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DAVAO SAW MILL CO. vs CASTILLO (Property Law) 61 Phil 709 G.R. No.

L-40411 August 7, 1935 DAVAO SAW MILL CO., INC., plaintiff-appellant, vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant. J.W. Ferrier for appellees. MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and as set forth by counsel for the parties on appeal, involves the determination of the nature of the properties described in the complaint. The trial judge found that those properties were personal in nature, and as a consequence absolved the defendants from the complaint, with costs against the plaintiff. The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon which the business was conducted belonged to another person. On the land the sawmill company erected a building which housed the machinery used by it. Some of the implements thus used were clearly personal property, the conflict concerning machines which were placed and mounted on foundations of cement. In the contract of lease between the sawmill company and the owner of the land there appeared the following provision: That on the expiration of the period agreed upon, all the improvements and buildings introduced and erected by the party of the second part shall pass to the exclusive ownership of the party of the first part without any obligation on its part to pay any amount for said improvements and buildings; also, in the event the party of the second part should leave or abandon the land leased before the time herein stipulated, the improvements and buildings shall likewise pass to the ownership of the party of the first part as though the time agreed upon had expired: Provided, however, That the machineries and accessories are not included in the improvements which will pass to the party of the first part on the expiration or abandonment of the land leased. In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant in that action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty by the sheriff. No third party claim was filed for such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein having consummated the sale, proceeded to take possession of the machinery and other properties described in the corresponding certificates of sale executed in its favor by the sheriff of Davao. As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment from the original mortgages. Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of 1. Land, buildings, roads and constructions of all kinds adhering to the soil; xxx xxx xxx 5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade of industry. Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing from the facts. In the first place, it must again be pointed out that the appellant should have registered its protest before or at the time of the sale of this property. It must further be pointed out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation. It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in connection therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was held that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person acted as the agent of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part said: To determine this question involves fixing the nature and character of the property from the point of view of the rights of Valdes and its nature and character from the point of view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived by them from the execution levied on the machinery placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not only land and buildings, but also attributes immovability in some cases to property of a movable nature, that is, personal property, because of the destination to which it is applied. "Things," says section 334 of the Porto Rican Code, "may be immovable either by their own nature or by their destination or the object to which they are applicable." Numerous illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery, vessels, instruments or implements intended by the owner of the tenements for the industrial or works that they may carry on in any building or upon any land and which tend directly to meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in themselves movable, may be immobilized.) So far as the subject-matter with which we are dealing machinery placed in the plant it is plain, both under the provisions of the Porto Rican Law and of the Code Napoleon, that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by Demolombe, upon the fact that one only having a temporary right to the possession or enjoyment of property is not presumed by the law to have applied movable property belonging to him so as to deprive him of it by causing it by an act of immobilization to become the property of another. It follows that abstractly speaking the machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character of movable property and become immovable by destination. But in the concrete immobilization took place because of the express provisions of the lease under which the Altagracia held, since the lease in substance required the putting in of improved machinery, deprived the tenant of any right to charge against the lessor the cost such machinery, and it was expressly stipulated that the machinery so put in should become a part of the plant belonging to the owner without compensation to the lessee. Under such conditions the tenant in putting in the machinery was acting but as the agent of the owner in compliance with the obligations resting upon him, and the immobilization of the machinery which resulted arose in legal effect from the act of the owner in giving by contract a permanent destination to the machinery. xxx xxx xxx The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that they had the right to levy on it under the execution upon the judgment in their favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes, since as to him the property was a part of the realty which, as the result of his obligations under the lease, he could not, for the purpose of collecting his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.) Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance to be paid by the appellant.

ENCYCLOPAEDIA BRITANNICA v. NLRC, 264 SCRA 1 (Labor Standards) G.R. No. 87098 November 4, 1996 ENCYCLOPAEDIA BRITANNICA (PHILIPPINES), INC., petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER TEODORICO L. ROGELIO and BENJAMIN LIMJOCO, respondents. TORRES, JR., J.: Encyclopaedia Britannica (Philippines), Inc. filed this petition for certiorari to annul and set aside the resolution of the National Labor Relations Commission, Third Division, in NLRC Case No. RB IV-5158-76, dated December 28, 1988, the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, the decision dated December 7, 1982 of then Labor Arbiter Teodorico L. Dogelio is hereby AFFIRMED, and the instant appeal is hereby DISMISSED for lack of merit. SO ORDERED. 1 Private respondent Benjamin Limjoco was a Sales Division Manager of petitioner Encyclopaedia Britannica and was in charge of selling petitioner's products through some sales representatives. As compensation, private respondent received commissions from the products sold by his agents. He was also allowed to use petitioner's name, goodwill and logo. It was, however, agreed upon that office expenses would be deducted from private respondent's commissions. Petitioner would also be informed about appointments, promotions, and transfers of employees in private respondent's district. On June 14, 1974, private respondent Limjoco resigned from office to pursue his private business. Then on October 30, 1975, he filed a complaint against petitioner Encyclopaedia Britannica with the Department of Labor and Employment, claiming for non-payment of separation pay and other benefits, and also illegal deduction from his sales commissions. Petitioner Encyclopaedia Britannica alleged that complainant Benjamin Limjoco (Limjoco, for brevity) was not its employee but an independent dealer authorized to promote and sell its products and in return, received commissions therefrom. Limjoco did not have any salary and his income from the petitioner company was dependent on the volume of sales accomplished. He also had his own separate office, financed the business expenses, and maintained his own workforce. The salaries of his secretary, utility man, and sales representatives were chargeable to his commissions. Thus, petitioner argued that it had no control and supervision over the complainant as to the manner and means he conducted his business operations. The latter did not even report to the office of the petitioner and did not observe fixed office hours. Consequently, there was no employer-employee relationship. Limjoco maintained otherwise. He alleged that he was hired by the petitioner in July 1970, was assigned in the sales department, and was earning an average of P4,000.00 monthly as his sales commission. He was under the supervision of the petitioner's officials who issued to him and his other personnel, memoranda, guidelines on company policies, instructions and other orders. He was, however, dismissed by the petitioner when the Laurel-Langley Agreement expired. As a result thereof, Limjoco asserts that in accordance with the established company practice and the provisions of the collective bargaining agreement, he was entitled to termination pay equivalent to one month salary, the unpaid benefits (Christmas bonus, midyear bonus, clothing allowance, vacation leave, and sick leave), and the amounts illegally deducted from his commissions which were then used for the payments of office supplies, office space, and overhead expenses. On December 7, 1982, Labor Arbiter Teodorico Dogelio, in a decision ruled that Limjoco was an employee of the petitioner company. Petitioner had control over Limjoco since the latter was required to make periodic reports of his sales activities to the company. All transactions were subject to the final approval of the petitioner, an evidence that petitioner company had active control on the sales activities. There was therefore, an employer-employee relationship and necessarily, Limjoco was entitled to his claims. The decision also ordered petitioner company to pay the following: 1. To pay complainant his separation pay in the total amount of P16,000.00; 2. To pay complainant his unpaid Christmas bonus for three years or the amount of 12,000.00; 3. To pay complainant his unpaid mid-year bonus equivalent to one-half month pay or the total amount of P6,000.00; 4. To pay complainant his accrued vacation leave equivalent to 15 days per year of service, or the total amount of P6,000.00; 5. To pay complainant his unpaid clothing allowance in the total amount of P600.00; and 6. To pay complainant his accrued sick leave equivalent to 15 days per year of service or the total amount of P6,000.00. 2 On appeal, the Third Division of the National Labor Relations Commission affirmed the assailed decision. The Commission opined that there was no evidence supporting the allegation that Limjoco was an independent contractor or dealer. The petitioner still exercised control over Limjoco through its memoranda and guidelines and even prohibitions on the sale of products other than those authorized by it. In short, the petitioner company dictated how and where to sell its products. Aside from that fact, Limjoco passed the costs to the petitioner chargeable against his future commissions. Such practice proved that he was not an independent dealer or contractor for it is required by law that an independent contractor should have substantial capital or investment.

Dissatisfied with the outcome of the case, petitioner Encyclopaedia Britannica now comes to us in this petition for certiorari and injunction with prayer for preliminary injunction. On April 3, 1989, this Court issued a temporary restraining order enjoining the enforcement of the decision dated December 7, 1982. The following are the arguments raised by the petitioner: I The respondent NLRC gravely abused its discretion in holding that "appellant's contention that appellee was an independent contractor is not supported by evidence on record". II Respondent NLRC committed grave abuse of discretion in not passing upon the validity of the pronouncement of the respondent Labor Arbiter granting private respondent's claim for payment of Christmas bonus, Mid-year bonus, clothing allowance and the money equivalent of accrued and unused vacation and sick leave. The NLRC ruled that there existed an employer-employee relationship and petitioner failed to disprove this finding. We do not agree. In determining the existence of an employer-employee relationship the following elements must be present: 1) selection and engagement of the employee; 2) payment of wages; 3) power of dismissal; and 4) the power to control the employee's conduct. Of the above, control of employee's conduct is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. 3 Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end to be achieved, but also the manner and means to used in reaching that end. 4 The fact that petitioner issued memoranda to private respondents and to other division sales managers did not prove that petitioner had actual control over them. The different memoranda were merely guidelines on company policies which the sales managers follow and impose on their respective agents. It should be noted that in petitioner's business of selling encyclopedias and books, the marketing of these products was done through dealership agreements. The sales operations were primarily conducted by independent authorized agents who did not receive regular compensations but only commissions based on the sales of the products. These independent agents hired their own sales representatives, financed their own office expenses, and maintained their own staff. Thus, there was a need for the petitioner to issue memoranda to private respondent so that the latter would be apprised of the company policies and procedures. Nevertheless, private respondent Limjoco and the other agents were free to conduct and promote their sales operations. The periodic reports to the petitioner by the agents were but necessary to update the company of the latter's performance and business income. Private respondent was not an employee of the petitioner company. While it was true that the petitioner had fixed the prices of the products for reason of uniformity and private respondent could not alter them, the latter, nevertheless, had free rein in the means and methods for conducting the marketing operations. He selected his own personnel and the only reason why he had to notify the petitioner about such appointments was for purpose of deducting the employees' salaries from his commissions. This he admitted in his testimonies, thus: Q. Yes, in other words you were on what is known as P&L basis or profit and loss basis? A. That is right. Q. If for an instance, just example your sales representative in any period did not produce any sales, you would not get any money from Britannica, would you? A. No, sir. Q. In fact, Britannica by doing the accounting for you as division manager was merely making it easy for you to concentrate all your effort in selling and you don't worry about accounting, isn't that so? A. Yes, sir. Q. In fact whenever you hire a secretary or trainer you merely hire that person and notify Britannica so that Encyclopaedia Britannica will give the salaries and deduct it from your earnings, isn't that so? A. In certain cases I just hired people previously employed by Encyclopaedia Britannica. xxx xxx xxx Q. In this Exhibit "2" you were informing Encyclopaedia Britannica that you have hired a certain person and you were telling Britannica how her salary was going to be taken cared of, is it not? A. Yes, sir. Q. You said here, "please be informed that we have appointed Miss Luz Villan as division trainer effective May 1, 1971 at P550.00 per month her salary will be chargeable to the Katipunan and Bayanihan Districts", signed by yourself. What is the Katipunan and Bayanihan District? A. Those were districts under my division.

Q. In effect you were telling Britannica that you have hired this person and "you should charge her salary to me," is that right? A. Yes, sir. 5 Private respondent was merely an agent or an independent dealer of the petitioner. He was free to conduct his work and he was free to engage in other means of livelihood. At the time he was connected with the petitioner company, private respondent was also a director and later the president of the Farmers' Rural Bank. Had he been an employee of the company, he could not be employed elsewhere and he would be required to devote full time for petitioner. If private respondent was indeed an employee, it was rather unusual for him to wait for more than a year from his separation from work before he decided to file his claims. Significantly, when Limjoco tendered his resignation to petitioner on June 14, 1974, he stated, thus: Re: Resignation I am resigning as manager of the EB Capitol Division effective 16 June 1974. This decision was brought about by conflict with other interests which lately have increasingly required my personal attention. I feel that in fairness to the company and to the people under my supervision I should relinquish the position to someone who can devote full-time to the Division. I wish to thank you for all the encouragement and assistance you have extended to me and to my group during my long association with Britannica. Evidently, Limjoco was aware of "conflict with other interests which . . . have increasingly required my personal attention" (p. 118, Records). At the very least, it would indicate that petitioner has no effective control over the personal activities of Limjoco, who as admitted by the latter had other "conflict of interest" requiring his personal attention. In ascertaining whether the relationship is that of employer-employee or one of independent contractor, each case must be determined by its own facts and all features of the relationship are to be considered. 6 The records of the case at bar showed that there was no such employer-employee relationship. As stated earlier, "the element of control is absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount thereof, we should not find that the relationship of employer and employee exists. 7 In fine, there is nothing in the records to show or would "indicate that complainant was under the control of the petitioner" in respect of the means and methods 8 in the performance of complainant's work. Consequently, private respondent is not entitled to the benefits prayed for. In view of the foregoing premises, the petition is hereby GRANTED, and the decision of the NLRC is hereby REVERSED AND SET ASIDE. SO ORDERED.