Proposed legislation (02): Adverse claims on real property and certain practices of the Register of Deeds and the Land Registration Authority

Index of topics: 1. Background facts; 2. The relevant law on adverse claims - PD 1529 Property Registration Decree; 3. The Supreme Court ruling on adverse claims in Sajonas vs. Court of Appeals; 4. Proposed legislation: Amendments to Section 70 of PD 1529 so as to negate the Sajonas ruling

Background facts:

Elsie and her siblings inherited in 2004 a parcel of land in the province from their parents. Sometime in September 2011, Rose (the person living adjacent to that parcel of land) occupied a certain portion and claimed it as her own. Moreover, Rose filed with the Register of Deeds (RD) an application for annotation of an adverse claim (“application for adverse claim”).

The Register of Deeds did not inform Elsie and her siblings of the pending application for adverse claim.

Sometime in early 2012, when a buyer expressed interest in the land, Elsie and her siblings tried to get a certified copy of their Transfer Certificate of Title (TCT). The RD refused to issue the certified copy saying that there was a pending application for adverse claim. (Elsie and her siblings also found out later on that several persons interested in the land were told by the RD staff that there was a pending application for adverse claim.)

Sometime in April 2013 (two years after the application was filed), the RD approved and annotated the adverse claim on the TCT of the land inherited by Elsie and her siblings.

Again, the RD did not inform Elsie and her siblings that the adverse claim was approved and annotated on the TCT.

The RD also dated the annotation as of September 2011 (the date of the filing of the application), not as of April 2013 (date when the application was approved and actually annotated).

Elsie and her siblings filed a “consulta” with the Land Registration Authority (LRA) with the following questions:

1. Why didn’t the RD notify them that an application for annotation of adverse claim was filed against their land?

2. Why did it take the RD two years to decide whether to deny or grant the application for annotation of the adverse claim?

3. Why did the RD date the annotation as of September 2011 (the date of the filing of the application) and not as of April 2013 (date when the application was approved and actually annotated)?

The relevant law on adverse claims: PD 1529 Property Registration Decree

Section 70 of PD 1529 states:

Adverse claim. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be canceled upon filing of a verified petition therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect.

Lawyers who graduated from law school or were admitted into the bar before 1996 understood this section to mean:

1. The adverse claim is effective only for 30 days from the date of annotation.

2. Within 30 days after the adverse claim is annotated, the claimant must file with the Regional Trial Court (RTC) the proper petition to enforce the claim. (The reason for filing the adverse claim with the RD is to prevent the landowner from disposing of the property while the lawyer is preparing the petition with the RTC.)

3. Although the adverse claim automatically loses its effectivity after the 30-day period, the affected landowner needs to file a petition with the RTC to have the annotation cancelled. (The landowner can include in the petition a claim for damages against the party who filed the adverse claim.)

The Supreme Court ruling on adverse claims in Sajonas vs. Court of Appeals

The Supreme Court in Sajonas vs. CA (G. R. No. 102377, July 5, 1996) ruled that the adverse claim is effective even beyond the 30-day period, for as long as there’s no decision from the RTC declaring that the adverse claim has been cancelled. The Supreme Court said: “The cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue as a lien upon the property.” It also clarified the reason for the required court hearing:

[t]he annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing with said property that someone is claiming an interest or the same or a better right than the registered owner thereof.

The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of determining at last the existence of any encumbrance on the title arising from such adverse claim.

The Supreme Court upheld its Sajonas ruling in these subsequent cases: Diaz-Duarte vs. Ong and CA, G.R. No. 130352 November 3, 1998; Equatorial Realty Development vs. Frogozo and CA, G.R. No. 128563, March 25, 2004.

Proposed legislation: Amendments to Section 70 of PD 1529 so as to negate the Sajonas ruling

According to the LRA staff whom I have talked to, numerous landowners have complained to them of the negative effects of the Sajonas ruling, specifically about frivolous claims that are meant to harass landowners. One staff member told me that the LRA has approached some members of Congress asking them to amend the law on adverse claims.

1. Proposed legislation: Increase the penalty imposed on frivolous adverse claims from “not less than one thousand pesos nor more than five thousand pesos” to, for example, from fifty thousand pesos to one hundred thousand pesos.

Section 70, PD 1529 states:

If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion.

Landowners whose property have been subjected to adverse claims are reluctant to go to court to have the annotation cancelled because of the high costs of litigation. The penalty of “not less than one thousand pesos nor more than five thousand pesos” does not even cover the cost of a lawyer’s single appearance fee. The increase in the penalty can (a) discourage the frivolous filing of adverse claims and (b) answer for the landowner’s legal expenses.

2. With the Sajonas ruling that an adverse claim is valid beyond the 30-day period, the claimant doesn’t have to do anything else once the adverse claim has been annotated. The landowner is now forced to incur legal expenses by retaining the services of a lawyer to have the annotation canceled.

Moreover, Section 70, PD 1529 seemingly violates the doctrine that a Torrens title cannot be subjected to a collateral attack. For example: The landowner files a petition to have the annotation of adverse claim cancelled. What if the adverse claimant, in the Answer, raises grounds that question the authenticity of the title? Normally, such an Answer is not allowed because it’s a collateral attack, but Section 70, PD 1529 (as clarified in the Sajonas ruling) states:

The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of determining at last the existence of any encumbrance on the title arising from such adverse claim.

Proposed legislation: Amend Section 70, PD 1529 so that the adverse claimant must proactively pursue the claim in court. (“He who alleges must prove.”) The claimant must file, within 30 days from the annotation, the proper petition in court to prove the adverse claim. If the claimant fails to do so, then the adverse claim should no longer be effective.

This proposed amendment will prevent the filing of frivolous adverse claims.

3. Proposed legislation: To prevent the filing of frivolous adverse claims, an adverse claim must be effective only for 30 days and will be automatically canceled by the mere lapse of the period, without the need for a court order or an annotation by the RD.

In the alternative, the RD can annotate the cancellation upon the application by the landowner. To prevent the RD from sitting on the application for cancellation, the action on the application must be made within the 5-day period for simple transactions provided by RA 9485 Anti-Red Tape Act of 2007.

Another alternative: The effectivity of an adverse claim can be increased from 30 days to 45 days, so as to give the adverse claimant enough time to enforce the claim in the Regional Trial Court.

Benefits of this proposed legislation:

(a) Frivolous adverse claims will be minimized.

(b) Landowners will not incur legal expenses in going to court to have the adverse claim canceled.

4. As stated in the “Background facts” above, the RD did not inform Elsie and her siblings of the pending application for adverse claim.

The third paragraph of Section 70 of PD 1529 provides that the landowner (who is a “party in interest”) has the remedy of going to court for the cancellation of the adverse claim within 30 days from the registration of the claim. This section thus implies that the RD must immediately notify the landowner so that the legal remedy can be availed of.

Proposed legislation:

(a) Make explicit the duty of the RD to immediately notify the landowner of the registration of the adverse claim, and

(b) Provide penalties if the RD fails to notify the landowner.

The legislation could require the RD to notify the landowner twice: first notice that an application for adverse claim has been filed, and second notice that the application has either been denied or approved.

5. As stated in the “Background facts” above, it took the RD two years to act on the application for adverse claim.

Proposed legislation:

(a) Set a time limit of 30 days from the time the application for an adverse claim was filed within which the RD must either deny or approve the application, with the corresponding penalty if the RD fails to comply with this period;

(b) Provide that if the RD denies the application for adverse claim, the denial cannot be subject of a motion for reconsideration or an appeal to the Land Registration Authority. The remedy of the applicant should be to file a court action to pursue the claim.

As stated in the “Background facts,” the RD refused to issue a certified copy of the TCT to Elsie and her siblings while the application for adverse claim was pending. Under the LRA guidelines, if the RD denies the application for adverse claim, the claimant can file a “consulta” with the LRA questioning the denial. This guideline should be repealed because it means that, while the “consulta” is pending, the RD can continue to refuse issuing a certified copy of the affected TCT (or continue to tell interested buyers of the pending appeal), to the detriment of the landowner who may wish to sell the property.

(The LRA usually takes years to resolve a “consulta” because it goes through numerous stages or departments — investigation by an RD designated as the hearing officer or by the Investigation and Inspection Division; preliminary review of the hearing officer’s draft resolution by the LRA Administrator; consulta conference; drafting and signing of the final resolution by the LRA Deputy Administrator; final review by the LRA Administrator; and promulgation by the Clerks of Court Division.)

6. As stated in the “Background facts” above, Elsie and her siblings questioned why the RD dated the annotation as of September 2011 (the date of the filing of the application) and not as of April 2013 (date when the application was approved and actually annotated)?

In reply to this question, the RD invoked the Implementing Guidelines of the Philippine Land Registration and Information System (PHILARIS), specifically Section 5, sub-paragraph k), which states:

k) Electronic Primary Entry Book for Registered Land (EPEB-RL) – refers to the electronic book wherein registered lands,including all transactions and/or instruments registered related thereto, are recorded and assigned sequential entry numbers in the order of presentation indicating therein the date, hour, and minute when the same was received.

But Section 5, sub-paragraph k) of the PHILARIS guidelines is contrary to the provisions of the third paragraph of Section 70 of PD 1529. As stated above,  this section of PD 1529 provides that the landowner (“party in interest”) has the remedy of going to court for the cancellation of the adverse claim within 30 days from the registration of the claim. But how can Elsie and her siblings have availed of this remedy when the approval of the application for adverse claim made in 2013 was retroactively dated to 2011?

In effect, this provision of the PHILARIS guidelines on retroactive dating negates the legal remedy provided by PD 1529.

Proposed legislation: Require the RD to annotate any adverse claim using the date of actual registration rather than the date of the filing of the claim. (The implementing guidelines of PHILARIS must therefore also be amended by the LRA.)

Escalation of interest rates in loan contracts void without written notice to and written consent of the borrower

Plain Language summary: Case title: “Spouses Ignacio F. Juico and Alice P. Juico, Petitioners, -versus- China Banking Corporation, Respondent,” G.R. No. 187678, April 10, 2013 Ruling: The escalation clause is void because it granted China Banking the power to impose an increased rate of interest without a written notice to the Juico couple and their written consent.   Definition: “Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties.   Doctrine: “There is nothing inherently wrong with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts.” “But an escalation clause is void where the creditor unilaterally determines and imposes an increase in the stipulated rate of interest without the express conformity of the debtor.” New Sampaguita Builders Construction, Inc. v. Philippine National Bank (July 30, 2004) Note: The Supreme Court rulings on escalation clauses also apply to credit card agreements. Polotan, Sr. v. CA (Eleventh Div.), 357 Phil. 250 (1998)

Background facts

Spouses Ignacio and Alice Juico got a loan from China Banking Corporation as evidenced by 2 promissory notes. The loan was secured by a Real Estate Mortgage over the Juico couple’s property located at White Plains, Quezon City. The notes contained the following escalation clause stating that the interest rate would change every month based on the prevailing market rate:

“I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be, the interest rate/service charge presently stipulated in this note without any advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the Central Bank of the Philippines or appropriate government entities, increasing or decreasing such interest rate or service charge.”

The Juicos failed to pay the monthly amortizations due. As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776.63 representing the principal, interests, penalties and attorney’s fees. The mortgaged property was sold at public auction, with China Bank as the highest bidder for the amount of Php 10,300,000.

After the auction, China Bank filed a collection case with the Regional Trial Court (RTC) of Makati City for Php 8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale to the mortgage debt.

In their Answer, the Juicos admitted their debt but claimed that the principal of the loan was already paid when the mortgaged property was extrajudicially foreclosed and sold for Php 10,300,000. They contended that should they be held liable for any deficiency, it should be only for Php 55,000 representing the difference between the total outstanding obligation of Php 10,355,000 and the bid price of Php 10,300,000.

At the trial, China Bank presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as witness. She testified that she handled the account of the Juicos and assisted them in processing their loan application. She called them monthly to inform them of the prevailing rates to be used in computing interest due on their loan.

On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on the prevailing market rate and she notified the Juicos of the prevailing rate by calling them monthly before their account becomes past due. When asked if there was any written authority from the Juicos to increase the interest rate unilaterally, Ms. Yu answered that they signed a promissory note indicating that they agreed to pay interest at the prevailing rate.

In defense, Ignacio Juico testified that before the loan’s release, he was required to sign a blank promissory note and was informed that the interest rate on the loan will be based on prevailing market rates. On cross-examination, Ignacio testified that he is a Doctor of Medicine and also engaged in the business of distributing medical supplies. Ignacio admitted having read the promissory notes and that he is aware of his obligation under them before he signed them.

The RTC rules against the Juicos 

The trial court held that:

(1) Ignacio’s claim that he signed the promissory notes in blank cannot negate or mitigate his liability since he admitted reading the Promissory Notes before signing them.

(2) Considering the substantial amount involved, it is unbelievable that the Juicos threw all caution to the wind and simply signed the documents without reading and understanding the contents.

The Court of Appeals affirms RTC ruling 

The CA recognized China Bank’s right to claim the deficiency because the proceeds of the foreclosure sale were insufficient to cover the amount of the debt.

Also, the CA found as valid the stipulation in the promissory notes that interest will be based on the prevailing rate. It noted that the parties agreed on the interest rate which was not unilaterally imposed by the bank but was the rate offered daily by all commercial banks as approved by the Monetary Board. Having signed the promissory notes, the Juicos are bound by the stipulations.

Supreme Court rules partly for the Juicos and partly for China Bank 

The Juico couple appealed to the Supreme Court. According to the Juicos, the issues are:

(1) The interest rates imposed by China Bank are not valid as they were not by virtue of any law or Bangko Sentral ng Pilipinas regulation or any regulation that was passed by an appropriate government entity. They insist that the interest rates were unilaterally imposed by the bank and thus violate the principle of mutuality of contracts.

(2) The escalation clause in the promissory notes does not give China Bank the unbridled authority to increase the interest rate unilaterally. Any change must be mutually agreed upon.

The Court’s ruling in favor of the Juicos: 

(1) Escalation clauses are not necessarily void. These clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts.

(2) The Juicos were not coerced into signing the promissory notes and they did not protest the new rates imposed on their loan. Nevertheless, an escalation clause “granting the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement” is void. A stipulation of this nature violates the principle of mutuality of contracts under Article 1308 of the New Civil Code.

(3) An escalation clause is void where the creditor unilaterally determines and imposes an increase in the stipulated rate of interest without the express conformity of the debtor.

(4) Changes in the rate of interest for loans under an escalation clause must be the result of an agreement between the parties.

(5) China Bank should have given a detailed billing statement based on the new imposed interest with corresponding computation of the total debt. The statement would have enabled the Juicos to make an informed decision. China Bank should also have provided an appropriate form to be signed by the Juicos to indicate their conformity to the new rates.

The Court’s ruling in favor of China Bank: 

The Court ordered the Juicos to pay China Bank Php 4,761 ,865. 79 (instead of Php 8,901,776.63, the amount originally claimed) representing the amount of deficiency inclusive of interest, penalty charge and attorney’s fees.

Overview of Supreme Court rulings on escalation cases 

The controlling case and ruling on escalation clauses is New Sampaguita Builders Construction, Inc. v. Philippine National Bank. The Court ruled that “an escalation clause is void where the creditor unilaterally determines and imposes an increase in the stipulated rate of interest without the express conformity of the debtor.” The Court explained:

Courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power to increase interest rates, penalties and other charges at the latter’s sole discretion and without giving prior notice to and securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be given effect under the Truth in Lending Act.

Posted below are some other cases on escalation clauses.

Banco Filipino Savings & Mortgage Bank v. Navarro, No. L-46591, July 28, 1987, 152 SCRA 346, 353 “I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan.”	Ruling: Escalation clause void because: Circular No. 494 issued by the Monetary Board on January 2,1976, because said circular is not a law although it has the force and effect of law Escalation clause has no provision for reducing the stipulated interest “in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board” (de-escalation clause).
Philippine National Bank v. Court of Appeals, G.R. No. 107569, November 8, 1994, 238 SCRA 20 The promissory notes authorized PNB to increase the stipulated interest per annum “within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board.” Philippine National Bank v. Court of Appeals, 273 Phil. 789 (1991)	Ruling: Although the contract included a de-escalation clause, increases unilaterally imposed by PNB violated the principle of mutuality essential in contracts.
Philippine National Bank v. Court of Appeals, 328 Phil. 54, 61-62 (1996) Escalation clause authorized PNB to raise the stipulated interest rate at any time without notice, within the limits allowed by law.	Ruling: PNB did not secure the conformity of the borrower to the successive increases in the interest rate. The borrower’s assent to the increases cannot be implied from lack of response to the letters sent by PNB, informing them of the increases.
Philippine Savings Bank v. Castillo, G.R. No. 193178, May 30, 2011, 649 SCRA 527 “The rate of interest and/or bank charges herein stipulated, during the terms of this promissory note, its extensions, renewals or other modifications, may be increased, decreased or otherwise changed from time to time within the rate of interest and charges allowed under present or future law(s) and/or government regulation(s) as the [PSBank] may prescribe for its debtors.”	Ruling: Escalation clause void despite provision for de-escalation. “The increase or decrease of interest rates under such clause hinges solely on the discretion of petitioner as it does not require the conformity of the maker before a new interest rate could be enforced. We also said that respondents’ assent to the modifications in the interest rates cannot be implied from their lack of response to the memos sent by petitioner, informing them of the amendments, nor from the letters requesting for reduction of the rates.”

Some observations:

[1] The Juicos should have asked for the reduction of the attorney’s fees demanded by China Bank amounting to 10% or about Php 1.36 million. In New Sampaguita Builders Construction, Inc. v. Philippine National Bank, the Supreme Court equitably reduced the attorney’s fees to just 1%.

[2] The Supreme Court rulings on escalation clauses also apply to credit card agreements. See Polotan, Sr. v. CA (Eleventh Div.), 357 Phil. 250 (1998).

Rights of employees and obligations of employers in business closure, asset sale, or stock sale

(Note: For counseling on labor problems, please contact the Public Assistance and Complaints Unit (PACU) of the Department of Labor and Employment, Muralla St. cor. Gen. Luna St., Intramuros, 1002 Manila, between Pamantasan ng Lungsod ng Maynila and the Bulletin. You may call DOLE Hotline: 1349 from your fixed-line phones. You can also inquire through an online form.)

Business closure	The law permits an employer to dismiss its employees if the business is being closed down.	Obligations of employer: (1) serve written notices on the employees and the Department of Labor at least one month before the intended date of closure; (2) pay the dismissed employees separation pay, except if the closure is due to serious business losses or financial reverses. Exemption from giving separation pay: . a. the closure was due to serious business losses or financial reverses; . b. the employer must show convincing evidence that it actually suffered serious financial reverses.
Asset sale	The business owner sells all or substantially all of the assets to another party.	The business owner who sells in good faith is authorized to dismiss the affected employees. But the owner must give separation pay to the employees. The buyer in good faith, on the other hand, is: (1) not obliged to absorb the employees affected by the sale. (2) not liable for paying their claims.
Stock sale	The individual or corporate shareholders sell a controlling block of stock to new or existing shareholders.	The employees cannot be dismissed simply because new majority stockholders and new management have taken over the business.

Sari-sari Group of Companies, Inc. v. Piglas Kamao, G.R. No. 164624, 11 August 2008, 561 SCRA 569

Facts: The employees agreed with the corporation’s act of considering them as terminated. They accepted their separation pay.

Ruling: Despite having accepted the separation pay, the employees can contest the legality of their dismissal.

SME Bank vs. De Guzman, G.R. No. 184517, October 8, 2013

Background facts:

The original principal shareholders and corporate directors of Small and Medium Enterprise Bank, Incorporated (SME Bank) were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De Guzman). Some of SME Bank’s employees were Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.(Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato).

SME Bank experienced financial difficulties in June 2001. To remedy the situation, Agustin and De Guzman sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga Samson. The Samson couple then became the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president.

Before the sale, Simeon Espiritu (Espiritu), then the general manager of SME Bank, met with all the employees of the head office and of the Talavera and Muñoz branches of SME Bank. He persuaded them to tender their resignations, with the promise that they would be rehired when they reapplied.

Relying on this representation, Elicerio, Ricardo, Fidel, Simeon, Jr., and Liberato tendered their resignations dated August 27, 2001. As for Eufemia, she first tendered a resignation letter and then a retirement letter dated September 2001. But as it turned out, the employees, except for Simeon, Jr., were not rehired.

The employees demanded the payment of their respective separation pays but their requests were denied. They then filed a Complaint with the National Labor Relations Commission (NLRC) – Regional Arbitration Branch No. III against SME Bank, the Samson couple, and Villaflor for unfair labor practice; illegal dismissal; illegal deductions; underpayment; and nonpayment of allowances, separation pay and 13th month pay. The employees later on amended their Complaint to include Agustin and De Guzman as respondents.

In defense, the Samson Group (the Samson couple, and Villaflor) contended that Elicerio, Ricardo, Fidel, and Liberato voluntarily resigned from their posts while Eufemia retired from her position. As their resignations and retirements were voluntary, they were not dismissed from their employment. In support of this argument, the Samson Group presented copies of their resignation and retirement letters, which were couched in terms of gratitude.

Labor Arbiter dismisses case against the Samson Group but rules against Agustin and De Guzman

(1) The buyer of an enterprise is not bound to absorb its employees, unless there is an express stipulation to the contrary.

(2) The employees were illegally dismissed, because they had involuntarily executed their resignation letters after relying on representations that they would be given their separation benefits and rehired by the new management. The arbiter ordered Agustin and De Guzman to pay the complainants’ separation pay.

NLRC ruling: mere change in management not a valid ground to terminate the employees

Dissatisfied with the judgment, Elicerio and the other employees appealed to the NLRC. Agustin and De Guzman also appealed. The employees questioned the labor arbiter’s failure to award backwages. Agustin and De Guzman, on the other hand, contended that they should not be held liable for the payment of the employees’ claims.

The NLRC found that there was only a mere transfer of shares – and therefore, a mere change of management – from Agustin and De Guzman to the Samson Group. As the change of management was not a valid ground to terminate respondent bank employees,

(1) Elicerio and the other employees were illegally dismissed;

(2) Agustin, De Guzman, and the Samson Group should be held jointly and severally liable for the employees’ separation pay and backwages.

Supreme Court ruling: corporate officers who act in bad faith or with malice liable for illegal dismissal

(1) Elicerio and the other employees are entitled to separation pay, full backwages, moral damages, exemplary damages and attorney’s fees. They tendered resignation letters only because they were led to believe that, upon reapplication, they would be reemployed by the new management. They had no real intention of leaving their posts.

While resignation letters containing words of gratitude may indicate that the employees were not coerced into resignation, this fact alone is not conclusive proof that they intelligently, freely and voluntarily resigned. To rule that resignation letters couched in terms of gratitude are, by themselves, conclusive proof that the employees intended to relinquish their posts would open the floodgates to possible abuse.

In order to withstand the test of validity, resignations must be made voluntarily and with the intention of relinquishing the office, coupled with an act of relinquishment. Therefore, in order to determine whether the employees truly intended to resign from their respective posts, the Court cannot merely rely on the tenor of the resignation letters, but must consider the totality of circumstances.

(2) Contrary to SME Bank’s argument, there was no transfer of the business establishment but merely a change in the new majority shareholders and new management of the corporation. This change is not a just or authorized cause for termination of employment under the Labor Code.

SME Bank continued to be the employer of respondent employees notwithstanding the equity change in the corporation. A corporation has a personality separate and distinct from that of its individual shareholders or members. Thus, a change in the composition of its shareholders or members would not affect its corporate liabilities.

As the employer of the illegally dismissed employees before and after the equity transfer, SME Bank is liable for the satisfaction of their claims.

(3) Liability of corporate directors and officers in illegal dismissal cases

Rule Corporate officers are not personally liable for their official acts. A corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.

Exception Corporate directors and officers are solidarily liable with the corporation if they acted with malice or in bad faith in terminating the employees.

Agustin and De Guzman are corporate directors who acted in bad faith. They may be held solidarily liable with SME Bank for the satisfaction of the employees’ lawful claims.

The dismissal of Elicerio and the other employees was done in bad faith. Motivated by their desire to sell their shares of stock to the Samson couple, Agustin and De Guzman agreed to and later implemented the precondition in the Letter Agreements as to the termination or retirement of SME Bank’s employees. But instead of going through the proper procedure, the bank manager induced the employees to resign or retire from their respective employments, while promising that they would be rehired by the new management. Fully relying on that promise, they tendered courtesy resignations or retirements and eventually found themselves jobless. Clearly, this sequence of events constituted a gross circumvention of labor laws and a violation of the employees’ constitutionally guaranteed right to security of tenure.

Differences between regular employees and project employees, between project employment and fixed term employment

Plain Language summary: Case title: “GMA Network, Inc., Petitioner, vs.Carlos P. Pabriga, Geoffrey F. Arias, Kirby N. Campo, Arnold L. Lagahit, And Armando A. Catubig, Respondents” G.R. No. 176419, November 27, 2013 Ruling: Pabriga and his co-workers were GMA7’s regular employees, not project employees, and they were illegally dismissed. Definitions: “Regular employees perform activities that are usually necessary or desirable in the employer’s usual business or trade.” “Project employees perform activities that may be usually necessary or desirable in the usual business or trade of the employer.” (For example, a construction company engages in various projects like a twenty-five-storey hotel in Makati; a residential condominium building in Baguio City; and a domestic air terminal in Iloilo City. Employees who are hired for the carrying out of one of these separate projects, the scope and duration of which has been determined and made known to the employees at the time of employment, are properly treated as “project employees,” and their services may be lawfully terminated at completion of the project.) “Project employees perform activities that may not be usually necessary or desirable in the usual business or trade of the employer.” (For example, a steel company engages in  fish production or cultivation of vegetables.) A project employee or a member of a work pool may acquire the status of a regular employee. Related case: “Universal Robina Sugar Milling Corporation, et. al., vs. Acibo, et. al” G.R. No. 186439, 15 January 2014 (differences between regular, project/seasonal, and casual employees)

(Note: For counseling on labor problems, please contact the Public Assistance and Complaints Unit (PACU) of the Department of Labor and Employment, Muralla St. cor. Gen. Luna St., Intramuros, 1002 Manila, between Pamantasan ng Lungsod ng Maynila and the Manila Bulletin office. You may call DOLE Hotline: 1349 from your fixed-line phones. You can also inquire through an online form.)

Background facts

Carlos Pabriga, Geoffrey Arias, Kirby Campo, Arnold Lagahit, and Armando Catubig worked as television technicians for GMA7 in the late 1990s. Their work included manning of technical operations center and acting as transmitter/VTR men, maintenance staff, and cameramen. They were repeatedly rehired in several fixed term contracts from 1996 to 1999.

Pabriga and his co-workers originally filed in July 1999 a complaint for non-payment of benefits with the National Labor Relations Commission (NLRC). Later on, they amended their complaint by raising the issues of unfair labor practice, illegal dismissal, damages, and attorney’s fees.

Pabriga and his co-workers claimed that they were GMA7's regular employees. On the other hand, GMA7 claimed that they were merely hired as “pinch-hitters” on fixed term contracts.

Labor Arbiter rules against Pabriga and his co-workers

The Labor Arbiter dismissed the complaint for illegal dismissal and unfair labor practice, but held GMA 7 liable for 13th month pay.

NLRC reverses Labor Arbiter’s decision; Court of Appeals affirms NLRC ruling

The NLRC ruled that Pabriga and his co-workers were regular employees with respect to the particular activity to which they were assigned, until it ceased to exist. As such, they were entitled to payment of separation pay computed at one month salary for every year of service.

The NLRC also ruled that Pabriga and his co-workers were entitled to 13th month pay, night shift differential, and service incentive leave pay.

GMA7 elevated the case to the Court of Appeals through a petition for certiorari. On September 8, 2006, the CA denied the petition for lack of merit.

Supreme Court ruling: Pabriga and his co-workers were regular employees, not project employees, and they were illegally dismissed

The Supreme Court affirmed the findings of the NLRC and the CA that Pabriga and his co-workers were GMA7’s regular employees and that they were illegally dismissed.The Court ruled:

(1) Pabriga and his co-workers were not project employees because the manning of the operations center to air commercials, acting as transmitter/VTR men, maintaining the equipment, and acting as cameramen were not undertakings separate or distinct from the business of a broadcasting company.

(2) Even if Pabriga and his co-workers are to be considered as project employees, they attained regular employment status because GMA7 continuously rehired them.

(3) GMA7 did not report the completion of its projects and the dismissal of Pabriga and his co-workers in its finished projects to the nearest Public Employment Office as required by Policy Instruction No. 20 of the Department of Labor and Employment. Based on jurisprudence, the failure of an employer to report to the nearest Public Employment Office the termination of its workers’ services every time a project or a phase is completed indicates that the workers are not project employees.

(4) GMA7’s practice of hiring and rehiring of workers on fixed terms, without end, is unjustifiable.

Difference between regular employee and project employee

A regular employee performs activities that are usually necessary or desirable in the employer’s usual business or trade.

A project employee performs activities that may or may not be usually necessary or desirable in the usual business or trade of the employer. The services of the project employees are legally and automatically terminated when the project ends or is completed.

The principal test for determining whether employees are “project employees” is two-fold:

(1) Is the employee assigned to carry out a specific project or undertaking?

(2) Is the completion or termination of the project specified or determined at the time the employee was engaged for that project?

Definition of “project”

The term “project” must be properly defined in order to safeguard the rights of workers against the arbitrary use of the word “project” by employers to prevent them from attaining the status of regular employees.

(1) The “project” would ordinarily have some relationship to the usual business of the employer.

For example, a construction company ordinarily carries out two or more [distinct] identifiable construction projects: a twenty-five-storey hotel in Makati; a residential condominium building in Baguio City; and a domestic air terminal in Iloilo City. Employees who are hired for the carrying out of one of these separate projects (the scope and duration of which has been determined and made known to the employees at the time of employment), are properly treated as “project employees,” and their services may be lawfully terminated at completion of the project.

(2) Exceptionally, the “project” job or undertaking is not within the regular business of the employer. The job or undertaking is identifiably separate and distinct from the ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or determinable times. For example, a steel-making company, for one reason or another, undertakes the breeding and production of fish or the cultivation of vegetables.

Examples of regular employee and a project employee

Philippine Long Distance Telephone Company v. Ylagan, 537 Phil. 840 (2006) Although essentially a telephone company, PLDT maintains its own accounting department to which Ylagan was assigned. PLDT was not able to prove that accounting duties were distinct, separate and identifiable from its usual undertakings. Ylagan is therefore a regular employee, not a project employee.

San Miguel Corporation v. National Labor Relations Commission, 357 Phil. 954 (1998) The private respondent was hired to repair furnaces, which are needed by San Miguel Corporation to manufacture glass, an integral component of its packaging and manufacturing business. San Miguel Corporation is not engaged in the business of repairing furnaces. Although the activity was necessary to enable it to continue manufacturing glass, the necessity for the repairs arose only when a furnace reached the end of its life or operating cycle. Private respondent is therefore a project employee.

A project employee or a member of a work pool may acquire the status of a regular employee when the following concur:

(1) The project employee is continuously rehired even after a project has ended; and

(2) The alleged project employee performs tasks are vital, necessary, and indispensable to the usual business or trade of the employer.

Difference between project employment and fixed period/fixed term employment

GMA7 interchangeably characterized Pabriga and his co-workers’s service as project employment and fixed term employment. But these types of employment are not the same.

Project employment The employee’s services are coterminous with the project. The employment may, in fact, last for more than a year, depending on the needs or circumstances of the project.

Fixed period/fixed term employment Duration of employment is agreed upon by the parties.

The decisive determinant in fixed-term employment is not the activity that the employee is called upon to perform but the day certain agreed upon by the parties for the employment relationship to commence and terminate.

The use of fixed-term employment is subject to abuse by employers who want to deprive workers of their security of tenure. In this situation, the fixed term or period should be struck down as contrary to public policy or morals.

Indications or criteria under which “term employment” does not circumvent the law on security of tenure:

(1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or

(2) The employer and the employee dealt with each other on more or less equal terms with no moral dominance exercised by the former or the latter.

To prove the fixed term contracts, GMA7 presented cash disbursement vouchers signed by Pabriga and his co-workers, stating that they were merely hired as “pinch-hitters.” The Court observed that Pabriga and his co-workers were in no position to refuse to sign these vouchers, as refusal would entail not getting paid for their services. Plainly, Pabriga and his co-workers as “pinch-hitters” cannot be considered to be on equal footing as GMA7 in the negotiation of their employment contract.

Illegal drugs: if chain of custody is broken, accused must be acquitted

Plain Language summary: Case title: “People of the Philippines vs. Nicolas Gutierrez” G.R. No. 179213, September 3, 2009 Ruling: The prosecution failed to prove under the “chain of custody” rule that the shabu allegedly seized from the accused by the police officers was the same shabu presented in court. The accused must therefore be acquitted. Definitions: (1) “Corpus delicti”: substance of the crime that proves a crime has actually been committed. In cases involving illegal drugs, the illegal drug itself is the corpus delicti. Its existence is vital for the court to find the accused beyond reasonable doubt. (2) “Chain of custody” rule: there must be testimony about every link in the chain, from the moment the object seized was picked up to the time it is offered in evidence. Every person who touched the object must describe how and from whom it was received, where it was, and what happened to it while in the witness's possession, the condition in which it was received, and the condition in which it was delivered to the next link in the chain. References, links, relevant laws: “Mallillin v. People” G.R. No. 172953, April 30, 2008 (Supreme Court requirements in proving chain of custody) Section 1 (b) of the Dangerous Drugs Board Regulation No. 1, Series of 2002 which implements R.A. No. 9165 (definition of "chain of custody")

Background facts:

[1] A police team arrested Nicolas Gutierrez during a buy-bust operation on June 16, 2003 in Pasig City. The team allegedly seized from Gutierrez five centigrams of methylamphetamine hydrochloride (“shabu”) and drug paraphernalia.

Gutierrez was charged under R.A. 9165 with illegal sale of shabu and illegal possession of paraphernalia.

[2] Gutierrez pleaded “not guilty” during his arraignment. He claimed that he was merely having dinner with his family when four unidentified armed men barged into his house and arrested him.

[3] During the pre-trial, Gutierrez’s lawyer stipulated that:

a. the specimen (alleged shabu) exists,
b. the arresting officers requested for its examination,
c. a forensic chemist examined the specimen, and
d. it tested positive for methyl amphetamine hydrochloride.

[4] During the hearing, the fiscal presented some of the police officers who arrested Gutierrez. The officers identified the buy-bust money paid to Gutierrez and the shabu bought from him. PO1 Espares testified on the marking and eventual turnover of the seized sachet of alleged shabu to the investigator.

[5] The Pasig City Regional Trial Court found Gutierrez guilty of the illegal sale of shabu. But the RTC acquitted him of the charge of illegal possession of paraphernalia.

Gutierrez questioned the RTC’s ruling before the Court of Appeals. The CA affirmed the RTC’s decision. Gutierrez then brought his case up to the Supreme Court.

Issue:

The prosecution failed to show what happened to the shabu from the time the arresting officers gave it to the investigator up to its turnover for laboratory examination. The case records also do not show what happened to the shabu between its turnover by the chemist to the investigator and its presentation in court. Since the prosecution failed to prove that the shabu allegedly seized from Gutierrez was the same shabu presented in court, should Gutierrez be acquitted?

Supreme Court ruling:

Gutierrez should be acquitted because the prosecution failed to show an unbroken chain of custody of the alleged shabu.

Under Section 5, Article II of R.A. No. 9165, the elements necessary in a prosecution for the illegal sale of shabu are:

• the identity of the buyer and the seller;
• the object and the consideration; and
• the delivery of the thing sold and the payment for it.

The prosecution must prove that the sale of shabu took place. The corpus delicti— the body or substance of the crime which establishes the fact that acrime has actually been committed—must also be presented in court. In cases involving narcotics, the illegal drug itself constitutes the corpus delicti of the offense. The existence of the illegal drug is vital for the court to find the accused guilty beyond reasonable doubt. The “chain of custody” rule ensures that unnecessary doubts on the identity of the evidence are removed.

In “Malillin v. People,” the Supreme Court explained how it expects the chain of custody or “movement” of the seized evidence to be maintained. There must be testimony about every link in the chain, from the moment the object seized was picked up to the time it is offered in evidence. Every person who touched the object must describe

• how and from whom it was received, where it was, and what happened to it
  while in the witness’s possession,
• the condition in which it was received, and
• the condition in which it was delivered to the next link in the chain.
  

These witnesses must describe the precautions taken to ensure that there had been

1. no change in the condition of the object and
2. no opportunity for someone not in the chain to possess the object.

PO1 Espares, one of the arresting officers, testified on the marking and eventual turnover of the allegedly seized sachet of shabu to the investigator. But no explanation was given on its custody in the interim – from the time it was turned over to the investigator to its turnover for laboratory examination. The case records also do not show what happened to the allegedly seized shabu between the turnover by the chemist to the investigator and its presentation in court.

Highlights of the Supreme Court’s decision / clarifications:

[1] The Supreme Court also ruled that Gutierrez should be acquitted because the arresting officers failed to comply with the rule on the custody and disposition of confiscated drugs (Section 21, Paragraph 1 of Article II of R.A. No. 9165). The officers did not physically inventory and take pictures of the shabu allegedly confiscated from Gutierrez. The officers also did not explain why they did not follow the rule.

[2] “Because of the built-in danger of abuse that a buy-bust operation carries, it is governed by specific procedures on the seizure and custody of drugs.”

“By the very nature of anti-narcotics operations, the need for entrapment procedures, the use of shady characters as informants, the ease with which sticks of marijuana or grams of heroin can be planted in the pockets or hands of unsuspecting provincial hicks, and the secrecy that inevitably shrouds all drug deals, the possibility of abuse is great.”

“Courts must be extra vigilant in trying drug cases lest an innocent person is made to suffer the unusually severe penalties for drug offenses.”

[3] What about the stipulations made by Gutierrez’s lawyer during the pre-trial?

These stipulations have no bearing on the question of chain of custody. The Court said:

These stipulations, which merely affirm the existence of the specimen, and the request for laboratory examination and the results thereof, were entered into during pre-trial only in order to dispense with the testimony of the forensic chemist and abbreviate the proceedings. That such is the intention of the parties is clear from the additional stipulations that the forensic chemist had no personal knowledge as to the source of the alleged specimen; and that the defense was reserving its right to object to the pieces of evidence marked by the prosecution. Clearly, the stipulations do not cover the manner the specimen was handled before it came to the possession of the forensic chemist and after it left her possession.

To interpret the stipulations as an admission that appellant was the source of the specimen would be to bind him to an unceremonious withdrawal of his plea of not guilty – a reading not supported by the records which creates a dangerous precedent.

When someone hits a minor, should the charge be child abuse under RA 7610 or physical injury under the Revised Penal Code?

Plain Language summary: Case title: Bongalon v. People of the Philippines (G.R. No. 169533, March 20, 2013) Ruling: Not every instance of laying of hands on a child constitutes the crime of child abuse under Republic Act No. 7610. If the accused intended to debase, degrade or demean the intrinsic worth and dignity of the child as a human being, then the accused can be charged for child abuse. But if that wasn’t the intention, then the accused should be charged under the Revised Penal Code. Relevant laws and discussions: Republic Act No. 7610 Duration of penalties

Background facts

[1] On June 26, 2000, the Prosecutor’s Office of Legazpi City charged George Bongalon in the Regional Trial Court with child abuse under Section 10 (a) of Republic Act No. 7610. Bongalon allegedly

(a) struck Jayson de la Cruz, a minor, with his palm hitting Jayson at his back and

(b) slapped Jayson hitting his left cheek.

Jayson’s physical injury required five to seven days of medical attention.

Bongalon also allegedly uttered these derogatory remarks against Jayson’s family: “Mga hayop kamo, para dayo kamo digdi, Iharap mo dito ama mo” (You all animals, you are all strangers here. Bring your father here).

[2] According to Bongalon’s version of the incident, Jayson and his older brother Roldan threw stones at his two minor daughters Mary Ann Rose and Cherrlyn. Jayson also burned Cherrlyn’s hair. Bongalon denied physically abusing or maltreating Jayson.

[3] The RTC found Bongalon guilty as charged and sentenced him to imprisonment of 6 years and 1 day to 8 years of prision mayor in its minimum period.

[4] Bongalon then appealed to the Court of Appeals. He contended that the RTC overlooked or disregarded material facts and circumstances in the records that would have led to a favorable judgment for him. He attacked the lack of credibility of the witnesses presented against him, citing the failure of the complaining brothers to react to the incident, which was unnatural and contrary to human experience.

The CA affirmed the conviction but modified the penalty to an indeterminate penalty of 4 years, 2 months and 1 day of prision correccional, as minimum term, to 6 years, 8 months and 1 day of prision mayor as the maximum.

[5] Bongalon brought his case up to the Supreme Court through a petition for certiorari under Rule 65 of the Rules of Court. He claimed that he was not guilty and that, even assuming that he was guilty, his liability should be mitigated because he had merely acted to protect his two minor daughters.

Supreme Court ruling

[1] As the RTC correctly found, Bongalon struck Jayson at the back with his hand and slapped Jayson on the face. But Bongalon’s acts did not constitute child abuse under RA 7610. He did not intend to debase the “intrinsic worth and dignity” of Jayson as a human being. He also did not intend to humiliate or embarrass Jayson.

Instead of child abuse, Bongalon should be convicted of slight physical injuries under Article 266 (1) of the Revised Penal Code.

[2] Child abuse, the crime charged, is defined by Section 3 (b) of Republic Act No. 7610, as follows:

Section 3. Definition of terms. –
x x x x

(b) “Child Abuse” refers to the maltreatment, whether habitual or not, of the child which includes any of the following:

(1) Psychological and physical abuse, neglect, cruelty, sexual abuse and emotional maltreatment;

(2) Any act by deeds or words which debases, degrades or demeans the intrinsic worth and dignity of a child as a human being;

(3) Unreasonable deprivation of his basic needs for survival, such as food and shelter; or

(4) Failure to immediately give medical treatment to an injured child resulting in serious impairment of his growth and development or in his permanent incapacity or death.

[3] The records did not establish beyond reasonable doubt that Bongalon intended to debase the “intrinsic worth and dignity” of Jayson as a human being or that he had intended to humiliate or embarrass Jayson. Bongalon acted on the spur of the moment and in anger, being then overwhelmed by his fatherly concern for the personal safety of his minor daughters who had just suffered harm at the hands of Jayson and his older brother Roldan.

[4] The penalty for slight physical injuries is arresto menor, which ranges from one day to 30 days of imprisonment. Since Bongalon lost his reason and self-control in defending his daughters, he was entitled to the mitigating circumstance of passion. The proper penalty is 10 days imprisonment.

Other highlights of the Supreme Court ruling

[1] Under the well-recognized doctrine of “pro reo,” every doubt is resolved in favor of the accused. Courts should consider all possible circumstances in favor of the accused.

[2] Bongalon used the wrong remedy in questioning the CA’s affirmance of his conviction. His proper remedy was an appeal taken in due course. He should have filed a petition for review on certiorari. Instead, he wrongly brought a petition for certiorari.

Even if Bongalon’s petition is treated as having been brought under Rule 45 of the Rules of Court, it would still be defective due to its being filed beyond the period provided by law. Section 2 of Rule 45 requires the filing of the petition within 15 days from the notice of judgment to be appealed. Bongalo received a copy of the CA’s decision on July 15, 2005, but filed the petition only on September 12, 2005.

Despite Bongalon’s procedural mistakes, the Supreme Court did not dismiss his petition outright but treated it as an appeal filed on time. The Court said that it did not want to be seen as “an unfeeling tribunal of last resort willing to sacrifice justice in order to give premium to the rigidity of its rules of procedure.” The Court explained:

“The procedural transgressions of the petitioner notwithstanding, we opt to forego quickly dismissing the petition, and instead set ourselves upon the task of resolving the issues posed by the petition on their merits. We cannot fairly and justly ignore his plea about the sentence imposed on him not being commensurate to the wrong he committed. His plea is worthy of another long and hard look. If, on the other hand, we were to outrightly dismiss his plea because of the procedural lapses he has committed, the Court may be seen as an unfeeling tribunal of last resort willing to sacrifice justice in order to give premium to the rigidity of its rules of procedure. But the Rules of Court has not been intended to be rigidly enforced at all times. Rather, it has been instituted first and foremost to ensure justice to every litigant. Indeed, its announced objective has been to secure a ‘just, speedy and inexpensive disposition of every action and proceeding.’ This objective will be beyond realization here unless the Rules of Court be given liberal construction and application as the noble ends of justice demand. Thereby, we give primacy to substance over form, which, to a temple of justice and equity like the Court, now becomes the ideal ingredient in the dispensation of justice in the case now awaiting our consideration.

“The petitioner’s right to liberty is in jeopardy. He may be entirely deprived of such birthright without due process of law unless we shunt aside the rigidity of the rules of procedure and review his case.”

After getting married, a woman should consistently use either her maiden surname or her married surname

Plain Language summary Case title: “Maria Virginia V. Remo vs. The Honorable Secretary of Foreign Affairs,” G.R. No. 169202, March 5, 2010 Ruling: A married woman is not prohibited from continuously using her maiden name once she is married. When a woman marries, she does not change her name but only her civil status. RA 8239 does not prohibit a married woman from using her maiden name in her passport. The DFA allows a married woman who applies for a passport for the first time to use her maiden name. She is not required to adopt her husband's surname. But once a married woman uses her married name in her passport, she cannot be allowed to change her family name at will. This prohibition prevents confusion and inconsistency in the records of passport holders. Relevant laws: 1. Republic Act No. 8239 or the Philippine Passport Act of 1996 2. Article 370 of the New Civil Code of the Philippines (law on surnames for married women)

(Related discussion: “Miss, Ms, or Mrs? Philippine law on surnames for married women”)

Background facts:

1. Maria Virginia V. Remo is a Filipino citizen married to Francisco R. Rallonza. The following entries appear in her passport: “Rallonza” as her surname, “Maria Virginia” as her given name, and “Remo” as her middle name.

Virginia’s passport was due to expire on October 27, 2000. She applied for her passport’s renewal with the Department of Foreign Affairs (DFA) office in Chicago, Illinois, USA. She also requested that her maiden name and surname be used in the replacement passport.

2. The DFA office in Chicago and later on DFA Sec. Domingo Siason denied Virginia’s request.

DFA Sec. Siason, through an undersecretary, stated:

This Office is cognizant of the provision in the law that it is not obligatory for a married woman to use her husband’s name. Use of maiden name is allowed in passport application only if the married name has not been used in previous application. The Implementing Rules and Regulations for Philippine Passport Act of 1996 clearly defines the conditions when a woman applicant may revert to her maiden name, that is, only in cases of annulment of marriage, divorce and death of the husband. Ms. Remo’s case does not meet any of these conditions.

3. Virginia appealed to the Office of the President but her appeal was denied. The OP stated:

Section 5(d) of Republic Act No. 8239 (RA 8239) or the Philippine Passport Act of 1996 “offers no leeway for any other interpretation than that only in case of divorce, annulment, or declaration [of nullity] of marriage may a married woman revert to her maiden name for passport purposes.”

4. Virginia then filed a petition for review of the OP’s decision with Court of Appeals. The CA denied the petition, stating:

• Virginia’s marriage to Francisco Rallonza has not been annulled or declared void. A divorce decree has also not been granted to them.
• Virgina cannot therefore simply revert to her maiden name in the replacement passport after she had adopted her husband’s surname in her old passport.

Virginia subsequently filed a petition for review of the CA’s ruling with the Supreme Court. She claimed that no law prohibits her from using her maiden name and that Section 5(d) of RA 8239 conflicts with Article 370 of the New Civil Code of the Philippines (NCC).

Issue

Should Virginia be allowed to use her maiden surname in the replacement passport?

Supreme Court ruling

1. “A married woman has an option, but not a duty, to use the surname of the husband in any of the ways provided by Article 370 NCC. She is therefore allowed to use not only any of the three names provided in Article 370, but also her maiden name upon marriage.”

“A married woman is not prohibited from continuously using her maiden name once she is married. When a woman marries, she does not change her name but only her civil status.”

2. The law governing passport issuance is RA 8239. Section 5(d) “limits the instances when a married woman may be allowed to revert to the use of her maiden name in her passport.” These instances are death of husband, divorce decree, annulment or nullity of marriage.

Article 370 of the Civil Code and Section 5(d) of RA 8239 do not conflict with one another. RA 8239, including its implementing rules and regulations, does not prohibit a married woman from using her maiden name in her passport. In fact, in recognition of this right, the DFA allows a married woman who applies for a passport for the first time to use her maiden name. Such an applicant is not required to adopt her husband's surname.

3. Virginia “would not have encountered any problems in the replacement passport had she opted to continuously and consistently use her maiden name from the moment she was married and from the time she first applied for a Philippine passport.”

4. If Virginia’s request to use her maiden surname in the replacement passport is granted, “nothing prevents her in the future from requesting to revert to the use of her husband’s surname.”

“Unjustified changes in one’s name and identity in a passport cannot be allowed. Undue confusion and inconsistency in the records of passport holders will arise.”

For passport issuance purposes, a married woman whose marriage is subsisting, may not change her family name at will.

Can an employee file a case of constructive dismissal and yet continue reporting for work?

Plain Language summary: Case title: ‘The Orchard Golf and Country Club vs. Amelia R Francisco,” G.R. No. 178125, March 2013 Issue: How can an employee file a labor case for constructive dismissal and at the same time continue reporting for work? Ruling: Constructive dismissal does not occur when the employee stops reporting for work, but when the employer commits acts that make continued employment intolerable. In difficult times, an employee may have no choice but to continue working despite the employer’s abuses and even while a labor case is pending between them. This should not be taken against the employee. Definition: “Constructive dismissal” is quitting or cessation of work because continued employment is rendered impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution of pay and other benefits; if an act of clear discrimination, insensibility, or disdain by an employer becomes so unbearable on the part of the employee that it could foreclose any choice by him except to forego his continued employment; when the employee involuntary resigns due to the harsh, hostile, and unfavorable conditions set by the employer. The test of constructive dismissal is whether a reasonable person in the employee's position would have felt compelled to give up his employment/position under the circumstances. (Gan vs. Galderma Philippines, G.R. No. 177167, January 17, 2013)

Background facts

[1] The Orchard Golf and Country Club (Orchard), operates two golf courses in Dasmariñas, Cavite for its members and their guests. Orchard also has a swimming pool, bowling alley, cinema, fitness center, courts for tennis, badminton and basketball, restaurants, and function rooms.

Amelia R. Francisco (Francisco) was employed as Club Accountant to head Orchard’s General Accounting Division and the four divisions under it. Each of these four divisions has its own Supervisor and Assistant Supervisor. As General Accounting Division head, Francisco reported directly to Orchard’s Financial Comptroller, Jose Ernilo P. Famy (Famy).

Tomas B. Clemente III (Clemente) is Orchard’s General Manager while Ma. Irma Corazon A. Nuevo (Nuevo) is the General and Administrative Manager.

[2] Famy’s actions against Francisco:

(a) suspended Francisco without pay for a period of 15 days for her alleged failure to prepare a letter to SGV, Orchard’s internal auditor, despite repeated verbal and written reminders;

(b) temporarily transferred Francisco to the Cost Accounting Section, without diminution in salary and benefits, while Francisco’s charges against him for fraudulent and negligent acts were being investigated;

(c) asked for investigation into Francisco’s insubordination, for her alleged unauthorized change of day-off from July 30 to August 4, 2000, and for being absent on that date despite disapproval of her leave/offset application;

(d) asked Francisco in a memorandum dated August 5, 2000 to explain the charges of insubordination, negligence, inefficiency and violation of work standards relative to the unauthorized change of day-off and disapproved offset/ leave.

[3] Francisco’s reactions:

(a) She accused Famy of waging a personal vendetta against her because she sought Orchard’s inquiry into Famy’s fraudulent and negligent acts. She also said that her transfer to the Cost Accounting Section was humiliating and demeaning, and that it constituted constructive dismissal.

Francisco also threatened to take legal action or seek assistance from Orchard members to insure that Famy’s impropriety was investigated.

(c) On August 11, 2000, Francisco filed a Complaint for illegal dismissal against Orchard, impleading Famy, Clemente and Nuevo as additional respondents. The case was docketed as NLRC Case No. RAB-IV-812780-00-C. She asked, among others, for damages and attorney’s fees.

[4] Events after Francisco filed her illegal dismissal case with the NLRC:

(a) On August 16, 2000, Francisco received another memorandum requiring her to explain why she should not be charged with betrayal of company trust. The memorandum alleged that a club member was seen distributing copies of Francisco’s letter to Orchard’s Chairman of the Board of Directors.

(b) On August 18, 2000, Francisco submitted her written explanation to the charges.

(c) On August 19, 2000, Clemente handed Francisco a Notice of Disciplinary Action dated August 16, 2000 relative to her July 30, 2000 unauthorized change of day-off and her August 4, 2000 unauthorized leave/absence. Francisco was suspended for another fifteen days, or from August 21 to September 6, 2000.

[5] Events after Francisco’s suspension:

(a) Francisco amended her illegal dismissal Complaint to one for illegal suspension. Meanwhile, she continued to report for work.

(b) On September 7, 2000, or a day after serving her suspension, Francisco received a September 6, 2000 memorandum from Nuevo and approved by Clemente. She was placed on forced leave with pay for 30 days, or from September 7, 2000 up to October 11, 2000, allegedly because the case filed against her has strained her relationship with her superiors.

(c) Francisco wrote a letter to Nuevo seeking clarification as to what case was filed against her. Nuevo immediately sent a reply memorandum stating that the case referred to her alleged “betrayal of company trust.”

(d) After the expiration of her forced leave, or on October 12, 2000, Francisco reported back to work.

This time Francisco was handed an October 11, 2000 memorandum from Clemente informing her that she has been permanently transferred, without diminution of benefits, to Orchard’s Cost Accounting Section effective October 12, 2000. The transfer was due to strained relations between her and Famy and the pending evaluation of her betrayal of company trust charge. Francisco’s position at the Cost Accounting Section was to remain under Famy’s direct supervision.

(e) In an October 13, 2000 memorandum to Clemente, Francisco protested her permanent transfer, claiming that it was made in bad faith. She also bewailed Clemente’s inaction on her July 5, 2000 letter charging Famy with irregularities relative to BIR tax payments.

Because of her transfer, Francisco once more amended her Complaint to include illegal/constructive dismissal. In her prayer, she sought to be reinstated to her former position as Club Accountant.

[6] Labor Arbiter rules against Francisco

Labor Arbiter Enrico Angelo C. Portillo issued a Decision dated August 23, 2001 dismissing Francisco’s Complaint for lack of merit. The Arbiter noted the “belligerence and animosity” between Francisco and Famy. He dismissed Francisco’s charges as nothing more than attempts to get back at Famy for his reproach at her failure to draft the SGV letter.

The Arbiter further upheld Francisco’s two suspensions as valid exercises of Orchard’s management prerogative. He also found Francisco’s claim of constructive dismissal to be baseless. On the contrary, he found Francisco’s transfer as necessary and in furtherance of Orchard’s interests. He also noted that the transfer was lateral, or to a position of the same rank and pay scale based on Orchard’s Organizational Chart.

[7] NLRC overrules the Labor Arbiter

While Francisco’s suspensions were valid, her subsequent permanent transfer on the ground of strained relations to the Cost Accounting Section on October 12, 2000 had no just cause. It resulted in Francisco’s demotion, since the position of Cost Controller was merely of a supervisory character while the position of Club Accountant was of managerial rank. Francisco held the rank of “Manager 3” as Club Accountant, while the Cost Controller is only a Supervisor position and is precisely under the direct supervision and control of the Club Accountant. This unwarranted demotion is equivalent to constructive dismissal.

The NLRC added that “strained relationship” is not a valid ground for termination of employment under the Labor Code. It ordered Francisco’s reinstatement to her former position as Club Accountant and awarded her attorney’s fees in the amount of P50,000.00. But the NLRC absolved Famy, Nuevo and Clemente of wrongdoing.

Francisco moved for partial reconsideration of the NLRC’s Resolution with respect to its ruling declaring her suspensions as valid and the denial of her claim for damages. The NLRC denied her motion.

[8] The Court of Appeals affirms NLRC ruling

Orchard went up to the CA through a Petition for Certiorari while Francisco no longer took issue with the denial of her motion.

In its January 25, 2007 Decision, the CA sustained the NLRC ruling. It held that while Orchard had the right to transfer Francisco from one office to another within the club, there should be no demotion in rank, salary, benefits, and other privileges. The CA added that the right may not be used arbitrarily to rid the employer of an undesirable worker. Proper notification and an opportunity to be heard or contest the transfer must be given to the employee whose transfer is sought.

Francisco was notified only of Orchard’s decision to permanently transfer her, without giving her the opportunity to contest the transfer. The CA characterized Francisco’s permanent transfer as a demotion in the guise of a lateral transfer.

Orchard filed a Petition for Review with the Supreme Court questioning the CA’s decision.

Supreme Court ruling: Francisco was constructively dismissed

Francisco’s transfer to the position of Cost Controller was without valid basis and that it amounted to a demotion in rank. Hence, there was constructive dismissal.

The cause of Francisco’s temporary transfer on July 20, 2000 was her pending complaint against Famy.

When Francisco was placed on forced leave and transferred to the Cost Accounting Section, not once was Francisco given the opportunity to contest these company actions taken against her.

Just when one penalty has been served by Francisco, another would instantaneously take its place. And all these happened even while the supposed case against her, the alleged charge of “betrayal of company trust”, was still pending and remained unresolved.

Not even the claim that her relations with her superiors have been strained could justify Francisco’s transfer to Cost Accounting Section. Indeed, it appears that her charge was never resolved. And if Famy, Nuevo and Clemente truly believed that their relations with Francisco have been strained, then it puzzles the Court why, despite her transfer, she continues to remain under Famy’s direct supervision.

For this reason, Francisco’s July 20, 2000 temporary transfer and her October 12, 2000 permanent transfer to Cost Accounting Section must be invalidated. For one, there was no valid reason to temporarily transfer Francisco to Cost Accounting Section on July 20, 2000. She had already served her penalty for her failure to draft the SGV letter, through the 15-day suspension period which she just completed on July 20, 2000. Secondly, the transfer was not even rooted in any new infraction she is accused of committing. There was thus an absolute lack of basis for her July 20, 2000 temporary transfer.

As for her October 12, 2000 permanent transfer, the same is null and void for lack of just cause. Also, the transfer is a penalty imposed on a charge that has not yet been resolved. Definitely, to punish one for an offense that has not been proved is truly unfair; this is deprivation without due process. Finally, the Court sees no necessity for Francisco’s transfer; on the contrary, such transfer is outweighed by the need to secure her office and documents from Famy’s possible intervention on account of the complaint she filed against him.

The fact that Francisco continued to report for work does not necessarily suggest that constructive dismissal has not occurred, nor does it operate as a waiver. Constructive dismissal occurs not when the employee ceases to report for work, but when the unwarranted acts of the employer are committed to the end that the employee’s continued employment shall become so intolerable. In these difficult times, an employee may be left with no choice but to continue with his employment despite abuses committed against him by the employer, and even during the pendency of a labor dispute between them. This should not be taken against the employee. Instead, we must share the burden of his plight, ever aware of the precept that necessitous men are not free men.

Can a rank-and-file employee like a hotel service attendant be terminated on the ground of loss of trust and confidence?

Plain Language summary: Case title: “Philippine Plaza Holdings, Inc. vs. Ma. Flora M. Episcope,” G.R. No. 192826, Feb. 27, 2013 Issues: (1) Can a rank-and-file employee like a service attendant be terminated on the ground of loss of trust and confidence? (2) What are the two classes of positions of trust? (3) What are the requirements for the ground of loss of trust and confidence? (4) Is proof beyond reasonable doubt necessary in dismissing an employee on the ground of loss of trust and confidence? Relevant laws and cases: Article 293 (formerly Article 279) of the Labor Code Bristol Myers Squibb (Phils), Inc. v. Baban, citing Atlas Fertilizer Corporation v. National Labor Relations Commission Lopez v. Alturas Group of Companies

Background facts

[1] Philippine Plaza Holdings, Inc. (PPHI) is the owner and operator of the Westin Philippine Plaza Hotel (Hotel).

Ma. Flora M. Episcope (Episcope) was employed by PPHI from July 24, 1984 until she was terminated on November 4, 2004. Grounds for her termination were dishonesty, willful disobedience, and serious misconduct amounting to loss of trust and confidence.

[2] To check the performance of the employees and the services of the Hotel’s outlets, PPHI regularly employed independent auditors or professional shoppers.

For this purpose, Sycip, Gorres and Velayo auditors dined at the Hotel’s Café Plaza on August 28, 2004. After dining, the auditors were billed the total amount of P2,306.65, representing the cost of the food and drinks they had ordered under Check No. 565938.

[3] Based on the audit report submitted to PPHI, Episcope was one of those who attended to the auditors. She was the one who handed the check and received the payment of P2,400.00. She then returned Check No. 565938, which was stamp marked “paid,” together with the change.

[4] Upon comparing the check receipt with the sales report of Café Plaza, it was discovered that the Hotel’s copy of the receipt had a discount of P906.45. This was due to the use of a Starwood Privilege Discount Card registered in the name of Peter A. Pamintuan. The receipt issued by Episcope to the auditors reflected the undiscounted amount of P2,306.65 since none of the auditors had this discount card.

[5] On September 30, 2004, the Hotel issued a Show-Cause Memo to Episcope asking her to explain why no disciplinary action should be taken against her for the questionable and invalid discount application on the check.

In her handwritten letter, Episcope admitted that she was on duty on the date and time in question. But she could no longer recall if the concerned guests presented a Starwood Privilege Discount Card.

[6] On October 4, 2004, PPHI placed Episcope on preventive suspension without pay.

[7] During the administrative hearing on October 6, 2004, Episcope confirmed that she was the one who presented the check and received the payment from the guests. But she denied stamping the check as “paid” or that she gave any discount without a discount card. She explained that she could not have committed these acts since all receipts and discount applications were handled by the cashier. But when asked why the discounted receipt was not given to the guests, she merely replied that she could no longer remember.

In a separate inquiry, the cashier of Café Plaza maintained that a discount card must have been presented since there was a Discount Slip and a stamped receipt indicating the discounted payment.

[8] Finding Episcope to have failed to sufficiently explain the questionable discount application, PPHI terminated her employment for committing acts of dishonesty, willful disobedience, serious misconduct, and loss of trust and confidence.

[9] Episcope filed a complaint for illegal dismissal with prayer for payment of damages and attorney's fees against PPHI before the NLRC.

Rulings of the Labor Arbiter and the NLRC

On October 20, 2005, the Labor Arbiter (LA) dismissed Episcope’s complaint for illegal dismissal.

The LA found that there was substantial evidence to support the charge of improper discount application and observed that the act resulted to a loss on the Hotel’s part. Accordingly, the LA held that Episcope’s actions rendered her unworthy of the trust and confidence demanded by her position.

On appeal, the NLRC affirmed the LA’s decision in its May 30, 2007 Resolution. It also denied Episcope’s motion for reconsideration in its November 14, 2007 Resolution.

Ruling of the Court of Appeals

The CA reversed the NLRC’s Decision. It found the report submitted by the auditors insufficient to prove that Episcope was guilty of the charges against her.

The CA described the report as a mere transaction account in tabular form, without evidentiary worth. It was unsigned and bore no indication of Episcope’s alleged culpability. The CA likewise did not give credence to the minutes of the administrative hearing because it was based on the same unaudited report.

The CA (1) declared Episcope’s dismissal illegal; (2) ordered her reinstatement to her former position without loss of seniority rights and benefits under the Labor Code; and (3) remanded the case to the NLRC for further proceedings on her money claims and other benefits.

PPHI moved for reconsideration but he CA in its July 5, 2010 Resolution denied the motion. PPHI then filed with the Supreme Court a petition for certiorari under Rule 45.

The Supreme Court ruling

[1] The Court reversed the findings and conclusion of the CA. The records show that Episcope committed acts of dishonesty that resulted to monetary loss on the part of PPHI. More significantly, her acts led to PPHI’s loss of trust and confidence in her.

Despite the questioned value of the unaudited and unsigned auditor’s report, all circumstances support the finding that Episcope was negligent in her duty to carefully account for the money she received from the café’s guests. Even though the receipts were prepared by the cashier, Episcope, as a service attendant, actually handled the money given to her by the guests. She should have at least known why there was a shortage in remittance. Yet when asked, she could not offer any plausible explanation but merely shifted the blame to the cashier.

[2] Article 293 (formerly Article 279) of the Labor Code25 provides that the employer must not terminate the services of an employee except only for a just or authorized cause.

Among the just causes for termination is the employer’s loss of trust and confidence in its employee. Article 296 (c) (formerly Article 282 [c]) of the Labor Code provides that an employer may terminate the services of an employee for fraud or willful breach of the trust reposed in him.  

But in order for loss of trust and confidence to be properly invoked, certain requirements must be complied with, namely:

1. the employee must be holding a position of trust and confidence, and
   
   
2. there must be an act that would justify the loss of trust and confidence.

[3] The two classes of positions of trust are:

(1) managerial employees whose primary duty consists of the management of the establishment in which they are employed or of a department or a subdivision, and other officers or members of the managerial staff;

(2) fiduciary rank-and-file employees, such as cashiers, auditors, property custodians, or those who, in the normal exercise of their functions, regularly handle significant amounts of money or property. These employees, though rank-and-file, are routinely charged with the care and custody of the employer’s money or property, and are thus classified as occupying positions of trust and confidence.

Episcope belonged to this latter class and therefore, occupied a position of trust and confidence.

[4] Proof beyond reasonable doubt is not required in dismissing an employee for loss of trust and confidence. It is sufficient that there is some basis to believe that the employee is responsible for the misconduct. The nature of the employee’s act rendered the employee absolutely unworthy of trust and confidence demanded by the position.

Loss of trust and confidence must be based on substantial evidence and not on the employer’s whims, caprices or suspicions. Otherwise, the employee would eternally remain at the mercy of the employer. Loss of confidence must not be indiscriminately used as a shield by the employer against a claim that an employee’s dismissal was arbitrary.