Case Summary (G.R. No. L-7756)
Pension Plan Establishment and Conditions
In 1923, the Philippine Telephone and Telegraph Co. (later the Philippine Long Distance Telephone Co.) adopted a “Plan for Employees’ Pensions” granting, upon request and at directors’ discretion, retirement pensions to male employees aged fifty with at least twenty years’ service and female employees aged forty-five with twenty years’ service. Pensions equaled 1½% of the average annual pay over the last five years for each year of service, payable from retirement until death. Section 5 clarified that the plan did not create a vested right until conditions were met, prohibited assignment, allowed suspension for misconduct, and defined service continuity and temporary layoffs.
Discontinuance of the Pension Plan
By late 1941, the Company’s Provident Reserve stood at just over ₱221,000. On November 6, 1945, the Board resolved to discontinue all pension payments retroactive to January 1, 1942, citing wartime loss of revenue and loss of management control. None of the petitioners had met the age and service thresholds before that date.
Judicial Proceedings and Litigations
In 1951, respondents filed a petition (CIR Case No. 639-V) before the Court of Industrial Relations seeking unpaid pensions and salaries from January 1946. The Company’s motion to dismiss—asserting that the war had terminated the employer-employee relationship—was denied. Its subsequent certiorari petition (G.R. No. L-5697) was dismissed in 1952. Trial on merits ensued in the CIR, culminating in a decision favoring respondents.
Court of Industrial Relations Decision
The CIR found that war-time occupation merely suspended, but did not dissolve, the employment relationship. It held that the pension plan constituted a binding contract and that equity required liquidation of accrued pension rights as of October 31, 1941. It ordered proportional pension payments based on each petitioner’s age and length of service at that date and awarded one month’s severance pay to those not reemployed, excluding those who had died, secured other employment, or voluntarily refused rehire.
Nature of the Contractual Obligation
The Supreme Court affirmed that the 1923 plan was more than a gratuitous promise: it was a unilateral contract inducing continued service, benefiting both employees and the Company by reducing turnover and training costs. Employee retention and performance amounted to implied acceptance. Although pension rights were subject to conditions precedent, the underlying contract was binding from inception and protected by law, including doctrines that prevent a promisor from frustrating fulfillment of the condition.
Supreme Court’s Analysis on Enforceability
Drawing on American and Philippine precedents (Wilson v. Wurlitzer Co.; Zwolanek v. Baker Mfg. Co.; Liebenow v. Philippine Vegetable Oil Co.), the Court ruled that the Company could not repudiate its promise midstream. Where an offer induces substantial action and the promisee is prevented by the promisor’s conduct from completing conditions, equity demands enforcement or compensation on quantum meruit. The absence of an express reservation to amend or terminate the plan distinguished this case from decisions upholding unilateral modification rights.
Equitable Distribution of Pension Benefits
Balancing the Company’s financial hardship agai
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Facts
- Respondents Crispin Jeturian and about sixty other prewar employees filed Petition No. 639-V in the Court of Industrial Relations in 1951 against petitioner Philippine Long Distance Telephone Company (PLDT).
- They claimed (1) monetary benefits under a pension plan established September 18, 1923, by the predecessor company Philippine Telephone and Telegraph Co., later adopted by PLDT, and (2) salaries alleged due from January 1946.
- None of the petitioners had met the plan’s retirement age and service requirements by January 1, 1942, when World War II broke out.
- During the Japanese occupation, at the instruction of the company’s manager, Major Stevenot, petitioners continued working but were not recalled or re-employed when PLDT resumed control in 1946.
The 1923 Employees’ Pension Plan
- Adopted September 18, 1923, by Philippine Telephone and Telegraph Co., later assumed by PLDT.
- Retirement eligibility: male employees (native or other brown-skinned race) age 50 with 20 years’ service; female employees age 45 with 20 years’ service, upon their request or at directors’ discretion.
- Pension rate: 1½ % of average annual pay during the last five years (or average of five highest years), payable from retirement until death.
- Disability pensions provided but not at issue.
- Section 5 general provisions:
- No vested right to continued employment or pension until conditions are met.
- No assignment of pension rights allowed.
- Directors may suspend or terminate pensions for gross misconduct or prejudice to company interests.
- Unpaid absences (other than authorized leave or temporary lay-off) break the continuity of service unless directors otherwise determine.
- Temporary lay-off for force reduction does not break continuity if re-employment occurs within company rules (maximum one year).
Provident Reserve Account
- PLDT maintained a “Provident Reserve” in its books for pension funding.
- Balance as of October 31, 1941: ₱221,074.14 (estimated to be ₱224,074.14 by December 31, 1941).
Discontinuance of the Pension Plan
- On November 6, 1945, PLDT’s Board of Directors resolved to discontinue the Employees’ Pension Plan and all payments there