April 2009 Decisions on Commercial, Labor and Tax Laws

Here are selected April 2009 decisions of the Supreme Court on commercial, labor and tax laws:

Commercial Law

BOT;  public bidding. In a situation where there is no other competitive bid submitted for the BOT project, that project would be awarded to the original proponent thereof.  However, when there are competitive bids submitted, the original proponent must be able to match the most advantageous or lowest bid; only when it is able to do so will the original proponent enjoy the preferential right to the award of the project over the other bidder.  These are the general circumstances covered by Section 4-A of Republic Act No. 6957, as amended. In the instant case, AEDC may be the original proponent of the NAIA IPT III Project; however, the Pre-Qualification Bids and Awards Committee (PBAC) also found the People’s Air Cargo & Warehousing Co., Inc. Consortium (Paircargo), the predecessor of PIATCO, to be a qualified bidder for the project.  Upon consideration of the bid of Paircargo/PIATCO, the PBAC found the same to be far more advantageous than the original offer of AEDC.  It is already an established fact in Agan that AEDC failed to match the more advantageous proposal submitted by PIATCO by the time the 30-day working period expired on 28 November 1996; and since it did not exercise its right to match the most advantageous proposal within the prescribed period, it cannot assert its right to be awarded the project. Asia’s Emerging Dragon Corp. vs. DOTC, et al./Republic of the Philippines etc. et al. vs. Hon. CA, et al., G.R. No. 169914/G.R. No. 174166,  April 7, 2009.

Dividends. Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a certain future date, as the case may be, unless the parties have agreed otherwise. A transfer of shares which is not recorded in the books of the corporation is valid only as between the parties; hence, the transferor has the right to dividends as against the corporation without notice of transfer but it serves as trustee of the real owner of the dividends, subject to the contract between the transferor and transferee as to who is entitled to receive the dividends. Imelda O. Cojuangco, Prime Holdings, Inc., and the Estate of Ramon U. Cojuangco vs. Sandiganbayan, Republic of the Philippines and the Sheriff of Sandiganbayan, G.R. No. 183278, April 24, 2009.

Holdover. As a general rule, officers and directors of a corporation hold over after the expiration of their terms until such time as their successors are elected or appointed. Sec. 23 of the Corporation Code contains a provision to this effect. The holdover doctrine has, to be sure, a purpose which is at once legal as it is practical. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders.

Authorities are almost unanimous that one who continues with the discharge of the functions of an office after the expiration of his or her legal term––no successor having, in the meantime, been appointed or chosen––is commonly regarded as a de factoofficer, even where no provision is made by law for his holding over and there is nothing to indicate the contrary. By fiction of law, the acts of such de facto officer are considered valid and effective. Dr. Hans Christian M. Señeres vs. Commission on Elections and Melquiades A. Robles, G.R. No. 178678, April 16, 2009.

Insurance Contract. It is settled that where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer.  The direct liability of the insurer under indemnity contracts against third party liability does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations.  The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy. The third-party liability of the insurer is only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily liable for anything beyond that amount.  Any award beyond the insurance coverage would already be the sole liability of the insured and/or the other parties at fault. The Heirs of George Y. Poe vs. Malayan Insurance Co. Inc.G.R. No. 156302, April 7, 2009.

Intra-corporate controversy.  A corporate officer’s dismissal or removal is always a corporate act and/or an intra-corporate controversy, over which the Securities and Exchange Commission [SEC] (now the Regional Trial Court) has original and exclusive jurisdiction. Atty. Virgilio R. Garcia vs. Eastern Telecommunications Philippines, Inc. et al./Eastern Telecommunications Philippines Inc. vs. Atty. Virgilio R. Garcia, G.R. No. 173115/G.R. No. 173163-64, April 16, 2009.

Non-stock corporations.  A non-stock corporation may seize and dispose of the membership share of a fully-paid member on account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws (even if not so provided in the Articles of Incorporation). Valley Golf & Country Club, Inc. vs. Rosa O. Vda. CaramG.R. No. 158805, April 16, 2009.

Liability of corporate officers. Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation.  There was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation, or that David was guilty of gross negligence or bad faith.  Armando David vs. National Federation of Labor Union, et al., G.R. No. 148263 and 148271-72,   April 21, 2009.

Labor Law

Backwages. The Court agrees with the NLRC’s conclusion that petitioner is not entitled to backwages. He never bothered to redeem his driver’s license at the soonest possible time when there was no showing that he was unlawfully prevented by respondent from doing so.  Thus, petitioner should not be paid for the time he was not working.  The Court has held that where the failure of employees to work was not due to the employer’s fault, the burden of economic loss suffered by the employees should not be shifted to the employer.  Each party must bear his own loss. It would be unfair to allow petitioner to recover something he has not earned and could not have earned, since he could not discharge his work as a driver without his driver’s license. Respondent should be exempted from the burden of paying backwages. Bernardino V. Navarro vs. P.V. Pajarillo Liner and NLRC, G.R. No. 164681,  April 24, 2009.

Breach of trust. The documentary evidence of petitioner indubitably establishes that respondent committed payroll padding, sold canepoints without the knowledge and consent of management and misappropriated the proceeds thereof, and rented tractor to another farm and misappropriated the rental payments therefor.  These acts constitute willful breach by the employee of the trust reposed in him by his employer – a ground for termination of employment. Bacolod-Talisay Realty and Development Corp., et al. vs. Romeo Dela CruzG.R. No. 179563,  April 30, 2009.

CBA.  Just like any other contract, a CBA is the law between the contracting parties and compliance therewith in good faith is required by law. HFS Phlippines, Inc., Ruben T. Del Rosario and IUM Ship Management vs. Ronaldo R. PilarG.R. No. 168716, April 16, 2009.

Due process.  The Court of Appeals correctly held that petitioners did not comply with the proper procedure in dismissing respondent.  In other words, petitioners failed to afford respondent due process by failing to comply with the twin notice requirement in dismissing him, viz:  (1) a first notice to apprise him of his fault, and (2) a second notice to him that his employment is being terminated.   The letter dated June 3, 1997 sent to respondent was a letter of suspension.  It did not comply with the required first notice, the purpose of which is to apprise the employee of the cause for termination and to give him rasonable opportunity to explain his side.   The confrontation before the barangay council did not constitute the first notice – to give the employee ample opportunity to be heard with the assistance of counsel, if he so desires.  Hearings before thebarangay council do not afford the employee ample opportunity to be represented by counsel if he so desires because Section 415 of the Local Government Code mandates that “[i]n all katarungang pambarangay proceedings, the parties must appear in person without the assistance of counsel or his representatives, except for minors and incompetents who may be assisted by their next-of-kin who are not lawyers.”  The requirement of giving respondent the first notice not having been complied with, discussions of whether the second notice was complied with is rendered unnecessary. Bacolod-Talisay Realty and Development Corp., et al. vs. Romeo Dela CruzG.R. No. 179563,  April 30, 2009.

Due process; lack of jurisdiction.  The proceedings before the Labor Arbiter deprived David of due process.  MACLU and NAFLU filed their complaint against MAC on 12 August 1993.  Arbiter Ortiguerra’s decision shows that MACLU, NAFLU, and MAC were the only parties summoned to a conference for a possible settlement.  Because of MAC’s failure to appear,  Arbiter Ortiguerra deemed the case submitted for resolution.  David’s resignation from MAC took effect on 15 October 1993.  NAFLU and MACLU moved to implead Carag and David for the first time only in their position paper dated 3 January 1994.  David did not receive any summons and had no knowledge of the decision against him. The records of the present case fail to show any order from Arbiter Ortiguerra summoning David to attend the preliminary conference. Despite this lack of summons, in her Decision dated 17 June 1994, Arbiter Ortiguerra not only granted MACLU and NAFLU’s motion to implead Carag and David, she also held Carag and David solidarily liable with MAC. Armando David vs.. National Federation of Labor Union, et al, G.R. No. 148263 and 148271-72,  April 21, 2009.

Hearing.  The guiding principles in connection with the hearing requirement in dismissal cases are:

(a)     “ample opportunity to be heard” means any meaningful opportunity (verbal or written) given to the employee to answer the charges against him and submit evidence in support of his defense, whether in a hearing, conference or some other fair, just and reasonable way;

(b)     a formal hearing or conference becomes mandatory only when requested by the employee in writing or substantial evidentiary disputes exist or a company rule or practice requires it, or when similar circumstances justify it;

(c)      the “ample opportunity to be heard” standard in the Labor Code prevails over the “hearing or conference” requirement in the implementing rules and regulations. Felix B. Perez, et al. Vs. Philippine Telegraph and Telephone Company, G.R. No. 152048, April 7, 2009.

Illegal dismissal;  abandonment.  Petitioner insists that there cannot be any illegal dismissal because in the first place, there was no dismissal to speak of, as it was respondent who abandoned his work, after finding out that he was being investigated for theft.  It is a basic principle that in the dismissal of employees, the burden of proof rests upon the employer to show that the dismissal is for a just cause and failure to do so would necessarily mean that the dismissal is not justified.  Petitioner failed to discharge the burden of proof that complainant was guilty of abandonment. It did not adduce any proof to show that petitioner clearly and unequivocally intended to abandon his job.  It has been repeatedly stressed that for abandonment to be a valid cause for dismissal there must be a concurrence of intention to abandon and some overt act from which it may be inferred that the employee had no more interest to continue working in his job.  An employee who forthwith takes steps to protest his layoff cannot by any logic be said to have abandoned his work.  Otherwise stated, one could not possibly abandon his work and shortly thereafter vigorously pursue his complaint for illegal dismissal. In the instant case, save for the allegation that respondent did not submit him to the investigation and the latter’s failure to return to work as instructed in the 8 February 1999 letter, petitioner was unable to present any evidence which tend to show respondent’s intent to abandon his work.  Neither is the Court convinced that the filing of the illegal dismissal case was respondent’s way to avoid the charge of theft. On the contrary, the filing of the complaint a few days after his alleged dismissal signified respondent’s desire to return to work, a factor which further militates against petitioner’s theory of abandonment. Harbor View Restaurant vs. Reynaldo LabroG.R. No. 168273,  April 30, 2009.

Illegal dismissal; burden of proof. Under the Labor Code, as amended, the requirements for the lawful dismissal of an employee are two-fold, the substantive and the procedural. Not only must the dismissal be for a valid or authorized cause, the rudimentary requirements of due process – notice and hearing – must, likewise, be observed before an employee may be dismissed. One does not suffice; without their concurrence, the termination would, in the eyes of the law, be illegal.

As the employer, petitioner has the burden of proving that the dismissal of petitioner was for a cause allowed under the law and that petitioner was afforded procedural due process.  Petitioner failed to discharge this burden.  Indeed, it failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of individual respondents.  Neither did petitioner show that individual respondents were given ample opportunity to contest the legality of their dismissal.   No notice of such impending termination was ever given to them.  Individual respondents were definitely denied due process.  Having failed to establish compliance with the requirements on termination of employment under the Labor Code, the dismissal of individual respondents was tainted with illegality. Iligan Cement Corporation vs. Iliascor Employees and Workers Union-Southern Philippines Federation of Labor, et al., G.R. No. 158956, April 24, 2009.

Illegal dismissal; penalty. The worst that respondent committed was an inadvertent infraction.  For that, the extreme penalty of dismissal imposed on him by petitioners was grossly disproportionate.  Taking into account the managerial position he held and the prior warning issued to him for failing to communicate with his superiors, the penalty commensurate to the violation he committed should be suspension for three months. Gulf Air Jassim Hindri Abdullah, et al. vs. NLRC, et al., G.R. No. 159687, April 24, 2009.

Intra-union dispute.  Pending the final resolution of the intra-union dispute, respondent’s officers remained duly authorized to conduct union affairs. De La Salle University, et al. vs. De La Salle University Employees Association (DLSUEA-NAFTEU),G.R. No. 177283,  April 7, 2009.

Labor only contracting. We are not convinced that Vedali is an independent contractor. Petitioner failed to present any service contract with Vedali in the proceedings with the Labor Arbiter.  There is nothing on record that Vedali has a substantial capital or investment to actually perform the service under its own account and responsibility. Petitioner is a mere labor-only contractor because it only supplied workers to petitioner to work at its pier. In a labor-only contract, there are three parties involved:  (1) the “labor-only” contractor; (2) the employee who is ostensibly under the employ of the “labor-only” contractor; and (3) the principal who is deemed the real employer.  Under this scheme, the “labor-only” contractor is the agent of the principal. Iligan Cement Corporation vs. Iliascor Employees and Workers Union-Southern Philippines Federation of Labor, et al., G.R. No. 158956,  April 24, 2009.

Liability of corporate officers. Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation.  There was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation, or that David was guilty of gross negligence or bad faith.   Armando David vs. National Federation of Labor Union, et al, G.R. No. 148263 and 148271-72,  April 21, 2009.

Loss of confidence. Loss of trust and confidence, as a valid ground for dismissal, must be based on willful breach of the trust reposed in the employee by his employer.  Such breach is willful if it is done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.  Elsewise stated, it must be based on substantial evidence and not on the employer’s whims or caprices or suspicions; otherwise, the employee would eternally remain at the mercy of the employer.  A condemnation of dishonesty and disloyalty cannot arise from suspicion spawned by speculative inferences. Adam B. Garcia vs. NLRC (Second Division) Legazpi Oil Company, Inc. Romeo F. Mercado and Gus Zuluaga, G.R. No. 172854,  April 16, 2009.

Loss of Confidence.  Without undermining the importance of a shipping order or request, the respondents’ evidence is insufficient to clearly and convincingly establish the facts from which the loss of confidence resulted.  Other than their bare allegations and the fact that such documents came into petitioners’ hands at some point, respondents should have provided evidence of petitioners’ functions, the extent of their duties, the procedure in the handling and approval of shipping requests and the fact that no personnel other than petitioners were involved. There was, therefore, a patent paucity of proof connecting petitioners to the alleged tampering of shipping documents.  The alterations on the shipping documents could not reasonably be attributed to petitioners because it was never proven that petitioners alone had control of or access to these documents. Unless duly proved or sufficiently substantiated otherwise, impartial tribunals should not rely only on the statement of the employer that it has lost confidence in its employee. Felix B. Perez, et al. vs. Philippine Telegraph and Telephone Company,G.R. No. 152048,  April 7, 2009.

Prescription. Articles 1139 to 1155 of the Civil Code provide the general law on prescription of actions.  Under Article 1139, actions prescribe by the mere lapse of time prescribed by law. That law may either be the Civil Code or special laws as specifically mandated by Article 1148.  In labor cases, the special law on prescription is Article 291 of the Labor Code. The Labor Code has no specific provision on when a monetary claim accrues.  Thus, again the general law on prescription applies – Article 1150 of the Civil Code. Juanaria A. Rivera vs. United Laboratories, Inc., G.R. No. 155639,  April 22, 2009.

Resignation.        Resignation is defined as the voluntary act of an employee who finds himself in a situation where he believes that personal reasons cannot be sacrificed in favor of the exigency of the service and he has no other choice but to disassociate himself from his employment. Respondent’s resignation can be gleaned from the unambiguous terms of his letter to Captain Cristino.  Respondent’s bare claim that he was forced to execute his resignation letter deserves no merit. Bare allegations of threat or force do not constitute substantial evidence to support a finding of forced resignation.   That such claim was proferred a year later all the more renders his contention bereft of merit. Virgen Shipping Corporation, et al. vs. Jesus B. Barraquio, G.R. No. 178127, April 16, 2009.

Resignation. Petitioner voluntarily resigned. Her employer cannot be held liable for constructive dismissal. Gloria Artiaga vs. Siliman University and Siliman University Medical Center, G.R. No. 178453,  April 16, 2009.

Security of Tenure. Security of tenure in the career executive service, which presupposes a permanent appointment, takes place upon passing the CES examinations administered by the CES Board. It is that which entitles the examinee to conferment of CES eligibility and the inclusion of his name in the roster of CES eligibles. Under the rules and regulations promulgated by the CES Board, conferment of the CES eligibility is done by the CES Board through a formal board resolution after an evaluation has been done of the examinee’s performance in the four stages of the CES eligibility examinations. Upon conferment of CES eligibility and compliance with the other requirements prescribed by the Board, an incumbent of a CES position may qualify for appointment to a CES rank. Appointment to a CES rank is made by the President upon the Board’s recommendation. It is this process which completes the official’s membership in the CES and confers on him security of tenure in the CES. Petitioner does not seem to have gone through this definitive process.

At this juncture, what comes unmistakably clear is the fact that because petitioner lacked the proper CES eligibility and therefore had not held the subject office in a permanent capacity, there could not have been any violation of petitioner’s supposed right to security of tenure inasmuch as he had never been in possession of the said right at least during his tenure as Deputy Director for Hospital Support Services. Hence, no challenge may be offered against his separation from office even if it be for no cause and at a moment’s notice. Not even his own self-serving claim that he was competent to continue serving as Deputy Director may actually and legally give even the slightest semblance of authority to his thesis that he should remain in office. Be that as it may, it bears emphasis that, in any case, the mere fact that an employee is a CES eligible does not automatically operate to vest security of tenure on the appointee inasmuch as the security of tenure of employees in the career executive service, except first and second-level employees, pertains only to rank and not to the office or position to which they may be appointed. Jose Pepito M. Amores M.D. vs. Civil Service Commission, Board of Trustees of the Lung Center of the Philippines as represented by Hon. Manuel M. Dayrit and Fernando A. Melendres, M.D., G.R. No. 170093,  April 29, 2009

SSS.  The claim for funeral benefits under P.D. No. 626, as amended, which was filed after the lapse of 10 years by the therein petitioner who had earlier filed a claim for death benefits, had not prescribed. Soledad Muños Mesa vs. Social Security System, et al., G.R. No. 160467, April 7, 2009.

Transfer. Jurisprudence recognizes the exercise of management prerogative to transfer or assign employees from one office or area of operation to another, provided there is no demotion in rank or diminution of salary, benefits, and other privileges, and the action is not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause. To determine the validity of the transfer of employees, the employer must show that the transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits.  Should the employer fail to overcome this burden of proof, the employee’s transfer shall be tantamount to constructive dismissal.

We have long stated that the objection to the transfer being grounded solely upon the personal inconvenience or hardship that will be caused to the employee by reason of the transfer is not a valid reason to disobey an order of transfer.  Such being the case, petitioner cannot adamantly refuse to abide by the order of transfer without exposing herself to the risk of being dismissed.  Hence, her dismissal was for just cause in accordance with Article 282(a) of the Labor Code. Aileen G. Herida vs. F4C Pawnshop and Jewelry Store/Marcelino Florete, Jr., G.R. No. 172601, April 16, 2009.

Unfair labor practice; burden of proof. Petitioner makes several allegations that UST committed ULP. The onus probandi falls on the shoulders of petitioner to establish or substantiate such claims by the requisite quantum of evidence. In labor cases as in other administrative proceedings, substantial evidence or such relevant evidence as a reasonable mind might accept as sufficient to support a conclusion is required. In the petition at bar, petitioner miserably failed to adduce substantial evidence as basis for the grant of relief. UST Faculty Union vs. University of Sto. Tomas, Rev. Fr. Rolando De la Rosa, Rev Fr. Rodelio Aligan, Domingo Legaspi, and Merecedes Hinayon, G.R. No. 180892, April 7, 2009.


Excise tax.  Section 145 of the Tax Code, as amended by RA 9334:  (1)  does not violate the equal protection and unformity of taxation clauses;  (2)  does not violate the constitutional prohibition on unfair competition;  and (3)  does not vilate the constitutional prohibition on regresssive and inequitable taxation. British American Tobacco vs. Jose Isidro N. Camacho, et al. G.R. No. 163583,  April 15, 2009.

Real Property Tax.    The NAIA Pasay properties of the Manila International Airport Authority is exempt from real property tax imposed by the City of Pasay.  MIAA is not a government-owned or controlled corporation but a government  instrumentality which is exempt from any kind of tax from the local governments.  Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code.   Under Section 133(o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.  Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code. However, under the same provision,  if MIAA leases its real property to a taxable person, the specific property leased becomes subject to real property tax.   In this case, only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay. Manila International Airport Authority vs. City of Pasay, et al.G.R. No. 163072,  April 2, 2009.

Real Property Tax.  Marcopper Mining’s siltation dam and decant system are not machineries but improvements subject to real property tax. The Provincial Assesor of Marinduque vs. Hon. Court of Appeals, et al., G.R. No. 170532,  April 30, 2009.

Stamp tax.  Pawnshop transactions evidenced by pawn tickets are subject to documentary stamp taxes. H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. No. 171138, April 7, 2009.

Value-added tax.   There is nothing in Section 105 of the old Tax Code that prohibits the inclusion of real properties, together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on which inventory the transitional input tax credit is computed. Fort Bonifacio Development Corp.  vs. Commissioner of Internal Revenue, et al./Fort Bonifacio Development Corp. vs. Commissioner of Internal Revenue et al., G.R. No. 158885/G.R. No. 170680,  April 2, 2009.