Villa Rey Transit vs. Ferrer[GR L-23893, 29 October 1968]

Facts: [preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC) in Cases 44213 and 104651, which authorized him to operate a total of 32 units on various routes or lines from Pangasinan to Manila, and vice-versa. On 8 January 1959, he sold the two certificates of public convenience to the Pangasinan Transportation Company, Inc. (Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less than a month after its registration with the Securities and Exchange Commission (10 March 1959), the Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49 buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."

The very same day that the contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved. On 19 May 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July 1959, levied on 2 of the five certificates of public convenience involved therein, namely, those issued under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057, and that of Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to wit, on 22 July 1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court, which decreed, after deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one to operate the lines provisionally.

[present case] On 4 November 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. The CFI of Manila declared the sheriff's sale of two certificates of public convenience in favor of Ferrer and the subsequent sale thereof by the latter to Pantranco null and void; declared the Corporation

to be the lawful owner of the said certificates of public convenience; and ordered Ferrer and Pantranco, jointly and severally, to pay the Corporation, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. All parties appealed.

Issue: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER" in the contract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).

Held: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment; there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the Corporation and deposited them to his private accounts; and the Corporation paid his personal accounts. Villarama himself admitted that he mingled the corporate funds with his own money. These circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality. The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.

Edward Nell Company vs. Pacific Farms

G.R. No. L-20850; November 29, 1965

FACTS:

The Edward Nell Co. secured a judgment representing the unpaid balance of the price of a pump sold to Insular Farms. Pacific Farms then purchased all or substantially all of shares of stock as well as real and personal property of Insular, selling the shares to certain individuals who reorganized Insular. The board of the reorganized Insular then sold its assets to be sold to Pacific for P10000. The writ of execution was returned, stating that Insular had no leviable property. Nell Co sued Pacific Farms, on the ground as a result of the purchase of all or substantially all assets of Insular, Pacific became the alter ego of Insular Farms.

ISSUE:

WON a corporation who sells or otherwise transfers all of its assets to another corporation is liable for debts and liabilities of the transferor.

HELD:

NO. Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts.

In the case at bar, there is neither proof nor allegation that appellee had made any of the above exceptions. Hence, Pacific Farms cannot assume the debts and liabilities of Insular Farms.

Caltex (Phils), Inc. v. PNOC Shipping and Transport Corporation

Facts:

PSTC and Luzon Stevedoring Corporation (LUSTEVECO) entered into an Agreement of Assumption of Obligations, which provides that PSTC shall assume all obligations of LUSTEVECO with respect to certain claims enumerated in the Annexes of the Agreement. This Agreement also provides that PSTC shall control the conduct of any litigation pending which may be filed with respect to such claims, and that LUSTEVECO appoints and constitutes PSTC as its attorney-in-fact to demand and receive any claim out of the countersuits and counterclaims arising from said claims. Among the actions mentioned is Caltex (Phils) v. Luzon Stevedoring Corporation, which was then pending appeal before the IAC. The IAC affirmed the decision of the CFI ordering LUSTEVECO to pay Caltex P103,659.44 with legal interest. When the decision became final and executor, a writ of execution was issued in favor of Caltex but such judgment was not satisfied because of the prior foreclosure of LESTEVECO’s properties.

Upon learning of the Agreement between PSTC and LUSTEVECO, Caltex demanded payment from PSTC and brought the action. The RTC ruled in favor of Caltex but the CA reversed on appeal. CA ruled that Caltex has no personality to sue PSTC, that non-compliance with the Agreement could only be questioned by signatories of the contract, and that only LUSTEVECO and PSTC who can enforce Agreement. The CA also rendered fatal the omission of LUSTEVECO, as real party in interest, as party defendant, and that Caltex is not a beneficiary of a stipulation pour atrui because there is no stipulation which clearly and deliberately favors Caltex.

Issues:

1. Whether PSTC is bound by the Agreement when it assumed all the obligations of LUSTEVECO; and2. Whether Caltex is a real party in interest to file an action to recover from PSTC the judgment debt against

LUSTEVECO.

Held:

1. Yes. Caltex may recover the judgment debt from PSTC not because of a stipulation in Caltex’s favor but because the Agreement provides that PSTC shall assume all the obligations of LUSTEVECO. LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECO’s business, properties and assets pertaining to its tanker and bulk business “together with all the obligations relating to the said business, properties and assets.” The assumption of obligations was stipulated not only in the Agreement of Assumption of Obligations but also in the Agreement of Transfer.

Even without the Agreement, PSTC is still liable. While the Corporation Code allows the transfer of all or substantially all the properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor by holding the assignee liable for the former’s obligations. To allow an assignor to make a transfer without the consent of its creditors and without requiring the assignee to assume the former’s obligations will defraud creditors. In the case of Oria v. McMicking, the Court enumerated the badges of fraud including a transfer made by a debtor after suit has been begun and while it is pending against him, and the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially.

The Agreement also constitutes a novation of LUSTEVECO’s obligations by substituting the person of the debtor. And because it was done without the consent of Caltex, the assets transferred remain even in the hands of PSTC still subject to execution to satisfy the judgment claim of Caltex.

2. Yes. Ordinarily, one who is not privy to a contract may not bring an action to enforce it. But this case falls under the exception when those who are not principally or subsidiarily obligated in a contract may show their detriment that could result from it. In this case, non-performance of PSTC’s obligations will defraud Caltex.

[G.R. No. L-23586. March 20, 1968.]

A.D. SANTOS, INC., Petitioner, v. VENTURA VASQUEZ, Respondent.

FACTS:

Respondent Ventura Vasquez was petitioner’s taxi driver. He was diagnosed of pulmonary tuberculosis, moderately advanced in both lungs. He clinically improved but did not resume work due to the same findings in his x-ray exams. He later filed a claim under the Workmen’s Compensation Act against the new operator of the taxi company, AD Santos.

ISSUE: W/N the claim for compensation should be directed against the new operator of the taxi company

RULING:

Petitioner’s averment that respondent driver had no cause of action against petitioner is equally without merit. Petitioner, in answer to the claim, categorically admitted that claimant was its taxi driver. Add to this the fact that the claimant contracted pulmonary tuberculosis by reason of his said employment. And respondent’s cause of action against petitioner is complete.

Laguna Transportation vs. SSS

G.R. No. L-14606; April 28, 1960

FACTS:

Petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna petition praying that an order be issued by the court declaring that it is not bound to register as a member of respondent Social Security System and, therefore, not obliged to pay to the latter the contributions required under the Social Security Act. To this petition, respondent filed its answer praying for its dismissal due to petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business has been in operation for at least 2 years prior to the enactment of the Social Security Act.

ISSUE:

WON a partnership later converted to a corporation, which continued the same line of business, is still liable to the debts and liabilities of the partnership.

HELD:

YES. Although, a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the motion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.

However, where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable therefore.

JOHN F. McLEOD vs. NLRC, FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU

FACTS: Feb 1995 McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, damages, attorney’s fees against Filsyn, Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.

McLeod, an expert in textile manufacturing process, was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX), promoted to Senior Manager. UTEX President Patricio Lim formed Peggy Mills, Inc. with Filsyn having controlling interest. McLeod was absorbed by Peggy as its VP and Laguna Plant Manager. McLeod claimed that respondents failed to pay him vacation and leave credits since Peggy was short of funds; that he was entitled to the monetary value of 4 round trip business class plane tickets on a Manila-London-Manila itinerary; that his monthly salary of 60k was reduced by 9.9k for 39 months.

Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. Peggy Mills was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President. When McLeod reached the retirement age, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87.

The owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles. McLeod wrote to Lim requesting his retirement and other benefits. Respondents offered compromise settlement of 300k which McLeod rejected.

[According to Respondents, Peggy Mills closed operations due to irreversible losses but the corporation still exists at present. Peggy’s assets were acquired by Sta. Rosa Textile Corporation which was established but still remains

non-operational. McLeod was hired as consultant by Sta. Rosa but resigned. Respondents also allege that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with McLeod; that Lim is Sta Rosa’s President and Board Chairman; that respondent Eric Hu is Sta Rosa’s Taiwanese Director; that complainant has no cause of action against Filsyn, Far Eastern, Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while McLeod was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses and it was due to McLeod’s lack of attention and absence the strike continued. The attendance records of McLeod show that he was either absent or worked at most two hours a day; the McLeod’s monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is entitled should be offset with the counterclaims. McLeod was only hired as a consultant and not an employee by Sta. Rosa. The attendance records wipes out any vacation/sick leave accumulated. There is no basis for the claim of business class airline tickets.]

McLeod alleged that all respondents, one and the same entities, are solidarily liable. They bear the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; same offices and key personnel such as Patricio Lim and Eric Hu; [that the veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that he never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that he never resigned from his job but applied for retirement; Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of McLeod also because that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities; that the alleged attendance was lifted from the logbook of a security agency and is hearsay evidence; his limited hours was due to the strike but was on call 24 hours a day as plant manager; the law itself provides for retirement benefits; that Lim by way of Memorandum approved vacation and sick leave benefits; that complainant was not made to sign an acknowledgement that their monthly compensation includes holiday pay precisely because he is entitled to holiday pay over and above his monthly pay.]

Respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship. Peggy Mills alleged that it offered complainant his retirement benefits under RA 7641 but McLeod refused.

The Labor Arbiter decided to hold all respondents as jointly and solidarily liable. On Filsyn, Far Eastern, Sta Rosa, Lim an Hu’s appeal, the NLRC reversed. The NLRC held that only Peggy was to pay McLeod. McLeod’s MR was dismissed. In resolving the certiorari petition the CA held that Lim is jointly and solidarily liable with Peggy Mills.

The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office at respondent corporations’ address; and (4) all respondent corporations have common officers and key personnel, would not justify the application of the doctrine of piercing the veil of corporate fiction. Peggy and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr. Patricio deliberately and maliciously evaded PMI’s financial obligation to McLeod. Despite his approval, Patricio refused and ignored to pay McLeod’s retirement benefits.

Hence this petition. Mcleod’s argument pertinent to the topic of mergers is that after Far Eastern purchased Peggy Mills in January 1993, McLeod "continued to work at the same plant with the same responsibilities" until 30 November 1993. xxx Far Eastern merely renamed Peggy Mills as Sta Rosa. It was for this reason that when he reached the retirement age in 1993, he asked all the respondents for the payment of his benefits.

ISSUE RELEVANT TO CORP: WON there was a merger or consolidation of PMI and SRTI.

HELD: NO THERE WAS NO MERGER OR CONSOLIDATION. There is no employer-employee relationship between the other corporations except Peggy Mills. The SC affirmed the CA’s decision insofar as Peggy’s liability but absolved Patricio Lim.

RATIO: What took place between PMI and SRTI was dation in payment with lease. Peggy is indebted to the DBP so the former executed REMs in favor of the latter. By virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust ("APT") and the latter has received payment for the Obligations from Peggy, under the Direct Debt Buy-Out ("DDBO") program thereby causing APT to completely discharge and cancel the mortgage in the Assets and to release the titles of the Assets back to PMI. PMI obtained cash advances totaling to 210M from Sta Rosa to enable Peggy to consummate the DDBO with APT, with SRTC subrogating APT as PMI’s creditor thereby. PMI agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those debts. None of the foregoing exceptions is present. The SC was not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims.

Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations.

Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business.

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders.

The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27

In this case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. SRTI did not expressly or impliedly agree to assume any of PMI’s debts.

Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa Textiles, Inc."

McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. McLeod claims that "for purposes of determining employer liability, all private respondents are one and the same employer" because: (1) they have the same address; (2) they are all engaged in the same business; and (3) they have interlocking directors and officers.35

This assertion is untenable.

The fact that SRTI and PMI shared the same addres can be explained by the two companies’ stipulation in their Deed of Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder." Filsyn and FETMI did not have the same address as that of PMI. That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr. Patricio was never an officer of FETMI. Respondent Eric Hu was never an officer of PMI.

In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeod’s cause of action is only against his former employer, PMI.

G.R. No. 170689 March 17, 2009PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) vs NLRC

The Pantranco Employees Association (PEA) and Pantranco Retrenched Employees Association (PANREA) pray that the CA decision be set aside and a new one be entered, declaring the Philippine National Bank (PNB) and PNB Management and Development Corporation (PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations Commission (NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI) employees.

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris.9 The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB.Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor.In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI.

ISSUE:

Whether they can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI

RULING:

No.

1. First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership.

2. Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for petitioners’ labor claims

as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNB’s shares over PNB-Madecor.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.42

3. Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, 43 none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor.

G.R. No. 85266 January 30, 1990PHILIPPINE VETERANS INVESTMENT DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS and VIOLETA MONTELIBANO BORRES, respondents.

FACTS:

This case arose when Violeta M. Borres, private respondent herein, was injured in an accident that was later held by the trial and respondent courts to be due to the negligence of Phividec Railways, Inc. (PRI). 1 The accident occurred on March 29, 1979. On May 25, 1979, petitioner Philippine Veterans Investment Development Corporation (PHIVIDEC) sold all its rights and interests in the PRI to the Philippine Sugar Commission (PHILSUCOM). Two days later, PHILSUCOM caused the creation of a wholly-owned subsidiary, the Panay Railways, Inc., to operate the railway assets acquired from PHIVIDEC. On January 21, 1980, Borres filed a complaint for damages against PRI and Panay Railways Inc. (Panay ), 2 whereupon the latter filed with leave of court a third-party complaint against the herein petitioner. 3 It alleged that upon the sale to PHILSUCOM of PRI, the corporate name of PRI was changed to Panay Railways, Inc.

After trial, Judge Ricardo M. Ilarde of the Regional Trial Court of Iloilo held Phividec Railways, Inc. negligent and so liable to the plaintiff for damages. It also held that as PRI was a wholly-owned subsidiary of PHIVIDEC, the latter should answer for PRI's liability. The decision was affirmed on appeal by the respondent court, 4 which is now faulted for grave abuse of discretion in this petition.

ISSSUE:

W/N PHIVIDEC and PRI are entirely distinct and separate corporations although the latter is its subsidiary.

RULING:

It is clear from the evidence of record that by virtue of the agreement between PHIVIDEC and PHILSUCOM, particularly the stipulation exempting the latter from any "claim or liability arising out of any act or transaction" prior to the turn-over, PHIVIDEC had expressly assumed liability for any claim against PRI. Since the accident happened before that agreement and PRI ceased to exist after the turn-over, it should follow that PHIVIDEC cannot evade its liability for the injuries sustained by the private respondent. A contrary conclusion would leave the private respondent without any recourse for her legitimate claim. In the interest of justice and equity, and to prevent the veil of corporate fiction from denying her the reparation to which she is entitled, that veil must be pierced and PHIVIDEC and PRI regarded as one and the same entity. The petition is denied.

Associated Bank vs. Court of Appeals[GR 123793, 29 June 1998]First Division, Panganiban (J): 4 concurFacts: On or about 16 September 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. The 16 September 1975 Agreement of Merger, which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity "shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission." As to the transfer of the properties of CBTC to ABC, the agreement provides that "Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTC's] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which shall pertain to [ABC]. On or about 10 March 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On 7 September 1977, Lorenzo Sarmiento Jr. executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before 6 March 1978. As per said promissory note, Sarmiento agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due. Sarmiento, to date, still owed Associated Bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. Sarmiento denied the charges. On 22 May 1986, Sarmiento was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated 22 May 1986 was filed by Sarmiento's counsel which was denied by the Court in an order dated 16 September 1986 and Associated Bank was allowed to present its evidence before the Court ex-parte on 16 October 1986. Based on the evidence presented by the bank, the trial court ordered Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. Sarmiento appealed. The Court of Appeals (in CA-GR CV 26465) promulgated on 30 January 1996 a decision which reversed and set aside the 17 October 1986 Decision in Civil Case 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48; and thus dismissing the complaint. The bank filed the petition for review.Issue: Whether In a merger, the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission.Held: Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. The merger, however, does not become effective

upon the mere agreement of the constituent corporations. The procedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. The agreement, as a clause, provided that "Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such references were direct references to [ABC]." The fact that the promissory note was executed after the effectivity date of the merger does not militate against the bank. The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood as pertaining to the surviving bank, Associated Bank. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to Associated Bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes."

SUNDOWNER DEVELOPMENT V. DRILON (LABOR)

FACTS: Hotel Mabuhay leased the premises belonging to Syjuco. However, due to non-payment of rentals, a case for ejectment was filed and Hotel Mabuhay offered to amicably settle by surrendering the premises and to sell its assets and property to any interested party, to which Syjuco acceded.

HELD: The absorption of the employees of Hotel Mabuhay may not be imposed on Sundowner, who has no liability whatsoever to the employees of Hotel Mabuhay and its responsibility if at all, is only to consider them for re-employment in the operation of the business in the same premises. There can be no implied acceptance of the employees of Hotel Mabuhay by petitioner as it is expressly provided in the agreement that petitioner has no commitment or duty to absorb them.

The rule is that unless expressly assumed. labor contracts such as employment contracts and CBAs are not enforceable against a transferee of an enterprise, labor contracts being IN PERSONAM, thus, binding only between the parties. A labor contract merely creates an action in personam and does not create an real right which should be respected by third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution and the same can only be restricted by law through the exercise of police power.

As a general rule, there is no law requiring a bona fide purchaser of assets of an on-going concern to absorb in its employ the employees of the latter. However, although the purchaser is not legally bound to absorb in its employ the employees of the seller, the parties are liable to the employees if the transaction between is clothed with bad faith.

Central Azucarera del Danao vs CA

Facts:

Private respondents Nonelon Bana-ay, Jose Cosculluela, and Gorgonio Palma were among the regular and permanent employees of Central Azucarera del Danao (Central Danao, for short), owner-operator of a sugar mill in Danao milling district of Toboso, Negros Occidental. Nonelon Bana-ay started working with petitioner Central Danao on October 15, 1939 as a railroad repair man until 1941. He was promoted as locomotive conductor in 1946. 2 Jose Cosculluela, on the other hand, was hired on October 10, 1935 as superintendent of the transportation department, 3 whereas, Gorgonio Palma was employed as machinist on August 1, 1931. 4

On July 7, 1961, Central Danao sold its sugar mill properties and other assets to Danao Development Corporation (Dadeco, for short), a duly organized corporation composed of sugar planters of the milling district of Central Danao. Immediately thereafter, or on July 8, 1961, Dadeco actually took over the management and operation of the purchased sugar mill properties pursuant to the terms and conditions of the Deed of Sale. 5

Nonelon Bana-ay was hired by the new management on August 1, 1961, or after the lapse of 23 days from the date of sale; Jose Cosculluela on July 8, 1961, or immediately the day after the date of sale; and Gorgonio Palma, only on August 1, 1961.

During the period of their new employment with Dadeco, Nonelon Bana-ay was terminated on December 15, 1961; Gorgonio Palma oii July 10, 1966, and Jose Cosculluela, on February 1, 1967.

As a consequence thereof, Nonelon Bana-ay, along with eight others, 6 Jose Cosculluela, and Gorgonio Palma, filed separate complaints for recovery of termination pa3 with damages against Dadeco and Central Danao as common defendants with the then Court of First Instance of Negros Occidental, Bacolod City—Branch II.

ISSUE:

W/N a change of ownership or management of an establishment or corporation by virtue of the sale or disposition of all or substantially all of properties and assets operates to insulate the selling corporation (Central Danao) from its obligation to its employees ilder the Termination Pay Law. 10

RULING:

There can be no controversy for it is a principle well-recognized, that it is within the employer's legitimate sphere f management control of the business to adopt economic policies or make some changes or adjustments in their organization or operations that would insure profit to itself or protect the investment of its stockholders. As in the exercise of such management prerogative, the employer may merge or consolidate its business with another, or sell or dispose all or substantially all of its assets and properties which may bring about the dismissal or termination of its employees in the process. Such dismissal or termination should not however be interpreted in such a manner as to permit the employer to escape payment of termination pay. For such a situation is not envisioned in the law. It strikes at the very concept of social justice. 15

There is no law requiring that the purchaser should absorb the employees of the selling company. 17 The most that the purchasing company may do, for reasons of public policy and social justice, is to give preference to the qualified separated employees of the selling company, who in their judgment are necessary in the continued operation of the business establishment. In the instant case, while some of the employees were hired the day after the sale, like private respondent Jose Cosculluela, other employees were however hired only 23 days after. Clearly then, there was in fact, an interruption of the employment of the private respondents in the sugar central. In reality then, they were rehired anew by Dadeco, their new employer.

The records further reveal that the negotiations for the sale of the assets and properties of Central Danao to Dadeco were held behind the back of the employees who were taken by surprise upon the consummation of the sale. They were not formally notified of the impending sell-out to Dadeco and its attendant consequences with respect to their continued employment status under the purchasing company. As such, they were uncertain of being retained, hired, or absorbed by the new owner and its management.

Hence, the untenability of petitioner's contention that private respondents should have directed their claims for termination pay solely against the Dadeco on the flimsy ground that at the time of their alleged termination, there was no employee-employer relations between them and Central Danao.

Complex Electric v. NLRC (1999) G.R. No. 121315 July 19, 1999

FACTS:

Complex Electronics Corporation was engaged in

the manufacture of electronic products. It was

actually a subcontractor of electronic products

where its customers gave their job orders, sent

their own materials and consigned their equipment

to it.

The rank and file workers of Complex were

organized into a union known as the Complex

Electronics Employees Association

Complex received a facsimile message from Lite-

On Philippines Electronics Co., requiring it to lower

its price by 10%.

o Complex informed its Lite-On personnel

that such request of lowering their selling

price by 10% was not feasible as they were

already incurring losses at the present

prices of their products.

o Complex regretfully informed the

employees that it was left with no

alternative but to close down the

operations of the Lite-On Line

retrenchment will not take place

until after 1 month

try to prolong the work for as many

people as possible for as long as

it can

retrenchment pay as provided for

by law i.e. half a month for every

year of service in accordance with

Article 283 of the Labor Code of

Philippines.

Complex filed a notice of closure of the Lite-On

Line with the Department of Labor and

Employment (DOLE) and the retrenchment of the

ninety-seven (97) affected employees.

Union filed a notice of strike with the National

Conciliation and Mediation Board

In the evening of April 6, 1992, the machinery,

equipment and materials being used for production

at Complex were pulled-out from the company

premises and transferred to the premises of Ionics

Circuit, Inc. (Ionics) at Cabuyao, Laguna.

o Fearful that the machinery, equipment and

materials would be rendered inoperative

and unproductive due to the impending

strike of the workers, the customers

ordered their pull-out and transfer to

Ionics.

o Complex was compelled to cease

operations

o Ionics contended that it was an entity

separate and distinct from Complex and

had been in existence since July 5, 1984 or

eight (8) years before the labor dispute

arose at Complex. Like Complex, it was

also engaged in the semi-conductor

business where the machinery, equipment

and materials were consigned to them by

their customers

o President of Complex was also the

President of Ionics, the latter denied

having Qua as their owner since he had no

recorded subscription of P1,200,00.00 in

Ionics as claimed by the Union. Ionics

further argued that the hiring of some

displaced workers of Complex was an

exercise of management prerogatives.

complaint was, thereafter, filed with the Labor

Arbitration Branch of the NLRC for unfair labor

practice, illegal closure/illegal lockout, money

claims for vacation leave, sick leave, unpaid wages,

13th month pay, damages and attorney's fees. The

Union alleged that the pull-out of the machinery,

equipment and materials from the company

premises, which resulted to the sudden closure of

the company was in violation of Section 3 and 8,

Rule XIII, Book V of the Labor Code of the

Philippines and the existing CBA

Labor Arbiter: reinstate the 531 above-listed

employees to their former position; charge of

slowdown strike filed by respondent Complex

against the union is hereby dismissed for lack of

merit.

NLRC: pay 531 complainants equivalent to one

month pay in lieu of notice and separation pay

equivalent to one month pay for every year of

service and a fraction of six months considered as

one whole year.

ISSUE: W/N there was ULP

HELD:

NO.

A "runaway shop" is defined as an industrial plant

moved by its owners from one location to another

to escape union labor regulations or state laws, but

the term is also used to describe a plant removed

to a new location in order to discriminate against

employees at the old plant because of their union

activities.

o It is one wherein the employer moves its

business to another location or it

temporarily closes its business for anti-

union purposes

o relocation motivated by anti-union animus

rather than for business reasons

o Ionics was not set up merely for the

purpose of transferring the business of

Complex. At the time the labor dispute

arose at Complex, Ionics was already

existing as an independent company.

o The Union failed to show that the primary

reason for the closure of the

establishment was due to the union

activities of the employees.

o The mere fact that one or more

corporations are owned or controlled by

the same or single stockholder is not a

sufficient ground for disregarding separate

corporate personalities.

No illegal lockout/illegal dismissal

o closure, therefore, was not motivated by

the union activities of the employees, but

rather by necessity since it can no longer

engage in production without the much

needed materials, equipment and

machinery.

o The determination to cease operation is a

prerogative of management that is usually

not interfered with by the State as no

employer can be required to continue

operating at a loss simply to maintain the

workers in employment.

personal liability of Lawrence Qua- absence of

malice or bad faith, a stockholder or an officer of a

corporation cannot be made personally liable for

corporate liabilities.

We see no valid and cogent reason why

petitioner should not be likewise sanctioned for its

failure to serve the mandatory written notice.

Under the attendant facts, we find the amount of

P5,000.00, to be just and reasonable.

PEPSI-COLA BOTTLING CO. VS. NLRCG.R. NO. 101900; JUNE 23, 1992

FACTS1. On September 1, 1986, private respondent, a licensed mechanical and electrical engineer, was employed

by Petitioner Corporation as maintenance manager of its beverage plant at Tanauan, Leyte.2. Sometime in January 1988, the plant CEM-72 soaker machine needed rehabilitation. 3. Rehabilitation work on the soaker machine was commenced about the middle of March 1988 by a crew of

fifteen (15) to twenty (20) men from PREMACOR. However. PREMACOR failed to make the soaker machine fully operational.

4. Petitioner Castillo then asked private respondent to take over the work. Assisted by the men directly under him, private respondent did so and in three weeks time, the soaker machine became operational again at an efficiency rate of sixty-five per cent [65%].

5. On May 9, 1988, Leah Danaquel, personnel manager of the company informed private respondent that this position may be sacrificed because of the delay in the rehabilitation of the soaker machine. Disappointed, private respondent want on leave from May 9 to 17, 1988.

6. Private respondent was told to resign and offered the amount of P12,000.00 if he did. Private respondent rejected the offer. May 25, 1988, a latter of termination was sent to private respondent through a security guard of the company.

7. On May 30, 1988, private respondent filed a complaint for illegal dismissal and unfair labor practice against petitioners before the National Labor Relations Commission.

8. Both the Labor Arbiter and the NLRC ordered private respondent to reinstate petitioner. In the motion for reconsideration filed with the NLRC, the petitioners alleged that reinstatement is no longer possible since the petitioner company closed down its business on July 24, 1989 and the new franchise holder, Pepsi-Cola Products Philippines (PCPPI) is a new entity.

ISSUEWhether or not public respondents committed grave abuse of discretion in ruling that private respondent was terminated from employment without just cause.

HELDWhile it is true that loss of trust and confidence is one of the just causes for termination, such loss of trust and confidence must however have some basis. Proof beyond reasonable doubt is not required. It is sufficient that there is some basis for such loss of confidence or that there must be some reasonable grounds to believe, if not to entertain the moral conviction that the employee concerned is responsible for the misconduct and that the nature of his participation therein rendered him absolutely unworthy of trust and confidence demanded by his position.

Apart from the Labor Arbiter's finding that there is no sufficient basis for the petitioners to justify private respondent s dismissal on the ground of loss of trust and confidence, it appears that the dismissal of the private respondent was merely an afterthought to cover up management's embarrassment. The private respondent was by-passed and ignored in the task of rehabilitating the soaker machine and he is now being punished for the mistake of management and the failure of its hired contractor and its favored supervisor.

The law requires that the employer must furnish the worker sought to be dismissed with two (2) written notices before termination of employment can be legally effected: (1) notice which apprises the employee of the particular acts or omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the employer's decision to dismiss him. Failure to comply with the requirements taints the dismissal with illegality. This procedure is mandatory; in the absence of which, any judgment reached by management is void and inexistent.

. The petitioners' contention is untenable. The law is clear on the matter. In fact, when private respondent's lawyer called up Danaquel by phone to inquire categorically if he "had been or was about to be dismissed" Danaquel emphatically answered "No." Then dew days later or on May 25, 1988, the private respondent was handed his

termination letter. The employer's action was drastic. Under the circumstances, it cannot be stated that the private respondent was given the opportunity to prepare for his defense.

However, to order reinstatement at this juncture would serve no prudent purpose considering the supervening facts and circumstances of the case. Not only is PCPPI a new corporation continuing the business and operations of PCD, there is also no doubt that the relationship between the petitioners and the private respondent has been strained by reason of their respective imputations of bad faith which is quite evident from the vehement and consistent stand of the petitioners in refusing to reinstate the private respondent. Thus, in order to prevent further delay in the execution of the decision to the prejudice of the private respondent and to spare him the agony of having to work anew with the petitioners under an atmosphere of antagonism, and so that the latter do not have to endure the continued services of the private respondent in whom they have lost liking and, at this stage, confidence, the private respondent should be awarded separation pay as an alternative to reinstatement.

G.R. No. 100686 August 15, 1995PEPSI COLA DISTRIBUTORS OF THE PHILIPPINES, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION

FACTS:

Briefly, this case involves a maintenance electrician, an employee of petitioner PCD, who was dismissed from his employment on December 15, 1988 on the alleged ground of abandonment and/or absence without leave, but as a result of a favorable decision in an illegal dismissal case he filed against his employer, he was later reinstated and included in the payroll from May 22, 1989 pending PDC's appeal with the NLRC, only to be dismissed again on July 24, 1989 on the alleged ground that his employer, PCD, sold its business interest to PCPPI which, however, denied liability on the ground that it is a new entity separate and distinct from PCD.ISSUE: W/N PCD may deny liability of illegally dismissing private respondent on the ground it sold its interests to PCPPI RULING: While the dismissal of private respondent by petitioner was not tainted with violation of his right to due process of law, the Court, however, finds the penalty of dismissal from his employment too harsh and disproportionate for an infraction which, under the attendant circumstances, appears to be excusable. Private respondent, at this stage, had just recovered from the complained stomach ache which, in accordance with the company physician's diagnosis, required him to rest for 25 days.The Court cannot, however, sustain petitioner PCD's subsequent act of dismissing private respondent for the second time by removing his name from the payroll of July 25, 1989 after reinstating him 63 days earlier, or on May 22, 1989 on the ground that it has already sold its business interests to Pepsi Cola Products Philippines, Inc. (PCPPI).The contention that the second dismissal of private respondent presents an issue separate and distinct from the issue of the earlier dismissal on December 15, 1988 is nothing but an attempt of PCD to evade liability for illegally dismissing private respondent and to shield the purchasing corporation, PCPPI, from the said liability. It must be noted that the issue of whether or not Pepsi Cola Products Philippines, Inc. (PCPPI) is liable for the illegal acts of its predecessor-in-interest PCD, as in the instant case, has already been settled in the case of Pepsi Cola Bottling Co. v. NLRC. 17 In said case, the purchasing corporation claimed that it is a corporation separate and distinct from Pepsi Cola Bottling Company (PBC) or Pepsi Cola Distributors, Inc. (PCD); hence, it is not the proper party to which the writ of execution of the decision in an illegal dismissal case filed against its predecessor-in-interest, PBC should be served; and that reinstatement is no longer possible since PCD closed down its business on July 24, 1989 and the new franchise holder, PCPPI, is a new entity.

G.R. No. 113337 March 2, 1995

RONALD MANLIMOS VS NLRC

FACTS:

The petitioners were among the regular employees of the Super Mahogany Plywood Corporation, a domestic corporation organized in 1988 and based in Butuan City. They had been hired as patchers, taper-graders, and receivers-dryers. On 1 September 1991, a new owner/management group headed by Alfredo Roxas acquired complete ownership of the corporation. The petitioners were advised of such change of ownership; however, the petitioners continued to work for the new owner and were considered terminated, with their conformity, only as of December 1991 when they received their separation pay, 13th month pay, and all other benefits due them computed as of the said month. Each of them then executed on 17 December 1991 a Release and Waiver which

they acknowledged before Atty. Nolasco Discipulo, Hearing Officer of the Butuan City District Office of the Department of Labor and Employment (DOLE).

On 27 December 1991, the new owner caused the publication of a notice for the hiring of workers, indicating therein who of the separated employees could be accepted on probationary basis. The petitioners then filed their applications for employment.

For their alleged absence without leave, Perla Cumpay and Virginia Etic were considered, as of 4 May 1992, to have abandoned their work. The rest were dismissed on 13 June 1992 because they allegedly committed acts prejudicial to the interest of the new management which consisted of their "including unrepaired veneers in their reported productions on output as well as untaped corestock or whole sheets in their supposed taped veneers/corestock."

The petitioners maintained that they remained regular employees regardless of the change of management in September 1991 and their execution of the Release and Waiver. They argue that being a corporation, the private respondent's juridical personality was unaffected even if ownership of its shares of stock changed hands. Their signing of the Release and Waiver was of no moment not only because the consideration was woefully inadequate, but also because employees who receive their separation pay are not barred from contesting the legality of their dismissal and quit claims executed by laborers are frowned upon for being contrary to public policy.

Labor Arbiter Marissa Macaraig-Guillen ruled for the petitioners, contending that the transfer of ownership partook of a cessation of business operation not due to business reverses. The NLRC reversed the LA’s decision.

ISSUE:

W/N the dismissal of the employees due to change of ownership

RULING:

Yes. Where such transfer of ownership is in good faith, the transferee is under no legal duty to absorb the transferor employees as there is no law compelling such absorption. The most that the transferee may do, for reasons of public policy and social justice, is to give preference to the qualified separated employees in the filling of vacancies in the facilities of the purchaser. 14

Since the petitioners were effectively separated from work due to a bona fide change of ownership and they were accordingly paid their separation pay, which they freely and voluntarily accepted, the private respondent corporation was under no obligation to employ them; it may, however, give them preference in the hiring.

G.R. No. 86026 August 31, 1989FILIPINAS PORT SERVICES, INC. DAMASTICOR, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION AND JOSEFINO SILVA, respondents.

FACTS:

During the existence of DAMASTICOR, private respondent Josefino Silva was employed by said company. By mandate, however, of the Philippine Ports Authority's Administrative Order No. 13-77, petitioner drew its necessary labor force, together with its personnel complement, from the merging operators. Accordingly all the existing arrastre and stevedoring firms which were then operating individually in the Port of Davao were integrated into a single and unified service which resulted in the formation of a new corporation known as the Davao Dockhandlers, Inc. The name was later changed to Filipinas Port Services, Inc. (FILPORT).

Of the employees absorbed, private respondent was among them. He continued to work until his retirement on June 29, 1987. On July 8, 1987, private respondent lodged a complain against petitioner and/or DAMASTICOR with the Department of Labor and Employment (DOLE) demanding payment of separation pay covering the period of his employ with DAMASTICOR.

The LA ruled in favour of private respondent, ordering FILPORT as the survivor- employer to pay retirement pay to complainant. The NLRC affirmed the ruling.

ISSUE:

W/N the successor-in-interest of an employer is liable for the differential retirement pay of an employee earned by him when he was still under the employment of the predecessor-in-interest

RULING:

A close scrutiny of the record of this case inevitably and clearly shows that petitioner came into existence as a juridical person only as a direct result of the merger among different cargo handling operators.

Petitioner cannot be held hable for the payment of the retirement pay of private respondent while in the employ of DAMASTICOR. It is the latter who is responsible for the same as the labor contract of private respondent with DAMASTICOR is in personam and cannot be passed on to the petitioner. The adverted memorandum of the PPA Assistant General Manager to this effect is well taken.

Petition is granted.

G.R. No. 111262 September 19, 1996

SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, represented by its President RAYMUNDO HIPOLITO,

JR. vs. HON. MA. NIEVES D. CONFESOR, Secretary of Labor, Dept. of Labor & Employment, SAN MIGUEL

CORPORATION, MAGNOLIA CORPORATION (Formerly, Magnolia Plant) and SAN MIGUEL FOODS, INC. (Formerly,

B-Meg Plant)

FACTS: On June 28, 1990, petitioner-union San Miguel Corporation Employees Union — PTGWO entered into a

CBA with private respondent San Miguel Corporation (SMC) to take effect upon the expiration of the previous CBA

or on June 30, 1989.

This CBA provided, among others, that:

ARTICLE XIV

DURATION OF AGREEMENT

Sec. 1. This Agreement which shall be binding upon the parties hereto and their respective successors-in-interest,

shall become effective and shall remain in force and effect until June 30, 1992.

Sec. 2. In accordance with Article 253-A of the Labor Code as amended, the term of this Agreement insofar as the

representation aspect is concerned, shall be for five (5) years from July 1, 1989 to June 30, 1994. Hence, the

freedom period for purposes of such representation shall be sixty (60) days prior to June 30, 1994.

Sec. 3. Sixty (60) days prior to June 30, 1992 either party may initiate negotiations of all provisions of this

Agreement, except insofar as the representation aspect is concerned. If no agreement is reached in such

negotiations, this Agreement shall nevertheless remain in force up to the time a subsequent agreement is reached

by the parties.

Meanwhile, effective October 1, 1991, Magnolia and Feeds and Livestock Division were spun-off and became two

separate and distinct corporations: Magnolia Corporation (Magnolia) and San Miguel Foods, Inc. (SMFI).

Notwithstanding the spin-offs, the CBA remained in force and effect.

After June 30, 1992, the CBA was renegotiated in accordance with the terms of the CBA and Article 253-A of the

Labor Code. Negotiations started sometime in July, 1992 with the two parties submitting their respective proposals

and counterproposals.

During the negotiations, the petitioner-union insisted that the bargaining unit of SMC should still include the

employees of the spun-off corporations: Magnolia and SMFI; and that the renegotiated terms of the CBA shall be

effective only for the remaining period of two years or until June 30, 1994.

SMC, on the other hand, contended that the members/employees who had moved to Magnolia and SMFI,

automatically ceased to be part of the bargaining unit at the SMC. Furthermore, the CBA should be effective for

three years in accordance with Art. 253-A of the Labor Code.

Unable to agree on these issues with respect to the bargaining unit and duration of the CBA, petitioner-union

declared a deadlock on September 29, 1990.

Secretary’s decision: the CBA shall be effective for the period of 3 years from June 30, 1992; and that such CBA

shall cover only the employees of SMC and not of Magnolia and SMFI.

ISSUES: 1) Whether or not the duration of the renegotiated terms of the CBA is to be effective for three years of

for only two years; and 2) Whether or not the bargaining unit of SMC includes also the employees of the Magnolia

and SMFI.

HELD: We agree with the Secretary of Labor.

Pertinent to the first issue is Art. 253-A of the Labor Code as amended which reads:

Art. 253-A. Terms of a CBA. — Any CBA that the parties may enter into shall, insofar as the representation aspect is

concerned, be for a term of 5 years. No petition questioning the majority status of the incumbent bargaining agent

shall be entertained and no certification election shall be conducted by the Department of Labor and Employment

outside of the sixty-day period immediately before the date of expiry of such five year term of the CBA. All other

provisions of the CBA shall be renegotiated not later than 3 years after its execution. Any agreement on such other

provisions of the CBA entered into within 6 months from the date of expiry of the term of such other provisions as

fixed in such CBA, shall retroact to the day immediately following such date. If any such agreement is entered into

beyond six months, the parties shall agree on the duration of retroactivity thereof. In case of a deadlock in the

renegotiation of the CBA, the parties may exercise their rights under this Code. (Emphasis supplied.)

The “representation aspect” refers to the identity and majority status of the union that negotiated the CBA as the

exclusive bargaining representative of the appropriate bargaining unit concerned. “All other provisions” simply

refers to the rest of the CBA, economic as well as non-economic provisions, except representation.

The law is clear and definite on the duration of the CBA insofar as the representation aspect is concerned, but is

quite ambiguous with the terms of the other provisions of the CBA. It is a cardinal principle of statutory

construction that the Court must ascertain the legislative intent for the purpose of giving effect to any statute.

Obviously, the framers of the law wanted to maintain industrial peace and stability by having both management

and labor work harmoniously together without any disturbance. Thus, no outside union can enter the

establishment within 5 years and challenge the status of the incumbent union as the exclusive bargaining agent.

Likewise, the terms and conditions of employment (economic and non-economic) can not be questioned by the

employers or employees during the period of effectivity of the CBA. The CBA is a contract between the parties and

the parties must respect the terms and conditions of the agreement. Notably, the framers of the law did not give

a fixed term as to the effectivity of the terms and conditions of employment. It can be gleaned from their

discussions that it was left to the parties to fix the period.

The issue as to the term of the non-representation provisions of the CBA need not belaboured. The parties, by

mutual agreement, enter into a renegotiated contract with a term of three (3) years or one which does not

coincide with the said 5-year term, and said agreement is ratified by majority of the members in the bargaining

unit, the subject contract is valid and legal and therefore, binds the contracting parties.

Thus, we do not find any grave abuse of discretion on the part of the Secretary of Labor in ruling that the effectivity

of the renegotiated terms of the CBA shall be for 3 years.

II. Undeniably, the transformation of the companies was a management prerogative and business judgment which

the courts can not look into unless it is contrary to law, public policy or morals. Neither can we impute any bad

faith on the part of SMC so as to justify the application of the doctrine of piercing the corporate veil.18 Ever mindful

of the employees’ interests, management has assured the concerned employees that they will be absorbed by the

new corporations without loss of tenure and retaining their present pay and benefits according to the existing

CBAs. 19 They were advised that upon the expiration of the CBAs, new agreements will be negotiated between

the management of the new corporations and the bargaining representatives of the employees concerned.

Indubitably, therefore, Magnolia and SMFI became distinct entities with separate juridical personalities. Thus, they

can not belong to a single bargaining unit.

Moreover, in determining an appropriate bargaining unit, the test of grouping is mutuality or commonality of

interests. The employees sought to be represented by the collective bargaining agent must have substantial

mutual interests in terms of employment and working conditions as evinced by the type of work they

performed. 22 Considering the spin-offs, the companies would consequently have their respective and distinctive

concerns in terms of the nature of work, wages, hours of work and other conditions of employment. Interests of

employees in the different companies perforce differ. The nature of their products and scales of business may

require different skills which must necessarily be commensurated by different compensation packages. The

different companies may have different volumes of work and different working conditions. For such reason, the

employees of the different companies see the need to group themselves together and organize themselves into

distinctive and different groups. It would then be best to have separate bargaining units for the different

companies where the employees can bargain separately according to their needs and according to their own

working conditions.

WHEREFORE, the petition is DISMISSED for lack of merit.