August 2009 Philippine Supreme Court Decisions on Commercial Law, Tax Law and Labor Law

Here are selected August 2009 Philippine Supreme Court decisions on commercial law, tax law and labor law:

Commercial Law

Insurance; insurable interest. Insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.  Violeta R. Lalican vs. The Insular Life Assurance Company Limited, as represented by the President Vicente R. Avilon, G.R. No. 183526, August 25, 2009.

Insurance; reinstatement. To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. Both the Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy. In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good health.

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests with Malaluan, does not constitute a special circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the courts consist simply in enforcing and carrying out the contracts actually made.  Violeta R. Lalican vs. The Insular Life Assurance Company Limited, as represented by the President Vicente R. Avilon, G.R. No. 183526, August 25, 2009.

Officers; personal liability. It is settled that in the absence of malice, bad faith, or specific provision of law, a director or an officer of a corporation cannot be made personally liable for corporate liabilities. Gustilo and Castro, as corporate officers of Lowe, have personalities which are distinct and separate from that of Lowe’s. Hence, in the absence of any evidence showing that they acted with malice or in bad faith in declaring Mutuc’s position redundant, Gustilo and Castro are not personally liable for the monetary awards to Mutuc. Lowe, Inc., et al. vs. Court of Appeals and Irma Mutuc, G.R. Nos. 164813 & G.R. No. 174590, August 14, 2009.

Tax Law

Stamp tax;  time deposit.  The UNISA – the special savings account of Metrobank, granting a higher tax rate to depositors able to maintain the required minimum deposit balance for the specified holding period, and evidenced by a passbook – is a certificate of deposit bearing interest, already subject to DST even under the then Section 180 of the NIRC. Hence, the assessment by the CIR against Metrobank for deficiency DST on the UNISA for 1999 was only proper.  Metropolitan Bank and Trust Co. vs. Commissioner of Internal Revenue, G.R. No. 165697/G.R. No. 166481, August 4, 2009

Tax amnesty. A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of violation of a tax law. It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority.  Metropolitan Bank and Trust Co. vs. Commissioner of Internal Revenue, G.R. No. 165697/G.R. No. 166481, August 4, 2009.

Taxation; double taxation.  Double taxation means taxing the same property twice when it should be taxed only once; that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business. The City of Manila, Liberty M. Toledo in her capacity as the Treasurer of Manila, et al. vs. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, August 4, 2009.

Labor Law

Benefits; backwages. The issue on the proper computation of Mutuc’s backwages has been rendered moot by our decision that Mutuc was validly dismissed. Backwages is a relief given to an illegally dismissed employee. Since Mutuc’s dismissal is for an authorized cause, she is not entitled to backwages. Lowe, Inc., et al. vs. Court of Appeals and Irma Mutuc, G.R. Nos. 164813 & G.R. No. 174590, August 14, 2009.

Benefits; service charge. Since Dusit Hotel is explicitly mandated by the Article 96 of the Labor Code to pay its employees and management their respective shares in the service charges collected, the hotel cannot claim that payment thereof to its 82 employees constitute substantial compliance with the payment of ECOLA under WO No. 9. Undoubtedly, the hotel employees’ right to their shares in the service charges collected by Dusit Hotel is distinct and separate from their right to ECOLA; gratification by the hotel of one does not result in the satisfaction of the other. Philippine Hoteliers, Inc./Dusit Hotel Nikko-Manila vs. National Union of Workers in Hotel, Restaurant, and Allied Industries (NUWHARAIN-APL-IUF) Dusit Hotel Nikko Chapter, G.R. No. 181972, August 25, 2009.

Dismissal;  illegal strike.  A perusal of the Labor Arbiter’s Decision, which was affirmed in toto by the NLRC, shows that on account of the staging of the illegal strike, individual respondents were all deemed to have lost their employment, without distinction as to their respective participation.

Of the participants in the illegal strike, whether they knowingly participated in the illegal strike in the case of union officers or knowingly participated in the commission of violent acts during the illegal strike in the case of union members, the records do not indicate. While respondent Julius Vargas was identified to be a union officer, there is no indication if he knowingly participated in the illegal strike. The Court not being a trier of facts, the remand of the case to the NLRC is in order only for the purpose of determining the status in the Union of individual respondents and their respective liability, if any.  A. Soriano Aviation vs. Employees Association of A. Soriano Aviation, et al., G.R. No. 166879, August 14, 2009.

Dismissal;  misconduct.  In its 14 February 2000 decision, PNB’s Administrative Adjudication Panel found Maralit guilty of serious misconduct, gross violation of bank rules and regulations, and conduct prejudicial to the best interest of the bank. Maralit violated bank policies which resulted in the return of unfunded checks amounting to P54,950,000. Accordingly, PNB dismissed Maralit from the service with forfeiture of her retirement benefits effective at the close of business hours on 31 December 1998.

PNB may rightfully terminate Maralit’s services for a just cause, including serious misconduct. Serious misconduct is improper conduct, a transgression of some established and definite rule of action, a forbidden act, or a dereliction of duty. Having been dismissed for a just cause, Maralit is not entitled to her retirement benefits. Ester B. Maralit vs. Philippine National Bank, G.R. No. 163788, August 24, 2009.

Dismissal; negligence. Gross negligence connotes want or absence of or failure to exercise even slight care or diligence, or the total absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. To warrant removal from service, the negligence should not merely be gross, but also habitual. A single or isolated act of negligence does not constitute a just cause for the dismissal of the employee.

In JGB and Associates, Inc. v. National Labor Relations Commission, the Court further declared that gross negligence connotes want of care in the performance of one’s duties. Habitual neglect implies repeated failure to perform one’s duties for a period of time, depending upon the circumstances. Fraud and willful neglect of duties imply bad faith of the employee in failing to perform his job, to the detriment of the employer and the latter’s business. Chona Estacio and Leopoldo Manliclic vs. Pampanga I, Electric Cooperative, Inc. and Loliano E. Allas,   G.R. No. 183196. August 19, 2009

Dismissal;  negligence. Under Article 282 (b) of the Labor Code, negligence must be both gross and habitual to justify the dismissal of an employee. Gross negligence is characterized by want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected.

In the present case, petitioner, as respondent’s Accounting Manager, failed to discharge her important duty of remitting SSS/PhilHealth contributions not once but quadruple times, resulting in respondent’s incurring of penalties totaling P18,580.41, not to mention the employees/members’ contributions being unupdated. Eden Llamas vs. Ocean Gateway Maritime and Management, Inc., G.R. No. 179293, August 14, 2009.

Dismissal; redundancy. Redundancy exists when the service of an employee is in excess of what is reasonably demanded by the actual requirements of the business. A redundant position is one rendered superfluous by any number of factors, such as overhiring of workers, decreased volume of business, dropping of a particular product line previously manufactured by the company or phasing out of a service activity formerly undertaken by the enterprise.

For a valid implementation of a redundancy program, the employer must comply with the following requisites: (1) written notice served on both the employee and the DOLE at least one month prior to the intended date of termination; (2) payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher; (3) good faith in abolishing the redundant position; and (4) fair and reasonable criteria in ascertaining what positions are to be declared redundant. Lowe, Inc., et al. vs. Court of Appeals and Irma Mutuc, G.R. Nos. 164813 & G.R. No. 174590, August 14, 2009.

Dismissal; redundancy. We agree with the Labor Arbiter that Lowe employed fair and reasonable criteria in declaring Mutuc’s position redundant. Mutuc, who was hired only on 23 June 2000, did not deny that she was the most junior of all the executives of Lowe. Mutuc also did not present contrary evidence to disprove that she was the least efficient and least competent among all the Creative Directors.

The determination of the continuing necessity of a particular officer or position in a business corporation is a management prerogative, and the courts will not interfere unless arbitrary or malicious action on the part of management is shown. It is also within the exclusive prerogative of management to determine the qualification and fitness of an employee for hiring and firing, promotion or reassignment. Indeed, an employer has no legal obligation to keep more employees than are necessary for the operation of its business.  Lowe, Inc., et al. vs. Court of Appeals and Irma Mutuc, G.R. Nos. 164813 & G.R. No. 174590, August 14, 2009.

Dismissal; resignation.  In termination cases, it is incumbent upon the employer to prove either the non-existence or the validity of dismissal. Inasmuch as respondents alleged petitioner’s resignation as the cause of his separation from work, respondents had the burden to prove the same. The case of the employer must stand or fall on its own merits and not on the weakness of the employee’s defense.

Resignation is the voluntary act of an employee who is in a situation where one believes that personal reasons cannot be sacrificed in favor of the exigency of the service, and one who has no other choice but to dissociate oneself from employment. It is a formal pronouncement or relinquishment of an office, with the intention of relinquishing the office accompanied by the act of relinquishment. As the intent to relinquish must concur with the overt act of relinquishment, the acts of the employee before and after the alleged resignation must be considered in determining whether, in fact, he intended to sever his employment.

In this case, we find no overt act on the part of petitioner that he was ready to sever his employment ties. Baltazar L. Payno vs. Orizon Trading Corp./ Orata Trading and Flordeliza Legaspi, G.R. No. 175345, August 19, 2009.

Dismissal;  transfer.  ATI’s transfer of Bismark IV’s base from Manila to Bataan was, contrary to Aguanza’s assertions, a valid exercise of management prerogative.  The transfer of employees has been traditionally among the acts identified as a management prerogative subject only to limitations found in law, collective bargaining agreement, and general principles of fair play and justice.  Even as the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what are clearly management prerogatives. The free will of management to conduct its own business affairs to achieve its purpose cannot be denied.

On the other hand, the transfer of an employee may constitute constructive dismissal “when continued employment is rendered impossible, unreasonable or unlikely; when there is a demotion in rank and/or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the employee.”

Aguanza’s continued employment was not impossible, unreasonable or unlikely; neither was there a clear discrimination against him.  Among the employees assigned to Bismark IV, it was only Aguanza who did not report for work in Bataan.  Aguanza’s assertion that he was not allowed to “time in” in Manila should be taken on its face: Aguanza reported for work in Manila, where he wanted to work, and not in Bataan, where he was supposed to work.    There was no demotion in rank, as Aguanza would continue his work as Crane Operator.  Furthermore, despite Aguanza’s assertions, there was no diminution in pay. Gualberto Aguanza vs. Asian Terminal, Inc., et al., G.R. No. 163505, August 14, 2009.

Jurisdiction;  Secretary of Labor.  In the case at bar, the Secretary of Labor correctly assumed jurisdiction over the case as it does not come under the exception clause in Art. 128(b) of the Labor Code. While petitioner Jethro appealed the inspection results and there is a need to examine evidentiary matters to resolve the issues raised, the payrolls presented by it were considered in the ordinary course of inspection. While the employment records of the employees could not be expected to be found in Yakult’s premises in Calamba, as Jethro’s offices are in Quezon City, the records show that Jethro was given ample opportunity to present its payrolls and other pertinent documents during the hearings and to rectify the violations noted during the ocular inspection. It, however, failed to do so, more particularly to submit competent proof that it was giving its security guards the wages and benefits mandated by law.

Jethro’s failure to keep payrolls and daily time records in Yakult’s premises was not the only labor standard violation found to have been committed by it; it likewise failed to register as a service contractor with the DOLE, pursuant to Department Order No. 18-02 and, as earlier stated, to pay the wages and benefits in accordance with the rates prescribed by law. Jethro Intelligence & Security Corporation and Yakult, Inc. vs.. The Hon. Secretary of Labor and Employment, et al., G.R. No. 172537, August 14, 2009.

Labor organization. Article 212(g) of the Labor Code defines a labor organization as “any union or association of employees which exists in whole or in part for the purpose of collective bargaining or of dealing with employers concerning terms and conditions of employment.” Upon compliance with all the documentary requirements, the Regional Office or Bureau shall issue in favor of the applicant labor organization a certificate indicating that it is included in the roster of legitimate labor organizations. Any applicant labor organization shall acquire legal personality and shall be entitled to the rights and privileges granted by law to legitimate labor organizations upon issuance of the certificate of registration. Sta. Lucia East Commercial Corporation vs. Hon. Secretary of Labor and Employment, et al., G.R. No. 162355, August 14, 2009.

Labor organization; bargaining unit. A bargaining unit is a “group of employees of a given employer, comprised of all or less than all of the entire body of employees, consistent with equity to the employer, indicated to be the best suited to serve the reciprocal rights and duties of the parties under the collective bargaining provisions of the law.” The fundamental factors in determining the appropriate collective bargaining unit are: (1) the will of the employees (Globe Doctrine); (2) affinity and unity of the employees’ interest, such as substantial similarity of work and duties, or similarity of compensation and working conditions (Substantial Mutual Interests Rule); (3) prior collective bargaining history; and (4) similarity of employment status. Sta. Lucia East Commercial Corporation vs. Hon. Secretary of Labor and Employment, et al., G.R. No. 162355, August 14, 2009.

Strike; illegal strike. It is hornbook principle that the exercise of the right of private sector employees to strike is not absolute (see Section 3 of Article XIII of the Constitution).

Indeed, even if the purpose of a strike is valid, the strike may still be held illegal where the means employed are illegal. Thus, the employment of violence, intimidation, restraint or coercion in carrying out concerted activities which are injurious to the right to property renders a strike illegal. And so is picketing or the obstruction to the free use of property or the comfortable enjoyment of life or property, when accompanied by intimidation, threats, violence, and coercion as to constitute nuisance.

Here, the Union members’ repeated name-calling, harassment and threats of bodily harm directed against company officers and non-striking employees and, more significantly, the putting up of placards, banners and streamers with vulgar statements imputing criminal negligence to the company, which put to doubt reliability of its operations, come within the purview of illegal acts under Art. 264 of the Labor Code and jurisprudence. A. Soriano Aviation vs. Employees Association of A. Soriano Aviation, et al., G.R. No. 166879, August 14, 2009.