Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55674 July 25, 1983
LA SUERTE CIGAR AND CIGARETTE FACTORY, petitioner,
vs.
DIRECTOR OF THE BUREAU OF LABOR RELATIONS, THE LA SUERTE
CIGAR AND CIGARETTE FACTORY PROVINCIAL (Luzon) AND METRO
MANILA SALES FORCE ASSOCIATION-NATU, and THE NATIONAL
ASSOCIATION OF TRADE UNIONS, respondents.
Angara, Abello, Concepcion, Regala & Cruz Law Office for petitioner.
The Solicitor General for respondents.
Marcelino Lontok, Jr. for respondent NATU.

GUERRERO, J.:
In the determination of the basic issue raised in the case at bar involving the
status of some 14 members of private respondent local union whether they
are employees of petitioner company in which case they should be included in
the 30% jurisdictional requirement necessary to support the petition for
certification election, or independent contractors and hence, excluded
therefrom, Our rulings in Mafinco Trading Corp. vs. Ople, 70 SCRA 139,
where We reiterated the "control test" earlier laid down in Investment Planning
Corp. vs. Social Security System, 21 SCRA 924, and in Social Security
System vs. Hon. Court of Appeals and Shriro (Phils.) Inc., 37 SCRA 579 are
authoritative and controlling.
In the Mafinco case, the Court, through Justice Aquino, said:
In a petition for certiorari, the issue of whether respondents are
employees or independent contractors should be resolved mainly
in the light of their peddling contracts. Pro hac vicethe issue of

whether Repomanta and Moralde were employees of Mafinco or

were independent contractors should be resolved mainly in the
light of their peddling contracts. A different approach would lead
this Court astray into the field of factual controversy where its
legal pronouncements would not rest on solid grounds.
A contract whereby one engages to purchase and sell soft drinks
on trucks supplied by the manufacturer but providing that other
party (peddler) shall have the right to employ his own workers,
shall post a bond to protect the manufacturer against losses, shall
be responsible for damages caused to third persons, shall obtain
the necessary licenses and permits and bear the expenses
incurred in the sale of the soft drinks is not a contract of
employment.-We hold that under their peddling contracts
Repomanta and Moralde were not employees of Mafinco but were
independent contractors as found by the NLRC and its factfinder
and by the committee appointed by the Secretary of Labor to look
into the status of Cosmos and Mafinco peddlers. They were
distributors of Cosmos soft drinks with their own capital and
employees. Ordinarily, an employee or a mere peddler does not
execute a formal contract of employment. He is simply hired and
he works under the direction and control of the employer.
Repomanta and Moralde voluntarily executed with Mafinco formal
peddling contracts which indicate the manner in - which they
would se Cosmos soft drinks. That circumstance signifies that
they were acting as independent businessmen. They were free to
sign or not to sign that contract. If they did not want to sell
Cosmos products under the conditions defined in that contract,
they were free to reject it. But having signed it, they were bound
by its stipulations and the consequences thereof under existing
labor laws. One such stipulation is the right of the parties to
terminate the contract upon 5 days' prior notice. Whether the
termination in this case was an unwarranted dismissal of an
employee, as contended by Repomanta and Moralde, is a point
that cannot be resolved without submission of evidence. Using the
contract itself as the sole criterion, the termination should perforce
be characterized as simply the exercise of a right freely stipulated
upon by the parties.
Tests for determining the existence of employer-employee
relationship.-In determining the existence of employer-employee

relationship, the following elements are generally considered,

namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employees' conduct-although the latter is the
most important element.
Factors to determine existence of independent contract
relationship. An independent contractor is one who exercises
independent employment and contracts to do a piece of work
according to his own methods and without being subject to control
of his employer except as to the result of the work. 'Among the
factors to be considered are whether the contractor is carrying on
an independent business; whether the work is part of the
employer's general business; the nature and extent of the work;
the skill required; the term and duration of the relationship; the
right to assign the performance of the work to another; the power
to terminate the relationship; the existence of a contract for the
performance of a specified piece of work; the control and
supervision of the work; the employer's powers and duties with
respect to the hiring, firing, and payment of the contractor's
servants; the control of the premises; the duty to supply the
premises, tools, appliances, material and labor, and the mode,
manner, and terms of payment.'
In the Shriro case, We held that the common law rule of determining the
existence of employer-employee relationship, principally the "control test",
applies in its jurisdiction. Where 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, relationship of
employer and employee does not exist.
And supplementing the above jurisprudence is Our ruling in Social Security
System vs. The Hon. Court of Appeals, Manila Jockey Club, Inc., Phil. Racing
Club, 30 SCRA 210 wherein the Supreme Court, speaking through then
Associate Justice, now Chief Justice Fernando, held:
The question of when there is employer-employee relationship for
purposes of the Social Security Act has been settled in this
jurisdiction in the case of Investment Planning Corp. vs. Social
Security System, 21 SCRA 924 which applied the so-called
control test, that is, whether the employer controls or has reserved

the right to control the employee not only as to the result of the
work to be done but also as to the means and methods by which
the same is to be accomplished. In other words, where the
element of control is absent; whether 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. This decision rejected the
economic facts of the relation test.
The instant petition for certiorari seeks to reverse the resolution of the Director
of the Bureau of Labor Relations dated January 15, 1980 ordering that a
certification election be conducted among the sales personnel of La Suerte
Cigar and Cigarette Factory, as well as his resolution dated November 18,
1980 denying the motion for reconsideration and directing that a certification
election be conducted immediately. The said resolutions reversed and set
aside the order of dismissal dated August 29, 1979 of the Med-Arbiter.
The antecedent facts show that on April 7, 1979, the La Suerte Cigar and
Cigarette Factory Provincial (Luzon) and Metro Manila Sales Force
Association (herein referred to as the local union) applied for and was granted
chapter status by the National Association of Trade Unions (hereinafter
referred to as NATU).
On April 16, 1979, some thirty-one (31) local union members signed a joint
letter withdrawing their membership from NATU.
Nonetheless, on April 18, 1979, the local union and NATU filed a petition for
direct certification or certification election which alleged among others, that
forty-eight of the sixty sales personnel of the Company were members of the
local union; that the petition is supported by no less than 75% of the sales
force; that there is no existing recognized labor union in the Company
representing the said sales personnel; that there is likewise no existing
collecting bargaining agreement; and that there had been no certification
election in the last twelve months preceding the filing of the petition.
The Company then filed a motion to dismiss the petition on June 13, 1979 on
the ground that it is not supported by at least 30% of the members of the
proposed bargaining unit because (a) of the alleged forty-eight (48) members
of the local union, thirty-one (31) had withdrawn prior to the filing of the

petition; and (b) fourteen (14) of the alleged members of the union were not
employees of the Company but were independent contractors.
NATU and the local union opposed the Company's motion to dismiss alleging
that the fourteen dealers are actually employees of the Company because
they are subject to its control and supervision.
On August 29, 1979, the Med-Arbiter issued an order dismissing the petition
for lack of merit as the fourteen dealers who joined the union should not be
counted in determining the 30% consent requirement because they are not
employees but independent contractors and the withdrawal of the 31
salesmen from the union prior to the filing of the petition for certification
election was uncontroverted by the parties.
Thereafter, on September 24, 1979, the local union on its own signed only by
the local union President, filed a motion for reconsideration and/or appeal
from the order of dismissal on the following grounds: (a) the findings of facts
of the med-arbiter as it appears on the order are contrary to facts and (b) in
finding that no employer-employee relationship exists between the alleged
dealers and respondent firm, the med-arbiter decided in a manner not in
accord with the factual circumstances attendant to the relationship.
Acting on the motion for reconsideration/appeal, the Director of the Bureau of
Labor Relations, in the Resolution dated January 15, 1980, reversed and set
aside the order of dismissal, holding that the withdrawal of the 31 signatories
to the petition two days prior to the filing of the instant petition did not establish
the fact that the same was executed freely and voluntarily and that the records
are replete with company documents showing that the alleged dealers are in
fact employees of the company.
The Company then filed a motion to set aside the resolution dated January
15, 1980 of the Director of the Bureau of Labor Relations, contending that the
appeal was never perfected or is jurisdictionally defective, copy of the motion
for reconsideration/appeal not having been served upon the Company, and
that the Resolution was based solely on the distorted and self-serving
allegations of the union.
The local union opposed the Company's motion for reconsideration and
submitted a memorandum on April 22, 1980 in amplification of its opposition.
At this juncture, the legal counsel of NATU filed a manifestation on May 15,
1980 stating that the act of the local union of engaging another lawyer to

handle the case amounts to disaffiliation, for which reason said legal counsel
was withdrawing from the case. The local union counter manifested that the
local union had not been officially notified of its expulsion from the NATU; that
there was no valid ground for its expulsion; that the National Executive
Council of NATU had not approved such expulsion; and that it had no
objection to the withdrawal of Atty. Marcelino Lontok, Jr. as its counsel.
Then came a motion of NATU through its President and legal counsel
withdrawing as petitioner and contending that since the local union was no
longer affiliated with it, it was no longer interested in the case. Twelve
members of the National Executive Council then came in and manifested that
they constitute a majority of the Executive Board of NATU and affirmed that
the local union was still an affiliate of NATU.
There followed a counter-manifestation of Atty. Marcelino Lontok, Jr. on
August 27, 1980 stating that six signatories to the aforesaid manifestation had
no authority to make the said foregoing statement as they had resigned from
the Executive Board en masse; that the acts of the President may not be
reversed by the Executive Council; and that the twelve signatories did not
constitute a majority of the sixty (60) members of the Executive Council.
The local union made its reply to the counter-manifestation stating that the
power to expel an affiliate exclusively belonged to the National Executive
Council of NATU, under Section 2, Article V of the NATU Constitution and ByLaws; that such power could only be wielded after due investigation and
hearing; that disaffiliation is effected only by voluntary act of the local union,
which is not the case here, because it is the President and legal counsel who
are trying to expel the union.
Simultaneously with said reply, the local union filed an opposition to Atty.
Lontok's motion to dismiss-withdraw petition, stating that Atty. Lontok had no
more personality to file the same inasmuch as he had previously withdrawn as
counsel in his manifestation dated May 7, 1980, and the local union has
accepted the same in its counter-manifestation dated May 16, 1980; that
expulsion requires two-thirds vote of the members of the National Executive
Council, as well as investigation and hearing; that engaging another lawyer is
not a ground for expulsion of an affiliate; and that the local union was
compelled to hire another lawyer because up to the last day of the
reglementary period, Atty. Lontok still had not filed an appeal from the decision
of the Med-Arbiter.

On November 18, 1980, the Director of the Bureau of Labor Relations

promulgated a resolution denying the Company's motion for reconsideration
and directing that the certification election be conducted immediately. Hence,
this petition.
In the apparently simple task of determining whether the Director of the
Bureau of Labor Relations committed grave abuse of discretion amounting to
lack of jurisdiction in ordering the direct certification election, three difficult
issues must be resolved, namely:
I. Whether or not the 14 dealers are employees or independent contractors.
II. Whether or not the withdrawal of 31 union members from the NATU
affected the petition for certification election insofar as the thirty per cent
requirement is concerned.
III. Whether or not the withdrawal of the petition for certification election by the
NATU, through its President and legal counsel, was valid and effective.
A basic factor underlying the exercise of rights under the Labor Code is status
of employment. The question of whether employer-employee relationship
exists is a primordial consideration before extending labor benefits under the
workmen's compensation, social security, medicare, termination pay and labor
relations law. It is important in the determination of who shall be included in a
proposed bargaining unit because it is the sine qua non, the fundamental and
essential condition that a bargaining unit be composed of employees. Failure
to establish this juridical relationship between the union members and the
employer affects the legality of the union itself. It means the ineligibility of the
union members to present a petition for certification election as well as to vote
therein. Corollarily, when a petition for certification election is supported by 48
signatories in a bargaining unit composed of 60 salesmen, but 14 of the 48
lacks employee status, the petition is vitiated thereby. Herein lies the
importance of resolving the status of the dealers in this case.
It is the contention of the company that the dealers in the sale of its tobacco
products are independent contractors. On the other hand, the Union contends
that such dealers are actually employees entitled to the coverage and benefits
of labor relations laws.
According to the petitioner, to effectively market its products, the Company
maintains a network of dealers all over the country. These arrangements are
covered by a dealership agreement signed between the Company and a

dealer in a particular area or territory. And attached to the petition is a

representative copy of the said dealership agreement which We quote below:
DEALERSHIP AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This DEALERSHIP AGREEMENT, executed at Pasay City,
Philippines, this 8 day of March 1977, entered into by JOSE TEN
SIU KEE, JR., of legal age, married and a resident of 178-E San
Ramon Street, Iloilo City, hereinafter referred to as DEALER, and
TELENGTAN BROTHERS & SONS, INC., doing business under
the style of "LA SUERTE CIGAR & CIGARETTE FACTORY",
hereinafter referred to as FACTORY, bears witness that:
WHEREAS, JOSE TAN SIU KEE, JR. of 178-E San Ramon
Street, Iloilo City, had applied to be a DEALER of the FACTORY
for the territories of ILOILO and/or such other territories that the
FACTORY may designate from time to time; and
WHEREAS, the FACTORY had accepted the application of JOSE
TAN SIU KEE, JR., and therefore, appointed him as one of its
dealers in ILOILO and/or such other territories that the FACTORY
may designate from time to time, who is willing and able to do so
as such for the main purpose of extensively selling the products of
the FACTORY in the said territories, under the following express
terms and conditions, to wit:
1. That the DEALER shall handle for sale and distribution of
cigarette products of the factory covering the territories of ILOILO
and/or such other territories that the FACTORY may designate
from time to time, in accordance with existing laws and
regulations of the government, without however, incurring any
expenses in doing so, without the previous written consent of the
FACTORY being first had and obtained;
2. That for the purpose of selling the cigarettes or products of the
FACTORY, the DEALER shall send his orders to the FACTORY
plant in Paraaque, Metro Manila, either in cash or on credit;
Provided, however, that in cases of credit order the DEALER can
only get or order the supply of cigarettes up to the amount of not
more than FIFTY THOUSAND PESOS (P50,000.00) only at any

given time during the existence of this Contract, unless allowed by

the FACTORY to get more;
3. That the FACTORY shall supply the DEALER with a truck or
panel delivery and all expenses shall be borne by the FACTORY;
driver shall be borne by the DEALER;
4. That the DEALER shall not receive any commission from the
FACTORY but the latter shall give the DEALER a discount for all
sales either on consignment or in cash, and said discount shall be
decided by the FACTORY from time to time;
5. That the FACTORY shall not be liable for any violation of any
law, which the DEALER may commit, and that the DEALER alone
shall be responsible for any violation;
6. The geographical area (hereinafter referred to as "Territory")
covered by this Agreement in which the DEALER shall undertake
the responsibilities provided herein is ILOILO. It is, however,
agreed and understood that the FACTORY may from time to time,
upon written notice thereof THE DEALER, change or subdivide
the Territory as the business exigencies, and the policy of the
FACTORY with respect thereto will dictate.
7. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the
FACTORY as its DEALER and diligently canvass for
buyers of the FACTORY's Products in the Territory;
(b) He shall not sell or distribute goods of a similar
nature or such as would compete and interfere with
the sale of the Products of the FACTORY in the
Territory, either on his account or on behalf of any
other person whatsoever;
(c) Furnish to the FACTORY every three (3) months a
list of the buyers/customers in the Territory, specifying
the names and address of such customers as well as
their individual daily supply/stock requirements;

(d) He will faithfully and religiously abide by the

FACTORY policy, rules and regulations, particularly
with respect to the pricing of all Products to be sold
and distributed by him;
(e) He will keep account of all his dealings hereunder
and promptly liquidate his account with the FACTORY
with respect to the Products sold by him in the
Territory;
(f) He will not engage in any activity which will in any
manner prejudice either the business or name of the
FACTORY, such as, but not limited to, "blackmarketing" operations;
(g) He will not withdraw cigarettes if the maximum
volume allotted to him by the FACTORY has been
exceeded;
(8) That the DEALER shall sell the Products of the FACTORY at a
price to be agreed upon between both parties;
(9) That the DEALER shall hereby bind and obligate himself to
furnish the FACTORY, within a week from the date of this Contract
with Surety or Cash Bond in the amount of not less than FIFTY
THOUSAND PESOS (P 50,000.00). The surety bond should be
issued by one or several bonding companies acceptable to and
approved by the FACTORY to guarantee and secure complete
and faithful performance of the DEALER and his obligations
herein enumerated, particularly the payment of his financial
obligations with the FACTORY. The bond may be increased as
required by the FACTORY;
10. In the event that the DEALER should become incapacitated to
discharge his undertakings and responsibilities under this
Agreement, for any reason whatsoever, the FACTORY may
designated, for the duration of such incapacity, a substitute to
handle the sale and distribution of the Products in the Territory;
11. The FACTORY reserves its right to determine, from time to
time, the amount of credit granted or to be granted to the

DEALER with respect to the Products to be sold and distributed in

the Territory;
12. This Agreement may be cancelled and/or terminated by the
FACTORY should the DEALER violate its undertaking under this
Agreement especially with respect to Paragraph 7(f) hereof. It is
understood, however, that the failure of the FACTORY to enforce
at any time or for any period of time, any right, power or remedy
accruing to the FACTORY upon default by the DEALER of his
undertakings under this Agreement shall not impair any such right,
power or remedy or to be construed to be a waver or an
acquiescence in such default; nor shall the action of the
FACTORY in respect of any default, or any acquiescence by it in
any default, affect or impair any right, power or remedy of the
FACTORY in respect of any other default.
13. That either party may terminate this Contract without cause by
giving to the other party fifteen (15) days notice in writing but
without prejudice to any right or claim which as of that date may
have accrued to either of the parties hereunder, however, in the
event of breach of this Contract, the FACTORY may terminate this
Contract without notice to the DEALER.
14. That it is hereby finally stipulated and agreed that in case of
litigation arising out of or in connection with this Contract, the
Municipal Court of Paraaque or the Court of First Instance cf
Rizal, as the case may be, shall be the competent court wherein
to file such action or actions.
15. That this Contract shall supersede any Contract which the
DEALER may have with the FACTORY.
IN WITNESS WHEREOF, these presents are signed at Pasay City, Philippines
on this 8 day of March 1977.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
FACTORY
By:

(SGD.) LIM HAN ENG (SGD.) JOSE TAN SIU KEE, JR.
Assistant Manager Dealer
Sales Department TAN 5976-397-9
SIGNED IN THE PRESENCE OF:
(SGD.) ILLEGIBLE (SGD.) ILLEGIBLE"
(Acknowledgment omitted)
The records embody standard copies of the Dealership Supplementary
Agreement which We also quote hereunder:
DEALERSHIP SUPPLEMENTARY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Supplementary Agreement, made and entered into
this 14th day of February, 1975 inPasay City, Philippines, by and
between:
TELENGTAN BROTHERS & SONS, INC., a
corporation duly organized and existing under the
laws of the Philippines and doing business under the
business name and style of "LA SUERTE CIGAR &
CIGARETTE FACTORY", with principal place of
business at Km. 14 South Super Highway,
Paranaque, Rizal, represented in this act by its duly
authorized Manager, Mr. ROBERT UY, hereinafter
referred to as COMPANY;
and
MR. PURISIMO EMBING of legal age, married,
Filipino and with postal address at 3047 Lawaan, UP
II, Paranaque, Rizal hereinafter referred to as
DEALER,
WITNESSETH: That

For and in consideration of the mutual covenants and agreements

made herein, by one to the other, the COMPANY and the
DEALER, by these presents, enter into this Supplementary
Agreement whereby the COMPANY will avail of the services of
the DEALER to handle the sale and distribution of its cigarette
products, consisting of MARLBORO REGULAR, MARLBORO
KING SIZE, MARLBORO 100'S; PHILIP MORRIS REGULAR,
PHILIP MORRIS FILTER KING, PHILIP MORRIS 100'S
MENTHOL, PHILIP MORRIS 100'S REGULAR; ALPINE 100'S;
MR. SLIM 100'S REGULAR, MR. SLIM 100'S MENTHOL, subject
to the following terms and conditions:
1. The COMPANY hereby constitutes and appoints the DEALER
as its authorized dealer for the sale and distribution of the
COMPANY's products as enumerated above, (hereinafter referred
to as "Products") and the DEALER hereby accepts such
appointment, all upon the terms and conditions herein contained.
2. The geographical area (hereinafter referred to as "Territory")
covered by this Agreement in which the DEALER shall undertake
the responsibilities provided herein is GREATER MANILA AND
SUBURBS. It is, however, agreed and understood that the
COMPANY may from time to time, upon written notice thereof to
the DEALER, change or subdivide the Territory as the business
exigencies, and the policy of the COMPANY with respect thereto
will dictate.
3. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the
COMPANY as its DEALER and diligently canvass for
buyers of the COMPANY's Products in the Territory;
(b) He shall not sell or distribute goods of a similar
nature or such as would compete and interfere with
the sale or the Products of the COMPANY in the
Territory, either on this account or on behalf of any
other person whatsoever;
(c) Furnish to the COMPANY every three (3) months a
list of the buyers/customers in the Territory, specifying

the names and address of such customers as well as

their individual daily supply/stock requirements;
(d) He will faithfully and religiously abide by the
COMPANY policy, rules and regulations, particularly
with respect to the pricing of all Products to be sold
and distributed by him;
(e) He will keep account of all his dealings hereunder
and promptly liquidate his account with the
COMPANY with respect to the Products sold by him in
the Territory;
(f) He will not engage in any activity which will in any
manner prejudice either the business or name of the
COMPANY, such as, but not limited to, "Black
marketing" operations;
(g) He will not withdraw cigarettes if the maximum
volume allotted to him by the COMPANY has been
exceeded;
5. The DEALER shall put up a bond, or additional bond, with the
COMPANY in such amount or amounts, as in the judgment of the
COMPANY, will be satisfactory. It is agreed that the COMPANY
can apply against said bond or additional bond, such damages as
may be suffered by the COMPANY by reason of breach on the
part of the DEALER of any of the latter's undertakings under this
Agreement.
6. In the event that the DEALER should become incapacitated to
discharge his undertakings and responsibilities under this
Agreement, for any reason whatsoever, the COMPANY may
designate for the duration of such incapacity, a substitute to
handle the sale and distribution of the Products in the Territory;
7. The COMPANY reserves its right to determine, from time to
time, the amount of credit granted or to be granted to the
DEALER with respect to the Products to be sold and distributed in
the Territory.

8. This Agreement may be cancelled and/or terminated by the

COMPANY should the DEALER violate its undertaking under this
Agreement especially with respect to Paragraph 4(f) hereof. It is
understood. however, that the failure of the COMPANY to enforce
at any time or for any period of time, any right, power or remedy
accruing to the COMPANY upon default by the DEALER of his
undertakings under this Agreement shall not impair any such right,
power or remedy or be construed to be a waiver or an
acquiescence in such default; nor shall the action of the
COMPANY in respect of any default, or any acquiescence by it in
any default, affect or impair any right, power or remedy of the
COMPANY in respect of any other default.
(9) In the appropriate cases, this Agreement shall constitute as a
supplement, revision or modification of any agreement between
the company and the DEALER now existing. However, should
there be a conflict between the provisions of this Agreement and
any such existing agreement between the COMPANY and the
DEALER, this Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be signed at the place and on the date hereinabove
written.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
By:
(SGD.) ROBERT UY (SGD.) PURISIMO EMBING
Manager DEALER
(Signature of Witnesses & Acknowledgment Omitted)
Following the rule in the Mafinco case that in a petition for certiorari, the issue
of whether respondents are employees or independent contractors should be
resolved mainly in the light of their peddling contracts, so must We likewise
resolve the status of the 14 members of the local union involved herein mainly
on their dealership agreements for verily, "a different approach would lead this
Court astray into the field of factual controversy where its legal

pronouncements would not rest on solid grounds." We must stress the

Supreme Court is not a trier of facts.
Accordingly, after considering the terms and stipulations of the Dealership
Contracts which are clear and leave no doubt upon the intention of the
contracting parties in establishing the relationship between the dealers on one
hand and the company on the other as that of buyer and seller, We find that
the status thereby created is one of independent contractorship, pursuant to
the first rule in the interpretation of contracts that the literal meaning of the
stipulations shall control. (Article 1370, New Civil Code)
From the plain language of the Dealership Agreement, We find that the same
is premised with the prefatory statement "the factory has accepted the
application of (name of applicant) and therefore has appointed him as one of
its dealers." Its terms and conditions include the following: that the dealer shall
handle the products in accordance with existing laws and regulations of the
government (par. ); that the dealer shall send his orders to the factory plant in
cash in any amount or on credit up to the amount of not more than
P10,000.00 only at any given time (par. 2); that the factory shall supply the
dealer with a truck or a panel delivery and all expenses for repairs shall be
borne by the factory (par. 3); and that the dealer shall not receive any
commission but shall be given a discount for all sales and said discount shall
be decided by the factory from time to time (par. 4).
It also provides that the dealer alone shall be responsible for any violation of
any law (par. 5); that the dealer shall be assigned to a particular territory which
the factory may decide from time to time (par. 6); that the dealer shall sell the
products at the price to be agreed upon between the parties (par. 7); and that
the dealer shall post a surety bond of not less than P10,000.00 to guarantee
and secure complete and faithful performance (par. 8).
Either party may terminate the contract without cause by giving 15 days notice
in writing; however, in the event of breach or failure to comply with any of the
conditions, the factory may terminate or rescind the contract immediately (par.
9 and 10).
The Dealership Supplementary Agreement reiterates that the Company
"hereby constitute and appoints the DEALER as its authorized dealer for the
sale and distribution of the COMPANY products" and "the DEALER hereby
accepts such appointment" (par. 1). It also provides that the geographical area
in which the dealer shall undertake his responsibilities is Greater Manila and

Suburbs. However, the Company may change or subdivide the territory as the
business exigencies and the policy of the Company will dictate (par. 2).
Under said supplementary agreement, the dealer undertakes to: (a) diligently
canvass for buyers of the Company's products; (b) refrain from selling or
distributing goods of similar nature; (c) furnish the Company every 3 months a
list of buyers/customers, specifying their addresses and individual daily
supply; (d) abide by the Company policy, particularly with respect to pricing;
(e) keep account of all his dealings and promptly liquidate his accounts; (f)
refrain from engaging in any activity which will prejudice the Company from
withdrawing cigarettes beyond the maximum volume allotted to him (par. 3.)
In case of incapacity of the dealer, the Company may designate a substitute
(par. 6). The Company also reserves the right to determine, from time to time,
the amount of credit granted or to be granted to the dealer (par. 7).
It is likewise immediately noticeable that no such words as "to hire and
employ" are present. The Dealership Agreement uses the words "the factory
has accepted the application of (name of applicant) and therefore has
appointed him as one of its dealers"; whereas the Dealership Supplementary
Agreement is prefaced with the statement: "For and in consideration of the
mutual covenants and agreements made herein, by one to the other, the
COMPANY and the DEALER by these presents, enter into this Supplementary
Agreement whereby the COMPANY will avail of the services of the DEALER
to handle the sale and distribution of the cigarette products". Nothing in the
terms and conditions likewise reveals that the dealers were engaged as
employees.
Again, on the basis of the clear terms of the dealership agreements, no
mention is made of the wages of the dealers. In fact, it specifies that the
dealer shall not receive any commission from the factory but the latter shall
give the dealer a discount for all sales either on consignment or in cash (par.
4).
Considering the matter of wages, the term "wages" as defined in Section 2 of
the Minimum Wage Law (Rep. Act No. 602) as amended, is as follows:
(g) 'Wage' paid to any employee shall mean the remuneration or
earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task,
piece, commission basis, or other method of calculating the same,
which is payable by an employer under a written or unwritten

contract of employment for work done or to be done or for

services rendered or to be rendered, and includes the fair and
reasonable value, as determined by the Secretary of Labor, of
board, lodging, or other facilities customarily furnished by the
employer to the employee ...
Section 10(k) of the same law also provides:
(k) Notification of wage conditions. It shall be the duty of every
employer to notify his employees at the time of hiring of the wage
conditions under which they are employed, which shall include the
following(1) The rate of wages payable;
(2) The method of calculation of wages;
(3) The periodicity of wage payment; the day, the hour and place
of payment; and
(4) Any change with respect to any of the foregoing items."
then, par. (h) of Sec. 10 of said law provides that such "wages" must be paid
to them periodically at least once every two weeks or twice a month.
Considering the foregoing, the dealer's discount lacks the foregoing
characteristics of the term "wage". Since it varies from month to month
depending on the volume of the sales, it lacks the characteristic of periodicity
in the manner and procedure contemplated in the Minimum Wage Law.
Respondents, in effect, admit the clarity of the terms and conditions of the
agreements which covenant that the relationship between the dealers and the
Company is one of buyer and seller of La Suerte products, and therefore, one
of an independent contractorship when they claimed that the dealership
arrangement as established under the Dealership Agreement and the
Dealership Supplementary Agreement is essentially a legal cover, cloak or
disguise to hide the continuing Employer-Employee relationship established
prior to 1964. (Respondents' Joint Memorandum, p. 34).
Precisely, there was need to change the contract of employment because of
the change of relationship, from an employee to that of an independent dealer
or contractor. The employees were free to enter into the new status, to sign or
not to sign the new agreement. As in the Mafinco case, the respondents

therein as in the instant case, were free to reject the terms of the dealership
but having signed it, they were bound by its stipulations and the
consequences thereof under existing labor laws. The fact that the 14 local
union members voluntarily executed with La Suerte formal dealership
agreements which indicate the distribution and sale of La Suerte cigarettes
signifies that they were acting as independent businessmen.
We ruled earlier that the terms and stipulations of the dealership agreement
leave no room for doubt that the parties entered into a transaction for the
distribution and sale of La Suerte products whereby the distributor/sever or
dealer assumes the status of an independent contractor. We note that the
applicant who is appointed dealer "is willing and able to do as such for the
main purpose of extensively selling the products of the FACTORY in the said
territories under certain expressed terms and conditions" among them: "1.
That the DEALER shall handle for sale and distribution cigarette products of
the factory ..."; "2. That for the purpose of selling cigarettes or products of the
factory, the dealer shall send his order to the factory plant in Paraaque,
Metro Manila either in cash or on credit ..."; "4. That the dealer shall not
receive any commission from the factory but the latter shall give the dealer a
discount for all sales either on consignment or in cash ..."; "7. (b) He shall
not sell or distribute goods of a similar nature or such as would compete and
interfere with the sale of the products of the factory in the territory, either on
his account or on behalf of any other person whatsoever ..."; "8. That the
dealer shall sell the products of the factory at a price to be agreed upon
between both parties."
It is not disputed that under the dealership agreement, the dealer purchases
and sells the cigarettes manufactured by the company under and for his own
account. The dealer places his order for the purchase of cigarettes to be sold
by him in a particular territory by filling up an Issuance Slip. The Issuance Slip
is approved by the Sales Manager and after the sale is approved, a Sales
Invoice is then issued to the dealer. On the basis of the approved Issuance
Slip and the Sales Invoice, the dealer secures the delivery of his order from
the warehouse of the company and upon delivery of the cigarettes from the
warehouse, the dealer has the 'obligation to pay whether the cigarettes are
disposed or not. The dealer on his own account sells the cigarettes in any
manner he deems best without constraint as to time. The dealers do not
devote their full time in selling company products. They are likewise engaged
in other livelihood and businesses while selling cigarettes manufactured by
the company.

The sales to the dealers are either on cash or credit basis. Where it is on cash
basis, the amount is paid immediately upon the delivery of the products from
the company's warehouse. If it is on credit, the dealer would usually settle his
account within one week from the time the credit is extended to him. Upon
payment of the purchase price, a company official receipt is issued to him.
Private respondents contend that there are essential differences between the
dealership agreement and that in actual practice and operation, then
proceeded to point them in the attempt to prove the control of La Suerte over
the sales effort of the dealers. They also contend that the dealership
agreement, as stated earlier, is essentially a legal cover, a cloak or disguise to
hide the continuing employer-employee relationship established prior to 1964.
We reject both contentions as being without merit.
In the first place, We cannot accept nor consider evidence varying the terms
of the agreement other than the contents of the writing itself pursuant to
Section 7, Rule 130 of the Revised Rules of Court, which provides that:
Section 7. Evidence of written agreements. When the terms of
an agreement have been reduced to writing, it is to be considered
as containing all such terms, and, therefore, there can be,
between the parties and their successors in interest, no evidence
of the terms of the agreement other than the contents of the
writing except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
The term 'agreement' includes wills.
If there are changes by reason of actual practice and operation, certiorari is
not the proper proceeding or remedy therefor.
In the second place, petitioner's claim that respondent local union relies
heavily on evidence dehorsthe record or extraneous evidence found in cases
other than the one at bar, as the testimony in theLimarez case, NCR Case AB3-4960-80 cited extensively (pp. 63, 64, 65-66, 66-67, 68-69, 70-72, 73-76,
77-83, 84-85, 86-87, 89, 90-94, 97-98, 107, Comment of Local Union) and

that practically all the appendages to the Comment of Local Union constituting
the main bulk thereof (Annexes 1 to 52) were evidence introduced in other
cases and not in the case at bar, is meritorious. We reject said
evidence dehors the record and the appendages raised for the first time on
appeal as extrinsic, beyond the scope of this review.
Private respondents contend that under the dealership agreement, the totality
of the powers expressly reserved to the company, respecting essential
aspects or facets of the sales operation of the dealers, clearly establish
company control over the manner and details of performance. And they cite
the following: "(1) The dealer shall be assigned to a particular territory which
the factory shall decide from time to time (par. 6); (2) The dealer shall handle
for sale and distribution cigarette products of the company. . . without however
incurring any expense in doing so, without previous written consent of the
factory being first had and obtained (par. 1); (3) In cases of credit order, the
dealer can only get or order the supply of cigarettes up to the amount of not
more than P 10,000.00 only at any given time during the existence of this
contract, unless allowed by the factory to get more (par. 2); (4) The company
shall give the dealer a discount for all sales . . . and said discount shall be
decided by the factory from time to time (par. 4); (5) It is however agreed and
understood that the company may, from time to time, upon written notice
thereof to the dealer, change or divide the territory as the business exigencies
and policy of the factory with respect thereto will dictate (par. 2, Annex 10); (6)
Each dealer will faithfully and religiously abide by the company policy, rules
and regulations, particularly with respect to pricing of all products to be sold
and distributed by him (par. 3, sub-par. (d), Annex 10); (7) The dealer shall put
up a bond or additional bond with the company in such amounts as in the
judgment of the company may be satisfactory (par. 5, Annex 10); (8) In the
event that the dealer should become incapacitated for any reason whatsoever,
the factory may designate for the duration of said incapacity a substitute to
handle the sale and distribution of the products in the territory (par. 6, Annex
10); (9) The company reserves the right to determine, from time to time, the
amount of credit granted or to be granted the dealer (par. 7, Annex 10); (10)
This agreement may be cancelled and/or terminated by the company should
the dealer violate its undertaking under this Agreement, especially par. 7(f)
hereof (par. 8, Annex 10); (11) That either party may terminate this contract
without cause by giving to the other party 15 days notice in writing (par. 9,
Annex 9); and (12) In the event of breach of this contract, the company may
terminate this contract without notice to the dealer (proviso in par. 9, Annex 9).
"1

Disputing private respondents' above contention that the company exercises company control over the
manner and details of the sales operation of the dealers and not merely over the result of the work of
each dealer, petitioner maintains that:
1. The allocation of a definite territory to be assigned to a dealer or distributor is standard practice in
dealership agreements, whether international or domestic. Allocation of area responsibility and territorial
and customer restrictions are common features of dealership agreements. Thus, a company may be
appointed exclusive distributor or dealer of a product in the Philippines, the Asian region or in the Far East
in the same way that some Philippine manufacturers appoint exclusive dealers for the United States or
Canada;
2. In the Shriro case, the expenses for handling and delivery of the goods to the customers are all for the
account of the company (See Social Security System vs. Hon. Court of Appeals & Shriro (Phil.) Inc., 37
SCRA 579) and there, the Supreme Court did not consider the facts as indicia of an employment relation;
3. In limiting a credit order for cigarettes up to the amount of P 10,000.00 only at any given time during the
existence of the contract, unless allowed by the factory to get more, the company merely controls the
result of the work of the dealer. The credit order is limited because in a dealership contract, the
transaction is one of buy and sell and once an order is made, specially a credit order, the risk of loss is
passed on to the dealer;
4. In the Mafinco case, the peddlers are given also a discount and the Supreme Court held that the
peddling contract is not a contract of employment but signifies an independent contractor relationship.
5. The change or division of the territory to which a dealer is assigned as the business exigencies and
policy of the factory with respect thereto will dictate from time to time is no indicia of company control over
the means and methods for in theMafinco case the peddlers are also assigned definite area routes or
zones.
6. That the dealers shall abide with the company policies and rules, particularly in pricing of products is a
standard practice in dealership agreements and more so in franchising agreements. The fact that a
person has to conform with standards of conduct set by the company does not declassify such a person
as an independent contractor so long as he can determine his own day to day activities. In independent
contracts, there is always the element of control as to what shall be done as distinguished from how it
should be done.
7. The posting of a surety bond under par. 8 of the Dealers Agreement is similar to the giving of a cash
bond under par. 7, Peddlers Contract in the Mafinco case wherein it is ruled that the Peddlers Contract
involved therein is not an employment agreement.
8. The right to designate a substitute dealer in the event of the incapacity of the regular dealer is no
indication of an employer-employee relationship. It is just business prudence to provide for substitute
dealers in case of the regular dealer's incapacity.
9. That the company may determine from time to time the amount of credit granted or to be granted the
dealer is more a control over the result rather than the means as in Shriro case where the company even
reserves the right to approve or reject a sales order, whether on cash or on credit basis.
10. The power to cancel or terminate should the dealer violate its undertaking under the agreement on the
basis of the company's opinion that the dealer must engage in any activity which will in any manner
prejudice either the business or name of the factory is a standard practice in dealership agreements.

We agree with the petitioner. We hold further that the terms and conditions for the termination of the
contract are the usual and common stipulations in independent contractorship agreements. In any event,
the contention that the totality of the powers expressly reserved to the company establish company
control over the manner and details of performance is merely speculative and conjectural.
There are indeed striking similarities between the Peddler's Contract in the Mafinco case and the Dealer's
Agreement and Supplementary Dealer's Agreement in the case at bar. Thus:
1. Use of company facilities La Suerte provides dealers with truck or panel delivery (par. 3, Dealer's
Agreement) whereas in Mafinco, the company also provides peddler with delivery truck (par. 1, Peddling
Contract);
2. Salary of drivers Dealer in this La Suerte case pays salary of driver (par. 3, Dealer's Agreement). In
Mafinco, the salary of drivers is for peddler's account (par. 2, Peddling Contract);
3. Expenses of operation and maintenance La Suerte pays for expenses and repair pertaining to the
truck or panel delivery (par. 3, Dealership Agreement). In Mafinco, the company furnishes gasoline and oil
to run trucks and bear costs of maintenance and repair (par. 4, Peddling Contract);
4. Profit Margin In instant La Suerte case, no commission given. Company gives a sales discount (par.
4, Dealership Agreement). In Mafinco, no commission is also given. Peddler given a sales discount (par.
6, Peddler's Contract);
5. Collateral Dealer in La Suerte gives a surety bond (par. 8, Dealer's Agreement). In Mafinco, peddler
gives a cash bond (par. 7), Peddler's Contract);
6. Payment Dealer required to promptly liquidate account (par. 3, (e), Supplementary Dealer's
Contract). In Mafinco, peddler liquidates everyday at the end of each day, otherwise his cash bond shall
answer for unliquidated account (par. 8, Peddler's Contract);
7. Termination In La Suerte case, no fixed period but either party may terminate after 15 days written
notice (par. 9, Dealer's Contract). In Mafinco, the contract is for one year but either party may terminate
earlier upon 5-day written notice (par. 9, Peddler's Contract);
8. Government licenses Dealers secure own municipal license and Mayor's permit (Annexes 23 to 24,
Comment of Local Union). In Mafinco, peddler secure own licenses to peddle (Committee Report, 70
SCRA 157);
9. Working hours Dealers have to get quotas daily but no fixed time. In Mafinco, peddlers get their
trucks in the morning and have to report daily (Report of Committee, 70 SCRA 154-156). No fixed time;
10. Territory Dealer assigned a particular territory (par. 6, Dealer's Agreement). In Mafinco, peddlers
have a fixed territory in Manila, see whereas clause of Peddler's Contract, subject to prearranged routes,
areas and zones agreed upon by Peddler's Association (Committee Report, 70 SCRA 156);
11. Supervision Supervisors also for market analysis in La Suerte case. In Mafinco, Liaison Officer or
Supervisors for market analysis (Committee Report, 70 SCRA 156);
12. Basic Agreement In the instant La Suerte case, the dealer is "appointed" (not hired as in
employment contract) "to handle" products without commission but with sales discount through sales
invoices which state "sold to" dealer (Annex B, Petition; Annex D, Petition). Payments duly receipted
(Annex E, Petition). In Mafinco, the peddler is "desirous of buying and selling" (70 SCRA 143).

On the second issue-whether or not the withdrawal of 31 union members from NATU affected the petition
for certification election insofar as the 30% requirement is concerned, We reserve the Order of the
respondent Director of the Bureau of Labor Relations, it appearing undisputably that the 31 union
members had withdrawn their support to the petition before the filing of said petition. It would be otherwise
if the withdrawal was made after the filing of the petition for it would then be presumed that the withdrawal
was not free and voluntary. The presumption would arise that the withdrawal was procured through
duress, coercion or for valuable consideration. In other words, the distinction must be that withdrawals
made before the filing of the petition are presumed voluntary unless there is convincing proof to the
contrary, whereas withdrawals made after the filing of the petition are deemed involuntary.
The reason for such distinction is that if the withdrawal or retraction is made before the filing of the
petition, the names of employees supporting the petition are supposed to be held secret to the opposite
party. Logically, any such withdrawal or retraction shows voluntariness in the absence of proof to the
contrary. Moreover, it becomes apparent that such employees had not given consent to the filing of the
petition, hence the subscription requirement has not been met.
When the withdrawal or retraction is made after the petition is filed, the employees who are supporting the
petition become known to the opposite party since their names are attached to the petition at the time of
filing. Therefore, it would not be unexpected that the opposite party would use foul means for the subject
employees to withdrawal their support.
In recapitulation, We hold and rule that the 14 members of respondent local union are dealers or
independent contractors. They are not employees of petitioner company. With the withdrawal by 31
members of their support to the petition prior to or before the filing thereof, making a total of 45, the
remainder of 3 out of the 48 alleged to have supported the petition can hardly be said to represent the
union. Hence, the dismissal of the petition by the Med-Arbiter was correct and justified. Respondent
Director committed grave abuse of discretion in reversing the order of the Med- Arbiter.
With the above pronouncements, the resolution of the third issue raised herein is unnecessary.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Resolution dated January 15, 1980 of
respondent Director of the Bureau of Labor Relations and the Resolution dated November 18,1980 are
hereby REVERSED and SET ASIDE, and the petition for certification election is ordered dismissed.
No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion Jr., Abad Santos and Escolin JJ., concur.
Aquino, J, concurs in the result.
De Castro, J., is on leave.

Footnotes
1 Annex 9 refers to the Dealership Supplementary Agreement; Annex 10, to the Dealership Agreement.

The Lawphil Project - Arellano Law Foundation