply with the union shop clause under the existing CBA at the time rank and file employees in Davao City. The former FEBTC rank-and-file employees in
of the merger of BPI with Far East Bank and Trust Company (FEBTC), which decision Davao City did not belong to any labor union at the time of the merger. Prior to the
had already become final and executory as to the aforesaid employees. By not effectivity of the merger, or on March 31, 2000, respondent Union invited said FEBTC
appealing the decision of the Court of Appeals, the aforesaid employees are bound by employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the
the said Court of Appeals decision to join BPIs duly certified labor union. In view of the existing CBA between petitioner BPI and respondent Union.[7]
apparent acquiescence of the affected FEBTC employees in the Court of Appeals
decision, BPI should not have pursued this petition for review. However, even
assuming that BPI may do so, the same still cannot prosper. The parties both advert to certain provisions of the existing CBA, which are quoted
below:

What is before us now is a petition for review under Rule 45 of the Rules of Court of
the Decision[2] dated September 30, 2003 of the Court of Appeals, as reiterated in its ARTICLE I
Resolution[3] of June 9, 2004, reversing and setting aside the Decision[4] dated
November 23, 2001 of Voluntary Arbitrator Rosalina Letrondo-Montejo, in CA-G.R. SP Section 1. Recognition and Bargaining Unit The BANK recognizes the UNION as the
No. 70445, entitled BPI Employees Union-Davao Chapter-Federation of Unions in BPI sole and exclusive collective bargaining representative of all the regular rank and file
Unibank v. Bank of the Philippine Islands, et al. employees of the Bank offices in Davao City.
Respondent Union then sent notices to the former FEBTC employees who refused to
join, as well as those who retracted their membership, and called them to a hearing
Section 2. Exclusions regarding the matter.When these former FEBTC employees refused to attend the
hearing, the president of the Union requested BPI to implement the Union Shop Clause
of the CBA and to terminate their employment pursuant thereto.[10]
Section 3. Additional Exclusions

After two months of management inaction on the request, respondent Union informed
Section 4. Copy of Contract petitioner BPI of its decision to refer the issue of the implementation of the Union Shop
Clause of the CBA to the Grievance Committee. However, the issue remained
unresolved at this level and so it was subsequently submitted for voluntary arbitration
ARTICLE II by the parties.[11]

Section 1. Maintenance of Membership All employees within the bargaining unit who Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision[12] dated November 23,
are members of the Union on the date of the effectivity of this Agreement as well as 2001, ruled in favor of petitioner BPIs interpretation that the former FEBTC employees
employees within the bargaining unit who subsequently join or become members of were not covered by the Union Security Clause of the CBA between the Union and the
the Union during the lifetime of this Agreement shall as a condition of their continued Bank on the ground that the said employees were not new employees who were hired
employment with the Bank, maintain their membership in the Union in good standing. and subsequently regularized, but were absorbed employees by operation of law
because the former employees of FEBTC can be considered assets and liabilities of
the absorbed corporation. The Voluntary Arbitrator concluded that the former FEBTC
employees could not be compelled to join the Union, as it was their constitutional right
Section 2. Union Shop - New employees falling within the bargaining unit as defined in
to join or not to join any organization.
Article I of this Agreement, who may hereafter be regularly employed by the Bank shall,
within thirty (30) days after they become regular employees, join the Union as a
condition of their continued employment. It is understood that membership in good
standing in the Union is a condition of their continued employment with the Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator
Bank.[8] (Emphases supplied.) denied the same in an Order dated March 25, 2002.[13]

Dissatisfied, respondent then appealed the Voluntary Arbitrators decision to the Court
of Appeals. In the herein assailed Decision dated September 30, 2003, the Court of
After the meeting called by the Union, some of the former FEBTC employees joined Appeals reversed and set aside the Decision of the Voluntary Arbitrator.[14] Likewise,
the Union, while others refused. Later, however, some of those who initially joined the Court of Appeals denied herein petitioners Motion for Reconsideration in a
retracted their membership.[9] Resolution dated June 9, 2004.
The Court of Appeals pertinently ruled in its Decision: disturb industrial peace in the company which is the paramount reason for the
existence of the CBA and the union.

A union-shop clause has been defined as a form of union security provision wherein
non-members may be hired, but to retain employment must become union members The voluntary arbitrators interpretation of the provisions of the CBA concerning the
after a certain period. coverage of the union-shop clause is at war with the spirit and the rationale why the
Labor Code itself allows the existence of such provision.

There is no question as to the existence of the union-shop clause in the CBA between
the petitioner-union and the company. The controversy lies in its application to the The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R.
absorbed employees. No. 76989, September 29, 1987) rule, to quote:

This Court agrees with the voluntary arbitrator that the ABSORBED employees are This Court has held that a valid form of union security, and such a provision in a
distinct and different from NEW employees BUT only in so far as their employment collective bargaining agreement is not a restriction of the right of freedom of association
service is concerned. The distinction ends there. In the case at bar, the absorbed guaranteed by the Constitution.
employees length of service from its former employer is tacked with their employment
with BPI. Otherwise stated, the absorbed employees service is continuous and there
is no gap in their service record. A closed-shop agreement is an agreement whereby an employer binds himself to hire
only members of the contracting union who must continue to remain members in good
standing to keep their jobs. It is THE MOST PRIZED ACHIEVEMENT OF
This Court is persuaded that the similarities of new and absorbed employees far UNIONISM. IT ADDS MEMBERSHIP AND COMPULSORY DUES. By holding out to
outweighs the distinction between them. The similarities lies on the following, to wit: (a) loyal members a promise of employment in the closed-shop, it wields group
they have a new employer; (b) new working conditions; (c) new terms of employment solidarity. (Emphasis supplied)
and; (d) new company policy to follow. As such, they should be considered as new
employees for purposes of applying the provisions of the CBA regarding the union-
shop clause. Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of
industrial peace in the company.

To rule otherwise would definitely result to a very awkward and unfair situation wherein
the absorbed employees shall be in a different if not, better situation than the existing With the foregoing ruling from this Court, necessarily, the alternative prayer of the
BPI employees. The existing BPI employees by virtue of the union-shop clause are petitioner to require the individual respondents to become members or if they refuse,
required to pay the monthly union dues, remain as members in good standing of the for this Court to direct respondent BPI to dismiss them, follows.[15]
union otherwise, they shall be terminated from the company, and other union-related
obligations. On the other hand, the absorbed employees shall enjoy the fruits of labor
of the petitioner-union and its members for nothing in exchange. Certainly, this would
(30) days after they become regular employees, join the Union as a condition of their
continued employment. It is understood that membership in good standing in the Union
Hence, petitioners present recourse, raising the following issues: is a condition of their continued employment with the Bank.[17] (Emphases supplied.)

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING Petitioner argues that the term new employees in the Union Shop Clause of the CBA
THAT THE FORMER FEBTC EMPLOYEES SHOULD BE CONSIDERED NEW is qualified by the phrases who may hereafter be regularly employed and after they
EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION SHOP CLAUSE become regular employees which led petitioner to conclude that the new employees
OF THE CBA referred to in, and contemplated by, the Union Shop Clause of the CBA were only those
employees who were new to BPI, on account of having been hired initially on a
temporary or probationary status for possible regular employment at some future
II date. BPI argues that the FEBTC employees absorbed by BPI cannot be considered
as new employees of BPI for purposes of applying the Union Shop Clause of the
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING
CBA.[18]
THAT THE VOLUNTARY ARBITRATORS INTERPRETATION OF THE COVERAGE
OF THE UNION SHOP CLAUSE IS AT WAR WITH THE SPIRIT AND THE
RATIONALE WHY THE LABOR CODE ITSELF ALLOWS THE EXISTENCE OF SUCH
PROVISION[16] According to petitioner, the contrary interpretation made by the Court of Appeals of this
particular CBA provision ignores, or even defies, what petitioner assumes as its clear
meaning and scope which allegedly contradicts the Courts strict and restrictive
enforcement of union security agreements.

In essence, the sole issue in this case is whether or not the former FEBTC employees
that were absorbed by petitioner upon the merger between FEBTC and BPI should be We do not agree.
covered by the Union Shop Clause found in the existing CBA between petitioner and
respondent Union.
Section 2, Article II of the CBA is silent as to how one becomes a regular employee of
the BPI for the first time. There is nothing in the said provision which requires that a
Petitioner is of the position that the former FEBTC employees are not new employees new regular employee first undergo a temporary or probationary status before being
of BPI for purposes of applying the Union Shop Clause of the CBA, on this note, deemed as such under the union shop clause of the CBA.
petitioner points to Section 2, Article II of the CBA, which provides:

Union security is a generic term which is applied to and comprehends closed shop,
New employees falling within the bargaining unit as defined in Article I of this union shop, maintenance of membership or any other form of agreement which
Agreement, who may hereafter be regularly employed by the Bank shall, within thirty imposes upon employees the obligation to acquire or retain union membership as a
condition affecting employment. There is union shop when all new regular employees All employees in the bargaining unit covered by a Union Shop Clause in their CBA with
are required to join the union within a certain period for their continued management are subject to its terms. However, under law and jurisprudence, the
employment. There is maintenance of membership shop when employees, who are following kinds of employees are exempted from its coverage, namely, employees who
union members as of the effective date of the agreement, or who thereafter become at the time the union shop agreement takes effect are bona fide members of a religious
members, must maintain union membership as a condition for continued employment organization which prohibits its members from joining labor unions on religious
until they are promoted or transferred out of the bargaining unit or the agreement is grounds;[21] employees already in the service and already members of a union other
terminated. A closed-shop, on the other hand, may be defined as an enterprise in than the majority at the time the union shop agreement took effect;[22] confidential
which, by agreement between the employer and his employees or their employees who are excluded from the rank and file bargaining unit;[23] and employees
representatives, no person may be employed in any or certain agreed departments of excluded from the union shop by express terms of the agreement.
the enterprise unless he or she is, becomes, and, for the duration of the agreement,
remains a member in good standing of a union entirely comprised of or of which the
employees in interest are a part.[19] When certain employees are obliged to join a particular union as a requisite for
In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,[20] we ruled continued employment, as in the case of Union Security Clauses, this condition is a
that: valid restriction of the freedom or right not to join any labor organization because it is
in favor of unionism. This Court, on occasion, has even held that a union security
clause in a CBA is not a restriction of the right of freedom of association guaranteed
by the Constitution.[24]
It is the policy of the State to promote unionism to enable the workers to negotiate with
management on the same level and with more persuasiveness than if they were to Moreover, a closed shop agreement is an agreement whereby an employer binds
individually and independently bargain for the improvement of their respective himself to hire only members of the contracting union who must continue to remain
conditions. To this end, the Constitution guarantees to them the rights to self- members in good standing to keep their jobs. It is the most prized achievement of
organization, collective bargaining and negotiations and peaceful concerted actions unionism. It adds membership and compulsory dues. By holding out to loyal members
including the right to strike in accordance with law. There is no question that these a promise of employment in the closed shop, it wields group solidarity.[25]
purposes could be thwarted if every worker were to choose to go his own separate way
instead of joining his co-employees in planning collective action and presenting a Indeed, the situation of the former FEBTC employees in this case clearly does not fall
united front when they sit down to bargain with their employers. It is for this reason that within the first three exceptions to the application of the Union Shop Clause discussed
the law has sanctioned stipulations for the union shop and the closed shop as a means earlier. No allegation or evidence of religious exemption or prior membership in another
of encouraging the workers to join and support the labor union of their own choice as union or engagement as a confidential employee was presented by both parties. The
their representative in the negotiation of their demands and the protection of their sole category therefore in which petitioner may prove its claim is the fourth recognized
interest vis--vis the employer. (Emphasis ours.) exception or whether the former FEBTC employees are excluded by the express terms
of the existing CBA between petitioner and respondent.

In other words, the purpose of a union shop or other union security arrangement is to
guarantee the continued existence of the union through enforced membership for the To reiterate, petitioner insists that the term new employees, as the same is used in the
benefit of the workers. Union Shop Clause of the CBA at issue, refers only to employees hired by BPI as non-
regular employees who later qualify for regular employment and become regular
employees, and not those who, as a legal consequence of a merger, are allegedly
automatically deemed regular employees of BPI.However, the CBA does not make a surviving corporation in the case of a merger. Section 80 of the Corporation Code
distinction as to how a regular employee attains such a status. Moreover, there is provides:
nothing in the Corporation Law and the merger agreement mandating the automatic
employment as regular employees by the surviving corporation in the merger.
SEC. 80. Effects of merger or consolidation. The merger or consolidation, as provided
in the preceding sections shall have the following effects:
It is apparent that petitioner hinges its argument that the former FEBTC employees
were absorbed by BPI merely as a legal consequence of a merger based on the
characterization by the Voluntary Arbiter of these absorbed employees as included in 1. The constituent corporations shall become a single corporation which, in case of
the assets and liabilities of the dissolved corporation - assets because they help the merger, shall be the surviving corporation designated in the plan of merger; and, in
Bank in its operation and liabilities because redundant employees may be terminated case of consolidation, shall be the consolidated corporation designated in the plan of
and company benefits will be paid to them, thus reducing the Banks financial consolidation;
status. Based on this ratiocination, she ruled that the same are not new employees of
BPI as contemplated by the CBA at issue, noting that the Certificate of Filing of the
Articles of Merger and Plan of Merger between FEBTC and BPI stated that x x x the
2. The separate existence of the constituent corporations shall cease, except that of
entire assets and liabilities of FAR EASTERN BANK & TRUST COMPANY will be
the surviving or the consolidated corporation;
transferred to and absorbed by the BANK OF THE PHILIPPINE ISLANDS x x x
(underlining supplied).[26] In sum, the Voluntary Arbiter upheld the reasoning of
petitioner that the FEBTC employees became BPI employees by operation of law
because they are included in the term assets and liabilities. 3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
Absorbed FEBTC Employees are Neither Assets nor Liabilities

4. The surviving or the consolidated corporation shall thereupon and thereafter


possess all the rights, privileges, immunities and franchises of each of the constituent
In legal parlance, however, human beings are never embraced in the term assets and
corporations; and all property, real or personal, and all receivables due on whatever
liabilities. Moreover, BPIs absorption of former FEBTC employees was neither by
account, including subscriptions to shares and other choses in action, and all and every
operation of law nor by legal consequence of contract. There was no government
other interest of, or belonging to, or due to each constituent corporation, shall be taken
regulation or law that compelled the merger of the two banks or the absorption of the
and deemed to be transferred to and vested in such surviving or consolidated
employees of the dissolved corporation by the surviving corporation. Had there been
corporation without further act or deed; and
such law or regulation, the absorption of employees of the non-surviving entities of the
merger would have been mandatory on the surviving corporation.[27]In the present
case, the merger was voluntarily entered into by both banks presumably for some
mutually acceptable consideration. In fact, the Corporation Code does not also 5. The surviving or the consolidated corporation shall be responsible and liable for all
mandate the absorption of the employees of the non-surviving corporation by the the liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any claim, action or proceeding pending by or against any
of such constituent corporations may be prosecuted by or against the surviving or an employer had the right to choose who to retain among FEBTCs employees, FEBTC
consolidated corporation, as the case may be. Neither the rights of creditors nor any employees had the concomitant right to choose not to be absorbed by BPI. Even
lien upon the property of any of such constituent corporations shall be impaired by such though FEBTC employees had no choice or control over the merger of their employer
merger or consolidated. with BPI, they had a choice whether or not they would allow themselves to be absorbed
by BPI. Certainly nothing prevented the FEBTCs employees from resigning or retiring
and seeking employment elsewhere instead of going along with the proposed
absorption.

Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000
did not contain any specific stipulation with respect to the employment contracts of Employment is a personal consensual contract and absorption by BPI of a former
existing personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary FEBTC employee without the consent of the employee is in violation of an individuals
Arbitrator, this Court cannot uphold the reasoning that the general stipulation regarding freedom to contract.It would have been a different matter if there was an express
transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger provision in the articles of merger that as a condition for the merger, BPI was being
necessarily includes the transfer of all FEBTC employees into the employ of BPI and required to assume all the employment contracts of all existing FEBTC employees with
neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it the conformity of the employees. In the absence of such a provision in the articles of
is so, it does not follow that the absorbed employees should not be subject to the terms merger, then BPI clearly had the business management decision as to whether or not
and conditions of employment obtaining in the surviving corporation. employ FEBTCs employees. FEBTC employees likewise retained the prerogative to
allow themselves to be absorbed or not; otherwise, that would be tantamount to
involuntary servitude.
The rule is that unless expressly assumed, labor contracts such as employment
contracts and collective bargaining agreements are not enforceable against a
transferee of an enterprise, labor contracts being in personam, thus binding only There appears to be no dispute that with respect to FEBTC employees that BPI chose
between the parties. A labor contract merely creates an action in personam and does not to employ or FEBTC employees who chose to retire or be separated from
not create any real right which should be respected by third parties. This conclusion employment instead of being absorbed, BPIs assumed liability to these employees
draws its force from the right of an employer to select his employees and to decide pursuant to the merger is FEBTCs liability to them in terms of separation
when to engage them as protected under our Constitution, and the same can only be pay,[29] retirement pay[30] or other benefits that may be due them depending on the
restricted by law through the exercise of the police power.[28] circumstances.

Legal Consequences of Mergers

Furthermore, this Court believes that it is contrary to public policy to declare the former Although not binding on this Court, American jurisprudence on the consequences of
FEBTC employees as forming part of the assets or liabilities of FEBTC that were voluntary mergers on the right to employment and seniority rights is persuasive and
transferred and absorbed by BPI in the Articles of Merger. Assets and liabilities, in this illuminating. We quote the following pertinent discussion from the American Law
instance, should be deemed to refer only to property rights and obligations of FEBTC Reports:
and do not include the employment contracts of its personnel. A corporation cannot
unilaterally transfer its employees to another employer like chattel. Certainly, if BPI as
Several cases have involved the situation where as a result of mergers, consolidations, unions involved, it was held in Moore v International Brotherhood of Teamsters, etc.
or shutdowns, one group of employees, who had accumulated seniority at one plant or (1962, Ky) 356 SW2d 241, that the trucker was not required to absorb the affected
for one employer, finds that their jobs have been discontinued except to the extent that employees as well as the business, the court saying that they could find no such
they are offered employment at the place or by the employer where the work is to be meaning in the above clause, stating that it dealt only with seniority, and not with initial
carried on in the future. Such cases have involved the question whether such employment. Unless and until the absorbing company agreed to take the employees
transferring employees should be entitled to carry with them their accumulated of the company whose business was being absorbed, no seniority problem was
seniority or whether they are to be compelled to start over at the bottom of the seniority created, said the court, hence the provision of the contract could have no
list in the "new" job. It has been recognized in some cases that the accumulated application. Furthermore, said the court, it did not require that the absorbing company
seniority does not survive and cannot be transferred to the "new" job. take these employees, but only that if it did take them the question of seniority between
the old and new employees would be worked out by agreement or else be submitted
to the grievance procedure.[31] (Emphasis ours.)
In Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three formerly
separate railroad corporations, which had previously operated separate facilities, was
consolidated in the shops of one of the roads. Displaced employees of the other two
roads were given preference for the new jobs created in the shops of the railroad which
took over the work. A controversy arose between the employees as to whether the Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption
displaced employees were entitled to carry with them to the new jobs the seniority of the dissolved corporations employees or the recognition of the absorbed employees
rights they had accumulated with their prior employers, that is, whether the rosters of service with their previous employer may be demanded from the surviving corporation
the three corporations, for seniority purposes, should be "dovetailed" or whether the if required by provision of law or contract. The dissent of Justice Arturo D. Brion tries
transferring employees should go to the bottom of the roster of their new to make a distinction as to the terms and conditions of employment of the absorbed
employer. Labor representatives of the various systems involved attempted to work out employees in the case of a corporate merger or consolidation which will, in effect, take
an agreement which, in effect, preserved the seniority status obtained in the prior away from corporate management the prerogative to make purely business decisions
employment on other roads, and the action was for specific performance of this on the hiring of employees or will give it an excuse not to apply the CBA in force to the
agreement against a demurring group of the original employees of the railroad which prejudice of its own employees and their recognized collective bargaining agent. In this
was operating the consolidated shops. The relief sought was denied, the court saying regard, we disagree with Justice Brion.
that, absent some specific contract provision otherwise, seniority rights were ordinarily
limited to the employment in which they were earned, and concluding that the contract
for which specific performance was sought was not such a completed and binding Justice Brion takes the position that because the surviving corporation continues the
agreement as would support such equitable relief, since the railroad, whose personality of the dissolved corporation and acquires all the latters rights and
concurrence in the arrangements made was essential to their effectuation, was not a obligations, it is duty-bound to absorb the dissolved corporations employees, even in
party to the agreement. the absence of a stipulation in the plan of merger. He proposes that this interpretation
would provide the necessary protection to labor as it spares workers from being left in
legal limbo.
Where the provisions of a labor contract provided that in the event that a
trucker absorbed the business of another private contractor or common carrier, or was
a party to a merger of lines, the seniority of the employees absorbed or affected However, there are instances where an employer can validly discontinue or terminate
thereby should be determined by mutual agreement between the trucker and the the employment of an employee without violating his right to security of tenure. Among
others, in case of redundancy, for example, superfluous employees may be terminated emphasize his dissent also recognizes that the employee may choose to end his
and such termination would be authorized under Article 283 of the Labor Code.[32] employment at any time by voluntarily resigning. For the employee to be absorbed by
BPI, it requires the employees implied or express consent. It is because of this human
element in employment contracts and the personal, consensual nature thereof that we
Moreover, assuming for the sake of argument that there is an obligation to hire or cannot agree that, in a merger situation, employment contracts are automatically
absorb all employees of the non-surviving corporation, there is still no basis to conclude transferable from one entity to another in the same manner that a contract pertaining
that the terms and conditions of employment under a valid collective bargaining to purely proprietary rights such as a promissory note or a deed of sale of property is
agreement in force in the surviving corporation should not be made to apply to the perfectly and automatically transferable to the surviving corporation.
absorbed employees.

That BPI is the same entity as FEBTC after the merger is but a legal fiction intended
The Corporation Code and the Subject Merger Agreement are Silent on Efficacy, as a tool to adjudicate rights and obligations between and among the merged
Terms and Conditions of Employment Contracts corporations and the persons that deal with them. Although in a merger it is as if there
is no change in the personality of the employer, there is in reality a change in the
situation of the employee. Once an FEBTC employee is absorbed, there are
presumably changes in his condition of employment even if his previous tenure and
salary rate is recognized by BPI. It is reasonable to assume that BPI would have
The lack of a provision in the plan of merger regarding the transfer of employment different rules and regulations and company practices than FEBTC and it is incumbent
contracts to the surviving corporation could have very well been deliberate on the part upon the former FEBTC employees to obey these new rules and adapt to their new
of the parties to the merger, in order to grant the surviving corporation the freedom to environment. Not the least of the changes in employment condition that the absorbed
choose who among the dissolved corporations employees to retain, in accordance with FEBTC employees must face is the fact that prior to the merger they were employees
the surviving corporations business needs.If terminations, for instance due to of an unorganized establishment and after the merger they became employees of a
redundancy or labor-saving devices or to prevent losses, are done in good faith, they unionized company that had an existing collective bargaining agreement with the
would be valid. The surviving corporation too is duty-bound to protect the rights of its certified union. This presupposes that the union who is party to the collective
own employees who may be affected by the merger in terms of seniority and other bargaining agreement is the certified union that has, in the appropriate certification
conditions of their employment due to the merger. Thus, we are not convinced that in election, been shown to represent a majority of the members of the bargaining unit.
the absence of a stipulation in the merger plan the surviving corporation was
compelled, or may be judicially compelled, to absorb all employees under the same
terms and conditions obtaining in the dissolved corporation as the surviving corporation Likewise, with respect to FEBTC employees that BPI chose to employ and who also
should also take into consideration the state of its business and its obligations to its chose to be absorbed, then due to BPIs blanket assumption of liabilities and obligations
own employees, and to their certified collective bargaining agent or labor union. under the articles of merger, BPI was bound to respect the years of service of these
FEBTC employees and to pay the same, or commensurate salaries and other benefits
that these employees previously enjoyed with FEBTC.
Even assuming we accept Justice Brions theory that in a merger situation the surviving
corporation should be compelled to absorb the dissolved corporations employees as a
legal consequence of the merger and as a social justice consideration, it bears to
As the Union likewise pointed out in its pleadings, there were benefits under the CBA the CBA and were later granted regular status. They propose that the former FEBTC
that the former FEBTC employees did not enjoy with their previous employer. As BPI employees who were deemed regular employees from the beginning of their
employees, they will enjoy all these CBA benefits upon their absorption. Thus, although employment with BPI should be treated as a special class of employees and be
in a sense BPI is continuing FEBTCs employment of these absorbed employees, BPIs excluded from the union shop clause.
employment of these absorbed employees was not under exactly the same terms and
conditions as stated in the latters employment contracts with FEBTC. This further
strengthens the view that BPI and the former FEBTC employees voluntarily contracted Justice Brion himself points out that there is no clear, categorical definition of new
with each other for their employment in the surviving corporation. employee in the CBA. In other words, the term new employee as used in the union
Proper Appreciation of the Term New Employees Under the CBA shop clause is used broadly without any qualification or distinction. However, the Court
should not uphold an interpretation of the term new employee based on the general
and extraneous provisions of the Corporation Code on merger that would defeat, rather
than fulfill, the purpose of the union shop clause. To reiterate, the provision of the
In any event, it is of no moment that the former FEBTC employees retained the regular Article 248(e) of the Labor Code in point mandates that nothing in the said Code or any
status that they possessed while working for their former employer upon their other law should stop the parties from requiring membership in a recognized collective
absorption by petitioner. This fact would not remove them from the scope of the phrase bargaining agent as a condition of employment.
new employees as contemplated in the Union Shop Clause of the CBA, contrary to
petitioners insistence that the term new employees only refers to those who are initially
hired as non-regular employees for possible regular employment.
Significantly, petitioner BPI never stretches its arguments so far as to state that the
absorbed employees should be deemed old employees who are not covered by the
Union Shop Clause.This is not surprising.
The Union Shop Clause in the CBA simply states that new employees who during the
effectivity of the CBA may be regularly employed by the Bank must join the union within
thirty (30) days from their regularization. There is nothing in the said clause that limits
its application to only new employees who possess non-regular status, meaning By law and jurisprudence, a merger only becomes effective upon approval by the
probationary status, at the start of their employment. Petitioner likewise failed to point Securities and Exchange Commission (SEC) of the articles of merger. In Associated
to any provision in the CBA expressly excluding from the Union Shop Clause new Bank v. Court of Appeals,[33] we held:
employees who are absorbed as regular employees from the beginning of their
employment. What is indubitable from the Union Shop Clause is that upon the
effectivity of the CBA, petitioners new regular employees (regardless of the manner by The procedure to be followed is prescribed under the Corporation Code. Section 79 of
which they became employees of BPI) are required to join the Union as a condition of said Code requires the approval by the Securities and Exchange Commission (SEC)
their continued employment. of the articles of merger which, in turn, must have been duly approved by a majority of
the respective stockholders of the constituent corporations. The same provision further
states that the merger shall be effective only upon the issuance by the SEC of a
The dissenting opinion of Justice Brion dovetails with Justice Carpios view only in their certificate of merger. The effectivity date of the merger is crucial for determining when
restrictive interpretation of who are new employees under the CBA. To our dissenting the merged or absorbed corporation ceases to exist; and when its rights, privileges,
colleagues, the phrase new employees (who are covered by the union shop clause) properties as well as liabilities pass on to the surviving corporation. (Emphasis ours.)
should only include new employees who were hired as probationary during the life of
employees who are exactly similarly situated (i.e.,the group of absorbed FEBTC
employees) differently. This hardly satisfies the demands of equality and justice.

In other words, even though BPI steps into the shoes of FEBTC as the surviving
corporation, BPI does so at a particular point in time, i.e., the effectivity of the merger Petitioner limited itself to the argument that its absorbed employees do not fall within
upon the SECs issuance of a certificate of merger. In fact, the articles of merger the term new employees contemplated under the Union Shop Clause with the apparent
themselves provided that both BPI and FEBTC will continue their respective business objective of excluding all, and not just some, of the former FEBTC employees from the
operations until the SEC issues the certificate of merger and in the event SEC does application of the Union Shop Clause.
not issue such a certificate, they agree to hold each other blameless for the non-
consummation of the merger.
However, in law or even under the express terms of the CBA, there is no special class
of employees called absorbed employees. In order for the Court to apply or not apply
Considering the foregoing principle, BPI could have only become the employer of the the Union Shop Clause, we can only classify the former FEBTC employees as either
FEBTC employees it absorbed after the approval by the SEC of the merger. If the SEC old or new. If they are not old employees, they are necessarily new employees. If they
did not approve the merger, BPI would not be in the position to absorb the employees are new employees, the Union Shop Clause did not distinguish between new
of FEBTC at all. Indeed, there is evidence on record that BPI made the assignments employees who are non-regular at their hiring but who subsequently become regular
of its absorbed employees in BPI effective April 10, 2000, or after the SECs approval and new employees who are absorbed as regular and permanent from the beginning
of the merger.[34] In other words, BPI became the employer of the absorbed of their employment. The Union Shop Clause did not so distinguish, and so neither
employees only at some point after the effectivity of the merger, notwithstanding the must we.
fact that the absorbed employees years of service with FEBTC were voluntarily
recognized by BPI.
No Substantial Distinction Under the CBA Between Regular Employees Hired After
Probationary Status and Regular Employees Hired After the Merger
Even assuming for the sake of argument that we consider the absorbed FEBTC
employees as old employees of BPI who are not members of any union (i.e., it is their
date of hiring by FEBTC and not the date of their absorption that is considered), this
does not necessarily exclude them from the union security clause in the CBA. The CBA
subject of this case was effective from April 1, 1996 until March 31, 2001. Based on Verily, we agree with the Court of Appeals that there are no substantial differences
the allegations of the former FEBTC employees themselves, there were former FEBTC between a newly hired non-regular employee who was regularized weeks or months
employees who were hired by FEBTC after April 1, 1996 and if their date of hiring by after his hiring and a new employee who was absorbed from another bank as a regular
FEBTC is considered as their date of hiring by BPI, they would undeniably be employee pursuant to a merger, for purposes of applying the Union Shop Clause. Both
considered new employees of BPI within the contemplation of the Union Shop Clause employees were hired/employed only after the CBA was signed. At the time they are
of the said CBA. Otherwise, it would lead to the absurd situation that we would being required to join the Union, they are both already regular rank and file employees
discriminate not only between new BPI employees (hired during the life of the CBA) of BPI. They belong to the same bargaining unit being represented by the Union. They
and former FEBTC employees (absorbed during the life of the CBA) but also among both enjoy benefits that the Union was able to secure for them under the CBA. When
the former FEBTC employees themselves. In other words, we would be treating they both entered the employ of BPI, the CBA and the Union Shop Clause therein were
already in effect and neither of them had the opportunity to express their preference absorbed employees are not new employees, as are commonly understood to be
for unionism or not. We see no cogent reason why the Union Shop Clause should not covered by a CBAs union security clause. This could then lead to a new majority within
be applied equally to these two types of new employees, for they are undeniably the CBU that could potentially threaten the majority status of the existing union and,
similarly situated. ultimately, spell its demise as the CBUs bargaining representative. Such a dreaded but
not entirely far-fetched scenario is no different from the ingenious and creative union-
busting schemes that corporations have fomented throughout the years, which this
The effect or consequence of BPIs so-called absorption of former FEBTC employees Court has foiled time and again in order to preserve and protect the valued place of
should be limited to what they actually agreed to, i.e. recognition of the FEBTC labor in this jurisdiction consistent with the Constitutions mandate of insuring social
employees years of service, salary rate and other benefits with their previous justice.
employer. The effect should not be stretched so far as to exempt former FEBTC
employees from the existing CBA terms, company policies and rules which apply to
employees similarly situated. If the Union Shop Clause is valid as to other new regular There is nothing in the Labor Code and other applicable laws or the CBA provision at
BPI employees, there is no reason why the same clause would be a violation of the issue that requires that a new employee has to be of probationary or non-regular status
absorbed employees freedom of association. at the beginning of the employment relationship. An employer may confer upon a new
employee the status of regular employment even at the onset of his
engagement. Moreover, no law prohibits an employer from voluntarily recognizing the
Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and length of service of a new employee with a previous employer in relation to computation
Inimical to Industrial Peace of benefits or seniority but it should not unduly be interpreted to exclude them from the
coverage of the CBA which is a binding contractual obligation of the employer and
employees.

It is but fair that similarly situated employees who enjoy the same privileges of a CBA Indeed, a union security clause in a CBA should be interpreted to give meaning and
should be likewise subject to the same obligations the CBA imposes upon them. A effect to its purpose, which is to afford protection to the certified bargaining agent and
contrary interpretation of the Union Shop Clause will be inimical to industrial peace and ensure that the employer is dealing with a union that represents the interests of the
workers solidarity. This unfavorable situation will not be sufficiently addressed by legally mandated percentage of the members of the bargaining unit.
asking the former FEBTC employees to simply pay agency fees to the Union in lieu of
union membership, as the dissent of Justice Carpio suggests. The fact remains that
other new regular employees, to whom the absorbed employees should be compared, The union shop clause offers protection to the certified bargaining agent by ensuring
do not have the option to simply pay the agency fees and they must join the Union or that future regular employees who (a) enter the employ of the company during the life
face termination. of the CBA; (b) are deemed part of the collective bargaining unit; and (c) whose number
Petitioners restrictive reading of the Union Shop Clause could also inadvertently open will affect the number of members of the collective bargaining unit will be compelled to
an avenue, which an employer could readily use, in order to dilute the membership join the union. Such compulsion has legal effect, precisely because the employer by
base of the certified union in the collective bargaining unit (CBU). By entering into a voluntarily entering in to a union shop clause in a CBA with the certified bargaining
voluntary merger with a non-unionized company that employs more workers, an agent takes on the responsibility of dismissing the new regular employee who does not
employer could get rid of its existing union by the simple expedient of arguing that the join the union.
Justice Brion, on the other hand, appears to recognize the inherent unfairness of
perpetually excluding the absorbed employees from the ambit of the union shop
Without the union shop clause or with the restrictive interpretation thereof as proposed clause. He proposes that this matter be left to negotiation by the parties in the next
in the dissenting opinions, the company can jeopardize the majority status of the CBA. To our mind, however, this proposal does not sufficiently address the issue. With
certified union by excluding from union membership all new regular employees whom BPI already taking the position that employees absorbed pursuant to its voluntary
the Company will absorb in future mergers and all new regular employees whom the mergers with other banks are exempt from the union shop clause, the chances of the
Company hires as regular from the beginning of their employment without undergoing said bank ever agreeing to the inclusion of such employees in a future CBA is next to
a probationary period. In this manner, the Company can increase the number of nil more so, if BPIs narrow interpretation of the union shop clause is sustained by this
members of the collective bargaining unit and if this increase is not accompanied by a Court.
corresponding increase in union membership, the certified union may lose its majority
status and render it vulnerable to attack by another union who wishes to represent the
same bargaining unit.[35]
Right of an Employee not to Join a Union is not Absolute and Must Give Way to the
Collective Good of All Members of the Bargaining Unit

Or worse, a certified union whose membership falls below twenty percent (20%) of the
total members of the collective bargaining unit may lose its status as a legitimate labor
organization altogether, even in a situation where there is no competing union.[36] In The dissenting opinions place a premium on the fact that even if the former FEBTC
such a case, an interested party may file for the cancellation of the unions certificate employees are not old employees, they nonetheless were employed as regular and
of registration with the Bureau of Labor Relations.[37] permanent employees without a gap in their service. However, an employees
permanent and regular employment status in itself does not necessarily exempt him
from the coverage of a union shop clause.

Plainly, the restrictive interpretation of the union shop clause would place the certified
unions very existence at the mercy and control of the employer. Relevantly, only BPI,
the employer appears to be interested in pursuing this case. The former FEBTC In the past this Court has upheld even the more stringent type of union security
employees have not joined BPI in this appeal. clause, i.e., the closed shop provision, and held that it can be made applicable to old
employees who are already regular and permanent but have chosen not to join a
union. In the early case of Juat v. Court of Industrial Relations,[38] the Court held that
an old employee who had no union may be compelled to join the union even if the
For the foregoing reasons, Justice Carpios proposal to simply require the former collective bargaining agreement (CBA) imposing the closed shop provision was only
FEBTC to pay agency fees is wholly inadequate to compensate the certified union for entered into seven years after of the hiring of the said employee. To quote from that
the loss of additional membership supposedly guaranteed by compliance with the decision:
union shop clause. This is apart from the fact that treating these absorbed employees
as a special class of new employees does not encourage worker solidarity in the
company since another class of new employees (i.e. those whose were hired as
probationary and later regularized during the life of the CBA) would not have the option A closed-shop agreement has been considered as one form of union security whereby
of substituting union membership with payment of agency fees. only union members can be hired and workers must remain union members as a
condition of continued employment. The requirement for employees or workers to
become members of a union as a condition for employment redounds to the benefit
and advantage of said employees because by holding out to loyal members a promise In Victoriano, the issue that confronted the Court was whether or not employees who
of employment in the closed-shop the union wields group solidarity. In fact, it is said were members of the Iglesia ni Kristo (INK) sect could be compelled to join the union
that "the closed-shop contract is the most prized achievement of unionism." under a closed shop provision, despite the fact that their religious beliefs prohibited
them from joining a union. In that case, the Court was asked to balance the
xxxx constitutional right to religious freedom against a host of other constitutional provisions
This Court had categorically held in the case of Freeman Shirt Manufacturing Co., Inc., including the freedom of association, the non-establishment clause, the non-
et al. vs. Court of Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961, that impairment of contracts clause, the equal protection clause, and the social justice
the closed-shop proviso of a collective bargaining agreement entered into between an provision. In the end, the Court held that religious freedom, although not unlimited, is
employer and a duly authorized labor union is applicable not only to the employees or a fundamental personal right and liberty, and has a preferred position in the hierarchy
laborers that are employed after the collective bargaining agreement had been entered of values.[42]
into but also to old employees who are not members of any labor union at the time the
said collective bargaining agreement was entered into. In other words, if an employee
or laborer is already a member of a labor union different from the union that entered However, Victoriano is consistent with Juat since they both affirm that the right to
into a collective bargaining agreement with the employer providing for a closed-shop, refrain from joining a union is not absolute. The relevant portion of Victoriano is quoted
said employee or worker cannot be obliged to become a member of that union which below:
had entered into a collective bargaining agreement with the employer as a condition
for his continued employment. (Emphasis and underscoring supplied.)
The right to refrain from joining labor organizations recognized by Section 3 of the
Industrial Peace Act is, however, limited. The legal protection granted to such right to
refrain from joining is withdrawn by operation of law, where a labor union and an
employer have agreed on a closed shop, by virtue of which the employer may employ
Although the present case does not involve a closed shop provision that included even only member of the collective bargaining union, and the employees must continue to
old employees, the Juat example is but one of the cases that laid down the doctrine be members of the union for the duration of the contract in order to keep their
that the right not to join a union is not absolute. Theoretically, there is nothing in law or jobs. Thus Section 4 (a) (4) of the Industrial Peace Act, before its amendment by
jurisprudence to prevent an employer and a union from stipulating that existing Republic Act No. 3350, provides that although it would be an unfair labor practice for
employees (who already attained regular and permanent status but who are not an employer "to discriminate in regard to hire or tenure of employment or any term or
members of any union) are to be included in the coverage of a union security condition of employment to encourage or discourage membership in any labor
clause. Even Article 248(e) of the Labor Code only expressly exempts old employees organization" the employer is, however, not precluded "from making an agreement with
who already have a union from inclusion in a union security clause.[39] a labor organization to require as a condition of employment membership therein, if
such labor organization is the representative of the employees." By virtue, therefore,
of a closed shop agreement, before the enactment of Republic Act No. 3350, if any
Contrary to the assertion in the dissent of Justice Carpio, Juat has not been overturned person, regardless of his religious beliefs, wishes to be employed or to keep his
by Victoriano v. Elizalde Rope Workers Union[40] nor by Reyes v. Trajano.[41] The employment, he must become a member of the collective bargaining union. Hence, the
factual milieus of these three cases are vastly different. right of said employee not to join the labor union is curtailed and
withdrawn.[43] (Emphases supplied.)
of the bargaining unit that the Union represented. Thus, the rulings
in Philips and Knitjoy have no relevance to the issues at hand.
If Juat exemplified an exception to the rule that a person has the right not to join a
union, Victoriano merely created an exception to the exception on the ground of
religious freedom.
Time and again, this Court has ruled that the individual employees right not to join a
union may be validly restricted by a union security clause in a CBA[49] and such union
security clause is not a violation of the employees constitutional right to freedom of
Reyes, on the other hand, did not involve the interpretation of any union security association.[50]
clause. In that case, there was no certified bargaining agent yet since the controversy
arose during a certification election. In Reyes, the Court highlighted the idea that the
freedom of association included the right not to associate or join a union in resolving
the issue whether or not the votes of members of the INK sect who were part of the It is unsurprising that significant provisions on labor protection of the 1987 Constitution
bargaining unit could be excluded in the results of a certification election, simply are found in Article XIII on Social Justice. The constitutional guarantee given the right
because they were not members of the two contesting unions and were expected to to form unions[51]and the State policy to promote unionism[52] have social justice
have voted for NO UNION in view of their religious affiliation. The Court upheld the considerations. In Peoples Industrial and Commercial Employees and Workers
inclusion of the votes of the INK members since in the previous case of Victoriano we Organization v. Peoples Industrial and Commercial Corporation,[53] we recognized
held that INK members may not be compelled to join a union on the ground of religious that [l]abor, being the weaker in economic power and resources than capital, deserve
freedom and even without Victoriano every employee has the right to vote no union in protection that is actually substantial and material.
a certification election as part of his freedom of association. However, Reyes is not
authority for Justice Carpios proposition that an employee who is not a member of any
union may claim an exemption from an existing union security clause because he The rationale for upholding the validity of union shop clauses in a CBA, even if they
already has regular and permanent status but simply prefers not to join a union. impinge upon the individual employees right or freedom of association, is not to protect
the union for the unions sake. Laws and jurisprudence promote unionism and afford
certain protections to the certified bargaining agent in a unionized company because
The other cases cited in Justice Carpios dissent on this point are likewise a strong and effective union presumably benefits all employees in the bargaining
inapplicable. Basa v. Federacion Obrera de la Industria Tabaquera y Otros unit since such a union would be in a better position to demand improved benefits and
Trabajadores de Filipinas,[44] Anucension v. National Labor Union,[45] and Gonzales conditions of work from the employer. This is the rationale behind the State policy to
v. Central Azucarera de Tarlac Labor Union[46] all involved members of the INK. In promote unionism declared in the Constitution, which was elucidated in the above-cited
line with Victoriano, these cases upheld the INK members claimed exemption from the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.[54]
union security clause on religious grounds. In the present case, the former FEBTC
employees never claimed any religious grounds for their exemption from the Union
Shop Clause. As for Philips Industrial Development, Inc. v. National Labor Relations In the case at bar, since the former FEBTC employees are deemed covered by the
Corporation[47] and Knitjoy Manufacturing, Inc. v. Ferrer-Calleja,[48] the employees Union Shop Clause, they are required to join the certified bargaining agent, which
who were exempted from joining the respondent union or who were excluded from supposedly has gathered the support of the majority of workers within the bargaining
participating in the certification election were found to be not members of the unit in the appropriate certification proceeding. Their joining the certified union would,
bargaining unit represented by respondent union and were free to form/join their own in fact, be in the best interests of the former FEBTC employees for it unites their
union. In the case at bar, it is undisputed that the former FEBTC employees were part interests with the majority of employees in the bargaining unit. It encourages employee
solidarity and affords sufficient protection to the majority status of the union during the from the employer since the CBA also contained a Maintenance of Membership
life of the CBA which are the precisely the objectives of union security clauses, such Clause.
as the Union Shop Clause involved herein. We are indeed not being called to balance
the interests of individual employees as against the State policy of promoting unionism,
since the employees, who were parties in the court below, no longer contested the A final point in relation to procedural due process, the Court is not unmindful that the
adverse Court of Appeals decision. Nonetheless, settled jurisprudence has already former FEBTC employees refusal to join the union and BPIs refusal to enforce the
swung the balance in favor of unionism, in recognition that ultimately the individual Union Shop Clause in this instance may have been based on the honest belief that the
employee will be benefited by that policy. In the hierarchy of constitutional values, this former FEBTC employees were not covered by said clause. In the interest of fairness,
Court has repeatedly held that the right to abstain from joining a labor organization is we believe the former FEBTC employees should be given a fresh thirty (30) days from
subordinate to the policy of encouraging unionism as an instrument of social justice. notice of finality of this decision to join the union before the union demands BPI to
terminate their employment under the Union Shop Clause, assuming said clause has
been carried over in the present CBA and there has been no material change in the
situation of the parties.

Also in the dissenting opinion of Justice Carpio, he maintains that one of the dire
consequences to the former FEBTC employees who refuse to join the union is the
forfeiture of their retirement benefits. This is clearly not the case precisely because BPI WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30,
expressly recognized under the merger the length of service of the absorbed 2003 of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice
employees with FEBTC. Should some refuse to become members of the union, they requirement imposed herein. Former FEBTC employees who opt not to become union
may still opt to retire if they are qualified under the law, the applicable retirement plan, members but who qualify for retirement shall receive their retirement benefits in
or the CBA, based on their combined length of service with FEBTC and BPI.Certainly, accordance with law, the applicable retirement plan, or the CBA, as the case may be.
there is nothing in the union shop clause that should be read as to curtail an employees
eligibility to apply for retirement if qualified under the law, the existing retirement plan,
or the CBA as the case may be. SO ORDERED.

In sum, this Court finds it reasonable and just to conclude that the Union Shop Clause
of the CBA covers the former FEBTC employees who were hired/employed by BPI
during the effectivity of the CBA in a manner which petitioner describes as
absorption. A contrary appreciation of the facts of this case would, undoubtedly, lead
to an inequitable and very volatile labor situation which this Court has consistently ruled
against.

In the case of former FEBTC employees who initially joined the union but later withdrew
their membership, there is even greater reason for the union to request their dismissal
Petitioner was employed as typist of private respondent at its plant in Quezon,
Bukidnon.

At about 5:00 P.M. of November 27, 1990, petitioner went to visit Mercy Baylas, a co-
employee, at the ladies' dormitory inside the compound of private respondent. Upon
seeing petitioner, Baylas hid behind the divider at the reception room. Rosemarie Basa
and Isabel Beleno, co-boarders of Baylas, told petitioner that Baylas was not at the
dormitory and advised him to stop courting her because she had no feelings towards
him. Afterwards, the two left leaving petitioner alone in the room. When he peeped
behind the divider, he saw Baylas, who stood up without answering his greetings and
ran towards her room. He followed, and after taking hold of her left hand, pulled her
towards him. The force caused her to fall on the floor. He then placed himself on top
of her. She resisted and futilely struggled to free herself from his grasp. Sonia Armada,
the dormitory housekeeper, responded to Baylas' shouts for help. Armada saw
petitioner embracing and kissing Baylas. She tried to separate petitioner from Baylas
but to no avail. So she went outside and asked Basa and Beleno to help Baylas. She
also asked the help of Edmundo Subong.

Basa and Beleno tried to pull petitioner away from Baylas, but it was Subong who was
able to free Baylas from petitioner.

According to the medical report issued by Dr. Letecia P. Maraat, Baylas complained of
pains on her shoulder and left foot.
TOPIC: CODE OF CONDUCT VIOLATION-NEED TO GO THROUGH GRIEVANCE
MACHINERY On December 5, 1990, petitioner was informed of the complaint against him and was
placed under preventive suspension. Nolito S. Densing, Jr. was instructed to
CASIANO NAVARRO III V DAMASCO
investigate the incident. In his report dated December 26, 1990, Densing
recommended that the maximum penalty be meted out against petitioner. On January
5, 1991, petitioner was dismissed from the service for having violated paragraph 3.B
QUIASON, J.: (Conduct and Behavior) of the Code of Employee Discipline, which provides:
This is a petition for certiorari to reverse the Decision dated August 16, 1991 of the 1. Inflicting or attempting to inflict bodily injury, in any form, on fellow employee, with a
Voluntary Arbitrator, respondent Israel D. Damasco, declaring as valid the separation penalty of dismissal.
from employment of petitioner.
2. Immoral conduct within company premises, regardless of whether or not committed
We dismiss the petition. during working time, punishable by reprimand to dismissal, depending on the prejudice
I caused by such act to the company.
3. Improper conduct and acts of gross discourtesy or disrespect to fellow employees that Subong arrived and pulled him away from Baylas. He also admitted that he
at any time within the company premises punishable by reprimand to dismissal, voluntarily surrendered to the security guards.
depending on the gravity of the offense.
III
4. Knowingly giving false or untruthful statements or concealing material facts in an
investigation conducted by authorized representative of the company, punishable by Petitioner contends that the grievance procedure provided for in the Collective
dismissal ( Rollo, pp. 47-48). Bargaining Agreement was not followed; hence, the Voluntary Arbitrator exceeded his
authority when he took cognizance of the labor case.
On March 18, 1991, the President of the Mindanao Sugar Workers Union, for and in
behalf of petitioner, and Jaime J. Javier, Personnel Officer of private respondent, Section 2, Article X of the Collective Bargaining Agreement specifies the instances
agreed to submit the case of petitioner to voluntary arbitration. when the grievance machinery may be availed of, thus:

At the initial conference on March 27, 1991, petitioner, represented by his counsel, Any protest or misunderstanding concerning any ruling, practice or working conditions
agreed to limit the issues to be submitted to the Voluntary Arbitrator to the following: in the Company, or any dispute arising as to the meaning, application or claim of
violation of any provision of this Agreement or any complaint that any employee may
1. Whether or not the grievance procedure in the CBA for bringing a case before the have against the COMPANY shall constitute a grievance ( Rollo, p. 27).
Voluntary Arbitrator had been followed;
The instant case is not a grievance that must be submitted to the grievance machinery.
2. Whether petitioner's dismissal was legal; and What are subject of the grievance procedure for adjustment and resolution are
grievances arising from the interpretation or implementation of the collective bargaining
3. Who was the complainant insofar as the grievance procedure under the CBA was agreement (Labor Code of the Philippines, as amended by R.A. No. 6715, Art. 260).
concerned ( Rollo, p. 147).
The acts of petitioner involved a violation of the Code of Employee Discipline,
The parties also agreed to submit the case for decision based on their position papers. particularly the provision penalizing the immoral conduct of employees. Consequently,
On August 16, 1991, a decision was rendered by the Voluntary Arbitrator dismissing there was no justification for petitioner to invoke the grievance machinery provisions of
petitioner from his employment and holding that private respondent did not violate the the Collective Bargaining Agreement (Auxilio, Jr. v. National Labor Relations
provisions of the grievance procedure under the Collective Bargaining Agreement. Commission, 188 SCRA 263 [1990]).

Not satisfied with the decision, petitioner filed the instant petition. The case of petitioner was submitted to voluntary arbitration by agreement of the
president of the labor union to which petitioner belongs, and his employer, through its
II personnel officer. Petitioner himself voluntarily submitted to the jurisdiction of the
Voluntary Arbitrator when he, through his counsel, filed his position paper with the
According to petitioner's version, Baylas was his girlfriend, whom he visited at the
Voluntary Arbitrator and even submitted additional documentary evidence. In addition
ladies' dormitory in the afternoon of November 27, 1990. At the dormitory, petitioner
thereto, during the initial conference on March 27, 1991, the parties manifested that
saw Rosemarie Basa who told him that Baylas was not around. To prove that Basa
they were not questioning the authority of the Voluntary Arbitrator.
was lying, he peeped behind the divider and saw Baylas hiding there. When Baylas
ran towards her room, petitioner followed her. While running, Baylas lost her balance It is the policy of the State to promote voluntary arbitration as a mode of settling labor
and fell down. However, petitioner got hold of her to prevent her from hitting the floor disputes (Manguiat, Mechanisms of Voluntary Arbitration in Labor Disputes 2-6 [1978]).
and to help her to her feet. He denied having kissed and embraced her. He admitted
Petitioner claims that he was denied due process of law because no hearing was held
and he was not given an opportunity to cross-examine the witnesses.

We held in Stayfast Philippines Corp. v. National Labor Relation Commission, 218


SCRA 596 (1993) that:

The essence of due process is simply an opportunity to be heard, or as applied to


administrative proceedings, an opportunity to explain one's side or an opportunity to
seek a reconsideration of the action or ruling complained of.

A formal or trial-type hearing is not at all times and in all instances essential. The
requirements are satisfied where the parties are fair and reasonable opportunity to
explain their side of the controversy at hand. What is frowned upon is the absolute lack
of notice and hearing. . . .
(at p. 601).

Concerning the allegation that petitioner was not allowed to cross-examine the
witnesses, the record shows that the parties had agreed not to cross-examine their
witnesses anymore.

Petitioner alleges that the quarrel between Baylas and him was a purely private affair.
We do not agree with this contention. It will be noted that not only did the incident
happen within the company premises, i.e. the ladies' dormitory which was located
inside the plant site, but both of them are employees of private respondent.
Management would then be at the mercy of its employees if it cannot enforce discipline
within company premises solely because the quarrel is purely personal matter. The
harassment of an employee by a co-employee within the company premises even after
office hours is a work-related matter considering that the peace of the company is
thereby affected. The Code of Employee Discipline is very clear that immoral conduct
"within the company premises regardless of whether or not [it is] committed during
working time" is punishable.

The pretext of petitioner that he was merely helping Baylas is belied by the
eyewitnesses. Petitioner admitted that it took Subong to pull him away from Baylas.
His alleged act of chivalry is nothing more than a chance to gratify his amorous feelings.

WHEREFORE, the Decision of the respondent Voluntary Arbitrator is AFFIRMED.

SO ORDERED.