May 2009 Decisions on Commercial, Tax and Labor Laws

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

Commercial Law

Collecting bank; liability. A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.” The Supreme Court has repeatedly held that in check transactions, the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements.

When Associated Bank stamped the back of the four checks with the phrase “all prior endorsements and/or lack of endorsement guaranteed,” that bank had for all intents and purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty of an endorser. Being so, Associated Bank cannot deny liability on the checks.  Bank of America, NT and SA Vs. Associated Citizens Bank, et al./Associated Citizens Bank vs. BA Finance Corporation, et al., G.R. Nos. 141001/141018,  May 21, 2009.

Crossed check.    Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. The Supreme Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing may be “special” wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or “general” wherein between two parallel diagonal lines are written the words “and Co.” or none at all, in which case the drawee should not encash the same but merely accept the same for deposit. In Bataan Cigar v. Court of Appeals, the Supreme Court enumerated the effects of crossing a check as follows: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.  Bank of America, NT and SA vs. Associated Citizens Bank, et al./Associated Citizens Bank vs. BA Finance Corporation, et al., G.R. Nos. 141001/141018,  May 21, 2009.

Drawee bank;  liability.  The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the bank and its customer (drawer), to pay the check only to the payee or the payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee named on the check, it does not comply with the terms of the check and violates its duty to charge the drawer’s account only for properly payable items. Thus, the Supreme Court ruled in Philippine National Bank vs. Rodriguez that a drawee should charge to the drawer’s accounts only the payables authorized by the latter; otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount charged to the drawer’s account. Bank of America, NT and SA vs. Associated Citizens Bank, et al./Associated Citizens Bank Vs. BA Finance Corporation, et al., G.R. Nos. 141001/141018,  May 21, 2009.

Intra-corporate controversy. There is no question that the prayers for the appointment of a management receiver, the nullification and amendment of certain provisions of PEAC’s articles of incorporation and by-laws, the recognition of the election of respondent Filchart’s directors, as well as the inspection of the corporate books, are intra-corporate in nature as they pertain to the regulation of corporate affairs.

Even the issue of respondent Filchart’s status as stockholder in PEAC and, concomitantly, its capacity to file SEC Case No. 08-97-5746 must be threshed out in the intra-corporate proceedings. Petitioner GD Express’ allegation that respondent Filchart has not fully paid its subscription to the shares in PEAC and, thus, cannot claim to be a stockholder in PEAC does not oust the SCC of its jurisdiction over the case. For the purpose of determining whether SEC Case No. 08-97-5746 should be heard as an intra-corporate proceeding, the allegation in respondent Filchart’s petition that it is a stockholder in PEAC is deemed hypothetically admitted. It is only after a full-blown hearing that the SCC may determine whether respondent Filchart’s may be considered a bona fide stockholder of PEAC and is entitled to the reliefs prayed for in its petition. 

However, in view of the transfer of jurisdiction over intra-corporate disputes from the SEC to the SCCs, which are the same RTCs exercising general jurisdiction, the question of jurisdiction is no longer decisive to the resolution of the instant case.   GD Express Worldwide N.V., et al. vs. Court of Appeals, et al.G.R. No. 136978,  May 8, 2009.

Tax Law

Tax evasions; tax assessment. A tax assessment is not required before the Department of Justice can file a criminal complaint for tax evasion.  Lucas G. Adamson, et al. vs. Court of Appeals, et al./Commissioner of Internal Revenue vs. Court of Appeals, et al.,  G.R. Nos. 120935/124557, May 21, 2009.

Labor Law

Abandonment. It is well settled that abandonment as a just and valid ground for dismissal requires the deliberate and unjustified refusal of the employee to return for work. Two elements must be present, namely: (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship. The second element is more determinative of the intent and must be evinced by overt acts. Mere absence, not being sufficient, the burden of proof rests upon the employer to show that the employee clearly and deliberately intended to discontinue her employment without any intention of returning. In Samarca v. Arc-Men Industries, Inc, the Supreme Court held that abandonment is a matter of intention and cannot lightly be presumed from certain equivocal acts. 

To constitute abandonment, there must be clear proof of deliberate and unjustified intent to sever the employer-employee relationship.  Clearly, the operative act is still the employee’s ultimate act of putting an end to his employment. However, an employee who takes steps to protest her layoff cannot be said to have abandoned her work because a charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement. When Eleonor filed the illegal dismissal complaint, it totally negated petitioner’s theory of abandonment.

Also, to effectively dismiss an employee for abandonment, the employer must comply with the due process requirement of sending notices to the employee. In Brahm Industries, Inc. vs. NLRC, the Supreme Court ruled that this requirement is not a mere formality that may be dispensed with at will. Its disregard is a matter of serious concern since it constitutes a safeguard of the highest order in response to man’s innate sense of justice.  Petitioner was not able to send the necessary notice requirement to Eleonor. Petitioner’s belated claim that it was not able to send the notice of infraction prior to the filing of the illegal dismissal case cannot simply unacceptable. Based on the foregoing, Eleonor did not abandon her work.  South Davao Development Company, Inc., et al. vs. Sergio L. Gamo, et al., G.R. No. 171814,  May 8, 2009.

Appeal to DOLE Secretary; appeal bond. The purpose of an appeal bond is to ensure, during the period of appeal, against any occurrence that would defeat or diminish recovery by the aggrieved employees under the judgment if subsequently affirmed. The Deed of Assignment in the instant case, like a cash or surety bond, serves the same purpose. First, the Deed of Assignment constitutes not just a partial amount, but rather the entire award in the appealed Order. Second, it is clear from the Deed of Assignment that the entire amount is under the full control of the bank, and not of petitioner, and is in fact payable to the DOLE Regional Office, to be withdrawn by the same office after it had issued a writ of execution. For all intents and purposes, the Deed of Assignment in tandem with the Letter Agreement and Cash Voucher is as good as cash. Third, the execution of the Deed of Assignment, the Letter Agreement and the Cash Voucher were made in good faith, and constituted clear manifestation of petitioner’s willingness to pay the judgment amount.  People’s Broadcasting vs. The Secretary of the Department of Labor and Employment, et al., G.R. No. 179652, May 8, 2009.

Appeal; private carrier. In this case, petitioner availed of the services of LBC, a private carrier, to deliver its notice of appeal to the NLRC. Had petitioner sent its notice of appeal by registered mail, the date of mailing would have been deemed the date of filing with the NLRC. But petitioner, for reasons of its own, chose to send its notice of appeal through a private letter-forwarding agency. Therefore, the date of actual receipt by the NLRC of the notice of appeal, and not the date of delivery to LBC, is deemed to be the date of the filing of the notice of appeal. Since the NLRC received petitioner’s notice of appeal on 26 February 2001, the appeal was clearly filed out of time. Petitioner had thus lost its right to appeal from the decision of the Labor Arbiter and the NLRC should have dismissed its notice of appeal. Charter Chemical and Coating Corporation vs. Herbert Tan and Amalia Sonsing,  G.R. No. 163891,  May 21, 2009.

Compensable illness;  definition. P.D. No. 626, as amended, defines compensable sickness as “any illness definitely accepted as an occupational disease listed by the Commission, or any illness caused by employment subject to proof by the employee that the risk of contracting the same is increased by the working conditions.” Under Section 1 (b), Rule III, of the Amended Rules on Employees’ Compensation, for the sickness and the resulting disability or death to be compensable, the same must be an “occupational disease” included in the list provided (Annex “A”), with the conditions set therein satisfied; otherwise, the claimant must show proof that the risk of contracting it is increased by the working conditions. Otherwise stated, for sickness and the resulting death of an employee to be compensable, the claimant must show either: (1) that it is a result of an occupational disease listed under Annex “A” of the Amended Rules on Employees’ Compensation with the conditions set therein satisfied; or (2) if not so listed, that the risk of contracting the disease is increased by the working conditions.

Here, the CA correctly considered Cardiopulmonary Arrest T/C Fatal Arrythmia in this case a cardiovascular disease – a listed disease under Annex “A” of the Amended Rules on Employees’ Compensation.  The Death Certificate of Judge Vicencio clearly indicates that the cause of his death is Cardiopulmonary Arrest T/C Fatal Arrythmia. Whether, however, the same was a mere complication of his lung cancer as contended by petitioner GSIS or related to an underlying cardiovascular disease is not established by the records of this case and, thus, remains uncertain.  The Supreme Court held that Cardiopulmonary Arrest T/C Fatal Arrythmia, the cause of death stated in Judge Vicencio’s Death Certificate, should be considered as a cardiovascular disease – a listed disease under Annex “A” of the Amended Rules on Employees’ Compensation.  Government Service Insurance System vs. Marian T. VicencioG.R. No. 176832, May 21, 2009.

Compensable illness; evidence. The degree of proof required under P.D. No. 626 is merely substantial evidence, or “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” The Supreme Court hasrepeatedly held that to prove compensability, the claimant must adequately show that the development of the disease is brought largely by the conditions present in the nature of the job. What the law requires is a reasonable work-connection and not a direct causal relation. It is enough that the hypothesis on which the workmen’s claim is based is probable. Medical opinion to the contrary can be disregarded especially where there is some basis in the facts for inferring a work-connection. Probability, not certainty, is the touchstone. Government Service Insurance System (GSIS) vs. Teresita S. De GuzmanG.R. No. 173049,  May 21, 2009.

Due process. Respondent was given ample opportunity to explain and rebut the evidence against him. A full adversarial hearing was not required. The essence of due process is simply the opportunity to be heard. As applied in administrative proceedings, it is merely an opportunity to explain one’s side or an opportunity to seek a reconsideration of the action or ruling complained of. 

Petitioners complied with the twin-notice requirement. The notice dated October 17, 2000 served on respondent was the written notice specifying the charges against him. The subsequent notice dated February 7, 2001 (notice of adjudication specifying therein the causes for respondent’s termination and the decision to dismiss him) served as the written notice of termination. In view of respondent’s valid dismissal due to serious misconduct and loss of trust and confidence, respondent is not entitled to separation pay.  Telecommunications Distributors Specialist, Inc., et al. vs. Raymund GarrielG.R. No. 174981,  May 25, 2009.

Employer-employee relationship; evidence. It has long been established that in administrative and quasi-judicial proceedings, substantial evidence is sufficient as a basis for judgment on the existence of employer-employee relationship. Substantial evidence, which is the quantum of proof required in labor cases, is “that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.” No particular form of evidence is required to prove the existence of such employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted. Hence, while no particular form of evidence is required, a finding that such relationship exists must still rest on some substantial evidence. Moreover, the substantiality of the evidence depends on its quantitative as well as its qualitative aspects.

In the instant case, save for respondent’s self-serving allegations and self-defeating evidence, there is no substantial basis to warrant the Regional Director’s finding that respondent is an employee of petitioner.  People’s Broadcasting vs. The Secretary of the Department of Labor and Employment, et al., G.R. No. 179652, May 8, 2009.

Employer-employee relationship;  existence. In order to determine the existence of an employer-employee relationship, the Court has frequently applied the four-fold test: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so called “control test,” which is considered the most important element.

From the time they were hired by petitioner corporation up to the time that they were reassigned to work under Gamo’s supervision, their status as petitioner corporation’s employees did not cease. Likewise, payment of their wages was merely coursed through Gamo. As to the most determinative test―the power of control, it is sufficient that the power to control the manner of doing the work exists, it does not require the actual exercise of such power. In this case, it was in the exercise of its power of control when petitioner corporation transferred the copra workers from their previous assignments to work as copraceros. It was also in the exercise of the same power that petitioner corporation put Gamo in charge of the copra workers although under a different payment scheme. Thus, it is clear that an employer-employee relationship has existed between petitioner corporation and respondents since the beginning and such relationship did not cease despite their reassignments and the change of payment scheme.  South Davao Development Company, Inc., et al. vs. Sergio L. Gamo, et al., G.R. No. 171814,  May 8, 2009.

Employer-employee relationship; power of DOLE to determine. The DOLE in the exercise of its visitorial and enforcement power somehow has to make a determination of the existence of an employer-employee relationship. Such prerogatival determination, however, cannot be coextensive with the visitorial and enforcement power itself. Indeed, such determination is merely preliminary, incidental and collateral to the DOLE’s primary function of enforcing labor standards provisions. The determination of the existence of employer-employee relationship is still primarily lodged with the NLRC. This is the meaning of the clause “in cases where the relationship of employer-employee still exists” in Art. 128 (b).

Thus, before the DOLE may exercise its powers under Article 128, two important questions must be resolved: (1) Does the employer-employee relationship still exist, or alternatively, was there ever an employer-employee relationship to speak of; and (2) Are there violations of the Labor Code or of any labor law?  The existence of an employer-employee relationship is a statutory prerequisite to and a limitation on the power of the Secretary of Labor, one which the legislative branch is entitled to impose.

The rationale underlying this limitation is to eliminate the prospect of competing conclusions of the Secretary of Labor and the NLRC, on a matter fraught with questions of fact and law, which is best resolved by the quasi-judicial body, which is the NRLC, rather than an administrative official of the executive branch of the government. If the Secretary of Labor proceeds to exercise his visitorial and enforcement powers absent the first requisite, as the dissent proposes, his office confers jurisdiction on itself which it cannot otherwise acquire. People’s Broadcasting vs. The Secretary of the Department of Labor and Employment, et al., G.R. No. 179652, May 8, 2009.

Independent contractor. There is permissible job contracting when a principal agrees to put out or farm out with a contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job or work service is to be performed within or outside the premises of the principal. To establish the existence of an independent contractor, we apply the following conditions: first, the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and second, the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business.  

The Implementing Rules and Regulation of the Labor Code defines investment—as tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work, or service contracted out. The investment must be sufficient to carry out the job at hand.

In the case at bar, Gamo and the copra workers did not exercise independent judgment in the performance of their tasks. The tools used by Gamo and his copra workers like the karit, bolo, pangbunot, panglugit and pangtapok are not sufficient to enable them to complete the job. Reliance on these primitive tools is not enough. In fact, the accomplishment of their task required more expensive machineries and equipment, like the trucks to haul the harvests and the drying facility, which petitioner corporation owns. South Davao Development Company, Inc., et al. vs. Sergio L. Gamo, et al., G.R. No. 171814,  May 8, 2009.

Loss of trust and confidence. Petitioner cites Article 282 of the Labor Code, specifically loss of trust and confidence as the ground for validly dismissing respondent. Under the law, loss of confidence must be based on “fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.” In this regard, the Supreme Court has ruled that ordinary breach does not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without any justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.

Here, respondent was investigated on and dismissed for misappropriation of company funds through falsification of company documents, as shown in the termination letter. Records, nevertheless, neither showed nor convinced us that there was misappropriation of funds that benefited anybody which warranted the dismissal of respondent for the first offense. Respondent admittedly committed padding of accounts and/or paper renewal, which respondent claims to be a practice among salesmen and such claim was not disputed by petitioner. The paper renewal committed by respondent may be considered as falsification, but we agree with the Labor Arbiter and the CA that such paper renewal did not amount to misappropriation that could justify outright dismissal for the first offense, as what petitioner did to respondent. Otherwise, the company rules would not have separated these two offenses under Rule Nos. 15 and 16. Besides, we agree with the CA that although petitioner did in fact violate company Rule No. 15 by falsifying company records and documents through paper renewal, such falsification has to be qualified.  San Miguel Corporation vs. NLRC, et al.,  G.R. No. 153983, May 26, 2009.

Serious misconduct. Respondent’s acts of forging subscribers’ signatures, attempting to cover up his failure to secure their signatures on the coverage waivers, selling a personally owned mobile phone to a company customer (a defective one at that) and attempting to connive with other employees to cover up his illicit schemes were serious acts of dishonesty. Respondent’s acts clearly constituted serious misconduct which is a ground for termination of employment by an employer. Respondent’s acts were likewise grounds for loss of trust and confidence, another valid cause for termination of employment. Only employees occupying positions of trust and confidence or those who are routinely charged with the care and custody of the employer’s money or property may be validly dismissed for this reason. Telecommunications Distributors Specialist, Inc., et al. vs. Raymund Garriel, G.R. No. 174981,  May 25, 2009.