July 2009 Philippine Supreme Court Decisions on Commercial, Tax and Labor Laws

Here are selected July 2009 Philippine Supreme Court decisions on commercial, tax and labor laws:

Commercial Law

Board action.  A corporate loan entered into by the President without board approval is binding on the corporation when the President is authorized under the by-laws to enter into loans on behalf of the corporation. Cebu Mactan Members Center, Inc. vs. Masahiro Tsukahara, G.R. No. 159624, July 17, 2009.

Tax Law

Franchise tax.  Jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The “in lieu of all taxes” clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority.  Smart Communications, Inc., vs. The City of Davao, represented by its Mayor Hon. Rodrigo Duterte and the Sangguniang Panlunsod of Davao City, G.R. No. 155491, July 21, 2009.

Minimum corporate income tax. Under its charter, Philippine Airlines is exempt from the minimum corporate income tax. Commissioner of Internal Revenue vs.. Philippine Airlines, Inc., G.R. No. 180066, July 7, 2009.

Overseas communications tax.  Section 13 of Presidential Decree No. 1590, granting respondent tax exemption, is clearly all-inclusive. The basic corporate income tax or franchise tax paid by respondent shall be “in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future x x x,” except only real property tax.  Even a meticulous examination of Presidential Decree No. 1590 will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest income or excluding from said exemption the overseas communications tax.  Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (PAL), G.R. No. 180043, July 14, 2009.

Real property tax; entity with personality to protest assessment. The liability for taxes generally rests on the owner of the real property at the time the tax accrues. This is a necessary consequence that proceeds from the fact of ownership. However, personal liability for realty taxes may also expressly rest on the entity with the beneficial use of the real property, such as the tax on property owned by the government but leased to private persons or entities, or when the tax assessment is made on the basis of the actual use of the property. In either case, the unpaid realty tax attaches to the property but is directly chargeable against the taxable person who has actual and beneficial use and possession of the property regardless of whether or not that person is the owner.

In the present case, the NPC, contrary to its claims, is neither the owner nor the possessor/user of the subject machineries.  National Power Corporation  vs. Province of Quezon and Municipality of Pabgilao, G.R. No. 171586, July 15, 2009.

Real property tax;  exemption.   NPC’s claim of tax exemptions is completely without merit.  To successfully claim exemption under Section 234(c) of the Local Government Code, the claimant must prove two elements:  (a)  the machineries and equipment are actually, directly, and exclusively used by local water districts and government-owned or controlled corporations; and  (b)  the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power.

As applied to the present case, the government-owned or controlled corporation claiming exemption must be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power.  Neither the NPC nor Mirant satisfies both requirements. Although the plant’s machineries are devoted to the generation of electric power, by the NPC’s own admission and as previously pointed out, Mirant – a private corporation – uses and operates them.  That Mirant operates the machineries solely in compliance with the will of the NPC only underscores the fact that NPC does notactually, directly, and exclusively use them.  The machineries must be actually, directly, and exclusively used by the government-owned or controlled corporation for the exemption under Section 234(c) to apply.  National Power Corporation  vs. Province of Quezon and Municipality of Pabgilao, G.R. No. 171586, July 15, 2009.

Real property tax;  sale of real property.  Section 83 of Presidential Decree No. 464 states that the Regional Trial Court shall not entertain any complaint assailing the validity of a tax sale of real property unless the complainant deposits with the court the amount for which the said property was sold plus interest equivalent to 20% per annum from the date of sale until the institution of the complaint. This provision was adopted in Section 267 of the Local Government Code, albeit the increase in the prescribed rate of interest to 2% per month.

National Housing Authority v. Iloilo City holds that the deposit required under Section 267 of the Local Government Code is a jurisdictional requirement, the nonpayment of which warrants the dismissal of the action. Because petitioners in this case did not make such deposit, the RTC never acquired jurisdiction over the complaints.

Consequently, inasmuch as the tax sale was never validly challenged, it remains legally binding.  Spouses Francisco and Betty Wong and Spouses Joaquin and Lolita Wong vs. City of Iloilo, et al.G.R. No. 161748, July 3, 2009.

Tax credit;  irrevocability. Section 76 of the NIRC of 1997 gives two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are: (1) filing for a tax refund or (2) availing of a tax credit.

Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable.  It mentioned no exception or qualification to the irrevocability rule.

Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, “no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.”

The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. Commissioner of Internal Revenue vs. Bank of the Philippine Islands, G.R. No. 178490, July 7, 2009.

Tax lien; unpaid customs duties. The vessel first entered the Philippines through the Port of Mactan and it was the Collector of the Port of Mactan who first acquired jurisdiction over the vessel when he approved the vessel’s temporary release from the custody of the BOC, after Glory Shipping Lines filed Ordinary Re-Export Bond No. C(9) 121818.

When this re-export bond expired on March 22, 1994, Glory Shipping Lines filed a letter dated May 10, 1994 guaranteeing the renewal of the re-export bond on or before May 20, 1994, otherwise the duties, taxes and other charges on the vessel would be paid. Therefore, when May 20, 1994 came and went without the renewal of the vessel’s re-export bond, the obligation to pay customs duties, taxes and other charges on the importation in the amount of P1,296,710.00 arose and attached to the vessel. Undoubtedly, this lien was never paid by Glory Shipping Lines, thus it continued to exist even after the vessel was sold to the respondent.  Secretary of Finance vs. Oro Maura Shipping Lines, G.R. No. 156946, July 15, 2009.

Labor Law

Dismissal; loss of confidence. Loss of confidence applies only to cases involving employees who occupy positions of trust and confidence, or to those situations where the employee is routinely charged with the care and custody of the employer’s money or property. To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a willful breach. A breach is willful if it is done intentionally, knowingly and purposely, without justifiable excuse.

In dismissing an employee on the ground of loss of confidence, it is sufficient that the employer has a reasonable ground to believe, based on clearly established facts, that the employee is responsible for the misconduct and the nature of his participation renders him unworthy of the trust and confidence demanded by his position. If the employer has ample reason to distrust the employee, the labor tribunal cannot justly deny the former the authority to dismiss the latter.  Renita Del Rosario, et al. vs. Makati Cinema Square Corporation, G.R. No. 170014.  July 3, 2009.

Dismissal; loss of confidence. To be a valid ground for dismissal, loss of trust and confidence must be based on a willful breach of trust and founded on clearly established facts. A 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. It must rest on substantial grounds and not on the employer’s arbitrariness, whims, caprices or suspicion; otherwise, the employee would eternally remain at the mercy of the employer. Such ground of dismissal has never been intended to afford an occasion for abuse because of its subjective nature. Davao Contractors Development Cooperative (DACODECO), represented by Chairman of the Board Engr. L. Chavez vs. Marilyn A. Pasawa G.R. No. 172174, July 9, 2009.

Dismissal; probationary employee. Under Article 281 of the Labor Code, a probationary employee can be legally dismissed either: (1) for a just cause; or (2) when he fails to qualify as a regular employee in accordance with the reasonable standards made known to him by the employer at the start of the employment. Nonetheless, the power of the employer to terminate the services of an employee on probation is not without limitations. First, this power must be exercised in accordance with the specific requirements of the contract. Second, the dissatisfaction on the part of the employer must be real and in good faith, not feigned so as to circumvent the contract or the law. Third, there must be no unlawful discrimination in the dismissal. In termination cases, the burden of proving just or valid cause for dismissing an employee rests on the employer.

Here, petitioner did not present proof that respondent was duly notified, at the time of her employment, of the reasonable standards she needed to comply with for her continued employment.  Davao Contractors Development Cooperative (DACODECO), represented by Chairman of the Board Engr. L. Chavez vs. Marilyn A. Pasawa, G.R. No. 172174, July 9, 2009.

Employee benefits; compensable illness. In any determination of compensability, the nature and characteristics of the job are as important as raw medical findings and a claimant’s personal and social history. This is a basic legal reality in workers’ compensation law.

What the law requires is a reasonable work connection and not direct causal relation. Probability, not the ultimate degree of certainty, is the test of proof in compensation proceedings. For, in interpreting and carrying out the provisions of the Labor Code and its Implementing Rules and Regulations, the primordial and paramount consideration is the employee’s welfare. To safeguard the worker’s rights, any doubt on the proper interpretation and application must be resolved in favor of labor.  Government Service Insurance System vs. Salvador A. De Castro, G.R. No. 185035, July 15, 2009.

Employee benefits; retirement. Retirement is the result of a bilateral act of the parties, a voluntary agreement between the employer and the employee whereby the latter, after reaching a certain age, agrees to sever his or her employment with the former. Retirement is provided for under Article 287 of the Labor Code, as amended by Republic Act No. 7641, or is determined by an existing agreement between the employer and the employee.

In this case, respondent offered the Special Separation Incentive Program (SSIP) to overhaul the bank structure and to allow it to effectively compete with local peer and foreign banks. SSIP was not compulsory on employees. Employees who wished to avail of the SSIP were required to accomplish a form for availment of separation benefits under the SSIP and to submit the accomplished form to the Personnel Administration and Industrial Relations Division (PAIRD) for approval.

Petitioner voluntarily availed of the SSIP.  Marcelino A. Magdadaro  vs. Philippine National Bank, G.R. No. 166198, July 17, 2009.

Employee benefits;  salary increase.  It is a familiar and fundamental doctrine in labor law that the collective bargaining agreement (CBA) is the law between the parties and they are obliged to comply with its provisions. If the terms of a contract, in this case the CBA, are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of their stipulations shall control.

A reading of the above-quoted provision of the CBA shows that the parties agreed that 80% of the TIP or at the least the amount of P1,500 is to be allocated for individual salary increases.

The CBA does not speak of any other benefits or increases which would be covered by the employees’ share in the TIP, except salary increases. University of San Agustin, Inc. vs. University of San Agustin Employees Union-FFW, G.R. No. 177594, July 23, 2009.

Employee benefits; seamen. The terms and conditions of a seafarer’s employment is governed by the provisions of the contract he signs at the time he is hired. But unlike that of others, deemed written in the seafarer’s contract is a set of standard provisions set and implemented by the POEA, called the Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean-Going Vessels, which are considered to be the minimum requirements acceptable to the government for the employment of Filipino seafarers on board foreign ocean-going vessels. Thus, the issue of whether petitioner Nisda can legally demand and claim disability benefits from respondents Sea Serve and ADAMS for an illness suffered is best addressed by the provisions of his POEA-SEC, which incorporated the Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean-Going Vessels. When petitioner Nisda was employed on 7 August 2001, it was the 2000 Amended Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean-Going Vessels (hereinafter referred to simply as Amended Standard Terms and Conditions for brevity) that applied and were deemed written in or appended to his POEA-SEC. Carlos N. Nisda vs. Sea Serve Maritime Agency, et al., G.R. No. 179177, July 23, 2009.

Employee benefits;  service award.  Respondent’s service award under Article 87 of the Saudi Labor Law has already been paid. The severance pay received by respondent was his service award.  LWV Construction Corporation vs. Marcelo B. Dupo, G.R. No. 172342, July 13, 2009.

Employees; project employee. The principal test for determining whether a particular employee is a project employee or a regular employee is whether the project employee was assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time the employee is engaged for the project. “Project” may refer to a particular job or undertaking that is within the regular or usual business of the employer, but which is distinct and separate and identifiable as such from the undertakings of the company. Such job or undertaking begins and ends at determined or determinable times.

Here, the specific projects for which respondent was hired and the periods of employment were specified in his employment contracts. The services he rendered, the duration and scope of each employment are clear indications that respondent was hired as a project employee.  Alcatel Philippines, Inc.  vs. Rene R. Relos, G.R. No. 164315, July 3, 2009.

Jurisdiction; Regional Director. Respondent contested the findings of the labor inspector during and after the inspection and raised issues the resolution of which necessitated the examination of evidentiary matters not verifiable in the normal course of inspection. Hence, the Regional Director was divested of jurisdiction and should have endorsed the case to the appropriate Arbitration Branch of the NLRC. Considering, however, that an illegal dismissal case had been filed by petitioners wherein the existence or absence of an employer-employee relationship was also raised, the CA correctly ruled that such endorsement was no longer necessary. Victor Meteoro, et al. vs. Creative Creatures, Inc., G.R. No. 171275.  July 13, 2009

Labor claim;  deed of release.  As a rule, deeds of release or quitclaim cannot bar employees from demanding benefits to which they are legally entitled or from contesting the legality of their dismissal. The acceptance of those benefits would not amount to estoppel. Furthermore, there is a gross disparity between the amount actually received by petitioner as compared to the amount owing him as initially computed by VA Calipay. The amount of the settlement is indubitably unconscionable; hence, ineffective to bar petitioner from claiming the full measure of his legal rights. In any event, the Supreme Court deemed it appropriate that the amount he received as consideration for signing the quitclaim be deducted from his monetary award.  Rafael Rondina vs. Court of Appeals former special 19th Division, Unicraft Industries International Corp., Inc. Robert Dino, Cristina Dino, Michael Lloyd Dino, Allan Dino and Mylene June Dino, G.R. No. 172212,  July 9, 2009.

Labor claim; liability of corporate officers. To hold a director personally liable for the debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. Bad faith is never presumed. Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty through some ill motive or interest. Bad faith partakes of the nature of fraud.  Rafael Rondina vs. Court of Appeals former special 19th Division, Unicraft Industries International Corp., Inc. Robert Dino, Cristina Dino, Michael Lloyd Dino, Allan Dino and Mylene June Dino, G.R. No. 172212,  July 9, 2009.

Strike; illegal strike. It is undisputed that the notice of strike was filed by the union without attaching the counter-proposal of the company. This, according to petitioners and the labor arbiter, made the ensuing strike of respondents illegal because the notice of strike of the union was defective.

The Implementing Rules use the words “as far as practicable.” In this case, attaching the counter-proposal of the company to the notice of strike of the union was not practicable. It was absurd to expect the union to produce the company’s counter-proposal which it did not have. One cannot give what one does not have. Indeed, compliance with the requirement was impossible because no counter-proposal existed at the time the union filed a notice of strike. The law does not exact compliance with the impossible. Nemo tenetur ad impossibile.

Another error committed by the labor arbiter was his declaration that respondents, as union officers, automatically severed their employment with the company due to the alleged illegal strike. In the first place, there was no illegal strike. Moreover, it is hornbook doctrine that a mere finding of the illegality of the strike should not be automatically followed by the wholesale dismissal of the strikers from employment.  Club Filipino, Inc. and Atty. Roberto F. De Leon  vs. Benjamin Bautista, et al., G.R. No. 168406, July 13, 2009.

Union; check-off. Article 222(b) of the Labor Code, as amended, prohibits the payment of attorney’s fees only when it is effected through forced contributions from the employees from their own funds as distinguished from union funds. Hence, the general rule is that attorney’s fees, negotiation fees, and other similar charges may only be collected from union funds, not from the amounts that pertain to individual union members. As an exception to the general rule, special assessments or other extraordinary fees may be levied upon or checked off from any amount due an employee for as long as there is proper authorization by the employee.

A check-off is a process or device whereby the employer, on agreement with the Union, recognized as the proper bargaining representative, or on prior authorization from the employees, deducts union dues or agency fees from the latter’s wages and remits them directly to the Union. Its desirability in a labor organization is quite evident. The Union is assured thereby of continuous funding.  The system of check-off is primarily for the benefit of the Union and, only indirectly, for the individual employees.

Here, the requisites for a valid levy and check-off of special assessments, laid down by Article 241(n) and (o), respectively, of the Labor Code, as amended, have not been complied with in the case at bar. To recall, these requisites are: (1) an authorization by a written resolution of the majority of all the union members at the general membership meeting duly called for the purpose; (2) secretary’s record of the minutes of the meeting; and (3) individual written authorization for check-off duly signed by the employee concerned. Eduardo J. Mariño, Jr. et al. vs. Gil Y. Gamilla, et al., G.R. No. 149763, July 7, 2009.