PAN AMERICAN WORLD AIRWAYS, PETITIONER, VS. PAA EMPLOYEES’ ASSOCIATION (PTGWO) AND THE COURT OF INDUSTRIAL RELATIONS, RESPONDENTS.

Pan American World Airways versus PAA Employees' Association

The Case

This is a labor case that reached the Supreme Court on a narrow but instructive question of contract interpretation. Pan American World Airways, the employer, challenged before the Supreme Court that portion of a judgment of the Court of Industrial Relations which directed the parties to negotiate on wages as stipulated in their collective bargaining agreement. The employer insisted that the agreement allowed reopening for wage negotiation only upon the happening of two conditions, and that neither condition had occurred. The case matters because it teaches how the Court reads a wage-reopening clause in a collective bargaining agreement, and how it treats a statutory or regulatory measure that alters the real value of the peso.

Procedural History

The dispute began as a labor dispute certified by the President of the Philippines to the Court of Industrial Relations, where it was docketed as a certification case. The parties submitted two questions for decision: whether six employees whose contracts had been terminated were entitled to additional termination pay, and whether the parties could reopen the agreement for negotiation on wage rates. The Court of Industrial Relations rendered judgment denying the claim of the six employees and ordering the parties to negotiate on wages as stipulated in the agreement. The employer moved for reconsideration of that portion of the judgment, and the Court of Industrial Relations sitting en banc denied the motion, with one judge dissenting on the view that the court should itself fix the wages rather than toss the negotiation back to the parties. The employer then elevated the matter to the Supreme Court by appeal by certiorari under Rule 44 of the Rules of Court and section 6 of Republic Act 875, seeking reversal of that part of the judgment only.

Facts

On 17 March 1960, Pan American World Airways and the PAA Employees' Association entered into a collective bargaining agreement to take effect retroactively from 1 March 1960 to 1 March 1963. Article 6, paragraph d of that agreement provided that the monthly salaries in Appendix A would remain in effect during the life of the agreement, but that if during its term a law diminishing the value of Philippine currency were enacted, and as a result the company were granted the necessary authority to increase its rates, either party could, upon written notice to the other, reopen the agreement for negotiation of the wage rates in Appendix A-1 only.

On 8 June 1960, the president of the association wrote the company requesting renegotiation of wage rates under that clause. On 23 June 1960, the company's airport manager agreed to the renegotiation. The parties negotiated but reached no agreement on wage increase. On 1 August 1960, the members of the association went on strike, and on 3 August 1960 the dispute was certified by the President to the Court of Industrial Relations. On 4 August 1960, the parties entered into a return to work agreement and submitted the two questions to the court.

Meanwhile, on 27 June 1960, the company issued a circular fixing the basis for selling tickets in pesos at 3 pesos and 20 centavos to a dollar. On 5 August 1960, the Central Bank authorized the sale of airline tickets at 3 pesos and 20 centavos to a dollar plus a three percent surcharge. Later, on 12 September 1960, the Central Bank reduced the free market exchange rate of the dollar to 3 pesos plus the normal nine percent surcharge. These measures were taken under Republic Act 2609, approved on 16 July 1959 and effective until 31 December 1964, which authorized the Central Bank to establish a uniform margin over the banks' selling rates and authorized the Monetary Board to fix the margin of such rate as it might deem necessary to curtail excessive demand upon the international reserve.

Issues

• Whether or not the two conditions in Article 6, paragraph d of the collective bargaining agreement were present, namely, the enactment of a law diminishing the value of Philippine currency and the grant to the company of the necessary authority to increase its rates.
• Whether or not the Court of Industrial Relations erred in ordering the parties to reopen the agreement and negotiate on wage rates.

Applicable Provisions

Article 6, paragraph d of the collective bargaining agreement provides:

The monthly salaries established in Appendix A hereof, shall remain in effect during the life of this Agreement, provided, however, that if during the term of this agreement, a law diminishing the value of Philippine Currency is enacted and as a result thereof the Company is granted the necessary authority to increase its rates, either party may, upon written notice to the other, reopen this Agreement for negotiation of wage rates shown in Appendix A-1 only.

This clause is the very provision whose meaning the Court had to fix, for the employer read it literally while the Court read it in light of the parties' intent.

Republic Act 2609, as described in the decision, authorized the Central Bank to establish a uniform margin over the banks' selling rates and the Monetary Board to fix the margin of such rate. The Court treated the exchange rate fixing done under this law as the operative measure diminishing the value of the currency.

Ruling

On the first issue, the Court held that the conditions were present. The employer argued that no law had been passed by Congress diminishing the value of the Philippine currency, and that therefore the reopening was improper. The Court rejected this literal reading. It reasoned that the purchasing power or value of money does not depend upon, cannot come into being, be created or brought about by, a law enacted by the legislative department. A law fixing a rate of exchange could not give the currency its purchasing power; it would merely bind the Government to pay or supply the difference between the fixed value and the real value. The Court explained that when the parties agreed to negotiate on wage rates should a law be passed diminishing the value of the Philippine currency, they did not literally mean a law enacted by Congress, which would not really diminish the purchasing power of the currency but would just confirm its real value.

The Court then found that under Republic Act 2609, and during the life of the agreement, the Central Bank fixed the rate of exchange between the peso and the dollar at 3 pesos and 20 centavos to one dollar and later at 3 pesos to one dollar, and authorized the sale of airline tickets at 3 pesos and 20 centavos to one dollar. The fixing of the rate of exchange and the authority to sell airline tickets amounted to a law diminishing the value of the currency. The Court added that rigid adherence to the letter of the agreement was not the intent of the contracting parties, as could be inferred from the consent of the company's airport manager to negotiate on wage rates.

On the second issue, the Court found no error in the order to negotiate. It noted that the dissent of one of the judges of the Court of Industrial Relations was not devoid of legal foundation, but observed that the term of the agreement ended on 1 March 1963, so the questions raised in the appeal had become moot.

Doctrine

A wage-reopening clause in a collective bargaining agreement that speaks of a law diminishing the value of Philippine currency is not to be read literally as requiring an act of Congress. The purchasing power of money is not created by legislation; a law fixing a rate of exchange merely confirms the real value of the currency. Hence, a measure taken under a statute, such as the fixing of the exchange rate by the Central Bank under Republic Act 2609, amounts to a law diminishing the value of the currency within the meaning of the clause. Contracts are interpreted according to the intent of the parties, and rigid adherence to the letter of an agreement is not favored where the parties' conduct shows a different understanding.

Disposition

The Supreme Court dismissed the appeal by certiorari filed by Pan American World Airways, without pronouncement as to costs, thereby sustaining the order directing the parties to negotiate on wages as stipulated in the agreement.

Remember This

Memorize this line: a law diminishing the value of the Philippine currency need not be an act of Congress, for the purchasing power of money is not created by legislation, and the fixing of the exchange rate under Republic Act 2609 was such a law. Examiners use this case in labor law and in statutory construction, on the interpretation of collective bargaining agreement clauses according to party intent rather than literal letter.