MAJESTIC AND REPUBLIC THEATERS EMPLOYEES’ ASSOCIATION (PAFLU), PETITIONER, VS. COURT OF INDUSTRIAL RELATIONS, ET AL., RESPONDENTS.

L. C. Eugenio & Company, a corporation, was the owner of two
theaters denominated Republic and Majestic which were leased
respectively to two other corporations, namely, the Republic Theater
Enterprises and the Majestic Theater, Inc. Leonardo C. Eugenio was the
president and general manager of the three corporations. On January 1,
1955, the employees of the theaters who are members of the Majestic and
Republic Theaters Employees’ Association thought to affiliate their
union with the Philippine Association of Free Labor Unions, known as
PAFLU for short. Immediately after this affiliation the lessees
dismissed from the service the union’s president and vice-president
which dismissal precipitated a strike among the employees. Nine days
later the parties came to a settlement and agreed to reinstate the
dismissed president and vice-president.

On February 16, 1955, the employees’ union and the
lessees-corporations entered into a collective bargaining agreement to
last for two years retroactive to January 16, 1955 wherein, among other
things, they stipulated: (1) during the effectivity of the agreement
the union will not declare a strike while the lessees will not lockout
their employees; (2) both shall use their influence and sincere efforts
to observe their agreement considering not only its spirit but its
letter as well; and (3) that during the effectivity of the agreement
they shall not enter into any contract nor make any negotiation or
arrangement with any other person or entity for collective bargaining
or regarding conditions of employment.

Three months after the execution of the aforesaid collective
bargaining agreement, L. Eugenio & Company, owner of the two
theaters, sold the same to Goodwill Trading Company, Inc., also a
corporation, and almost at the same time the two corporations leasing
and operating the theaters agreed to terminate their lease contract
over them. The new owner in turn leased the two theaters to another
corporation denominated Rema, Inc. by concluding a contract of lease on
April 26, 1955.

Bearing the same date, Leonardo C. Eugenio, president and general
manager of the corporation which owned and operated the two theaters,
wrote a letter to the president of the employees’ union informing him
of the sale as well as of the termination of the lease of the two
theaters but intimating therein that he has recommended to the new
owner the continuance of all the employees of the theaters in their
present positions. Eugenio also informed the president of the union
that in the event that some of the employees are not retained by the
new lessee he would be willing to pay them whatever is due them under
the law. Eugenio wrote a similar letter to the president of the
Philippine Association of Free Labor Union (PAFLU).

Early in the morning of April 27, 1955, after the turning over of
the two theaters to the new operator Rema, Inc., the management of the
latter sent for all the employees of the theaters to advise them to
sign new forms or applications of employment if they wanted to continue
in the service, and while some did sign the others refused and picketed
the theaters with the result that those who applied for employment and
were admitted left their posts and joined the picket. The employees who
lost their jobs were about 27 in all. As a consequence, the Majestic
and Republic Theaters Employees’ Association filed a complaint for
unfair labor practice with the Court of Industrial Relations making as
respondents L. C. Eugenio & Company, the Republic Theater
Enterprises and the Majestic Theater, Inc. And while an attempt was
made to include the new owner Goodwill Trading Company, Inc. and the
new operator Rema, Inc. as respondents the attempt failed because the
industrial court ruled that they were not responsible and so an amended
complaint had to be filed excluding therefrom the two corporations.

After trial, the industrial court dismissed the complaint holding
that respondents were not guilty of unfair labor practice. However, it
ordered Leonardo C. Eugenio in his capacity as president and general
manager of Republic Theater Enterprises and Majestic Theater, Inc. to
pay to the complaining employees one-month separation pay pursuant to
Republic Act No. 1052 and in line with the pledge he made at the time
he effected the sale of the two theaters.

Upon motion for reconsideration, this decision was affirmed, but
with the dissent of Judge Jose S. Bautista concurred in by Judge
Baltazar M. Villanueva. The union interposed the present petition for
review.

In reaching the conclusion that respondents were not guilty of
unfair labor practice even if the sale and the termination of the
contracts of lease of the two theaters had the effect of locking out
the employees of petitioning union, the Court of Industrial Relations
made the following comment: (1) there is no law prohibiting the owner
of a business or factory to sell or transfer it without taking care of
his employees, nor is there any law which requires the new owner or
purchaser to recognize as his employees those who served under the
former owner; (2) the suspension of the operation of the business for
legitimate reason is permissible and legal and there is no legal
impediment for a person to close his business when it becomes
impossible for him to continue; (3) because the transactions are
evidenced by genuine documents it would be highly farfetched to
conclude that the parties to said transactions simply intended to break
up the organization of the theaters’ employees thereby interferring
with the exercise of their right to self-organization; and (4) although
the collective bargaining agreement with the petitioning union had not
yet expired at the time the respondent corporations stopped or
relinquished the operation of the business such act does not make them
guilty of any kind of unfair labor practice.

While it may be conceded that the sale of the theaters and the
termination of their lease to respondent corporations, or their
subsequent lease by the new owner to Rema, Inc. were not fictitious
because the evidence to that effect is not clear, however, there is in
the record a chain of circumstances which would indicate to an
impartial mind that said transactions are suspicious and were not made
in good faith. These circumstances are:

(1) The collective bargaining agreement entered into between the
union and the lessees-corporations was executed on February 16, 1955,
retroactive to January 16, 1955, to last for two years, or until
December 31, 1956, and among the conditions therein expressly
stipulated are that during the effectivity of the agreement the union
will not declare a strike while the lessees will not lockout their
employees, and that both the employees and the lessees would use their
influence and sincere efforts to observe the spirit as well as the
letter of their agreement. The lessees even bound themselves during
said period not to enter into any agreement, nor make any arrangement,
with any person or entity that may have the effect of offsetting it.
Yet, hardly had said agreement been entered into, or barely three
months thereafter, L. C. Eugenio & Company, owner of the theaters,
sold them and the lessees readily agreed to terminate their lease over
them.

(2) The sale of the two theaters to Goodwill Trading Company, Inc.
and the termination of the lease over them on the part of the
respondent corporations Republic Theater Enterprises and Majestic
Theater, Inc. were made in secrecy or at the back of the employees of
the lessees who were taken by surprise when immediately thereafter they
were informed that their employment has come to an end. These
transactions were even hurriedly made for, as the record shows, the
buying company had to amend its articles of incorporation even after
the sale by incorporating therein a proviso that it could engage in
movie business, which amendment was approved by the Securities and
Exchange Commission over the opposition of the complaining union, and
the theaters were speedily leased to an entity which at the time was
still non-existent so much so that its incorporation papers were
approved only four days after the execution of the lease contract.

Considering that the former owner of the theaters as well as the two
leasing corporations were then under the control and supervision of
Leonardo C. Eugenio, who was practically their owner, there is every
reason to believe that the sale as well as the termination of the
original lease were but mere strategem to avoid their commitment under
the collective bargaining agreement which resulted in the lockout of
the employees and the breaking up of their union. No other conclusion
can be drawn considering the readiness with which the two
lessees-corporations agreed and consented to the termination of their
contracts of lease. Verily, said transactions constitute a flagrant
violation of the commitments of respondents-leesees under the
collective bargaining agreement.

It should be borne in mind that under the new Civil Code “The
relations between capital and labor are not merely contractual. They
are so impressed with public interest that labor contracts must yield
to the common good.” Such contracts are subject to special laws on
labor unions, collective bargaining, strikes and lockouts.^[1]
Evidently, the transfer of the theaters to a new owner in utter
disregard of the collective bargaining agreement is a direct thrust
against the letter and spirit underlying the relation of capital and labor.

Moreover, Section 13, of Republic Act 875, provides that when there
is a collective bargaining agreement for a definite period neither
party shall terminate or modify such agreement unless a written notice
is served upon the other party of the proposed termination at least 30
days prior to the expiry date of the agreement and, in any event, the
agreement is to continue in full force and effect with regard to its
terms and conditions during the entire period of 30 days. Here no such
notice was given. Rather, immediately after the sale and the new lease,
the employees were immediately notified that their relationship has
terminated, thereby forcing the employees to go to the industrial court
for the redress of their grievance.

Wherefore, the decision appealed from is reversed. This Court finds
that respondent corporations L. C. Eugenio & Company, Republic
Theater Enterprises and Majestic Theater, Inc. are guilty of unfair
labor practice under Section 4 of Republic Act 875, and hereby orders
them, jointly and severally, to pay to their employees who were locked
out as a result of the transfer their back wages corresponding to the
remaining period of their collective bargaining agreement, without
prejudice to whatever other action they may deem proper to take in the
premises, with costs against respondents, other than the Court of
Industrial Relations.

Bengzon, C. J., Padilla, Concepcion, Reyes, J. B. L. Barrera, Paredes, Dizon, and De Leon JJ., concur.

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^[1]Article 1700, new Civil Code.