Corp

Aug6 1. Edward J. Nell Co vs Pacific=KLETO Lessons Applicable: Types of Acquisitions / Transfers FACTS: March 21, 1958: Pacific Farms Inc. (Pacific) purchased as highest bidder from a bank auction 1,000 shares of stock of Insular Farms for P285,126.99 The BOD of Insular, as reorganized, then caused its assets, including its leasehold rights over a public land in Bolinao, Pangasinan, to be sold to Insular for P10,000.00 and paid for the other assets of Insular Farms. October 9, 1958: Edward J. Nell Co. (Edward) in Civil Case No. 58579 of the Municipal Court of Manila against Insular Farms, Inc. (Insular) obtained a judgment for the sum of P1,853.80, representing unpaid balance for a pump sold with interest. August 14, 1959: A writ of execution that was issued after the judgment had become final was returned unsatisfied, stating that Insular Farms had no leviable property. November 13, 1959: Edward filed the present action against Pacific upon the theory that Pacific is the alter ego of Insular Farms. Municipal court dismissed the complaint. CA affirmed the municipal court.

ISSUE: W/N Pacific Farms is an alter ego of Insular Farms HELD: NO. Appeal Affirmed

General Rule: 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 Exceptions: . Where the purchaser expressly or impliedly agrees to assume such debts - no proof of this . Where the transaction amounts to a consolidation or merger of the corporations - not claimed . Where the purchasing corporation is merely a continuation of the selling corporation; - no proof of this . Where the transaction is entered into fraudulently in order to escape liability for such debts - no proof of this Also, the sale of assets to Pacific was registered in the SEC, and so it is assumed that the price paid was fair and reasonable, notwithstanding the allegation that the sale was fraudulent as the purchase price was only P10,000 even if the assets were valued at nearly P300,000. 2. Mcleod vs NLRC=KUNG Doctrines: 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 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. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. 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.

 Facts: John F. 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, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu (respondents). McLeod said that he is an expert in textile manufacturing process. He was hired as the Manager of Universal Textiles, Inc. (UTEX) under its President, Patricio Lim. Lim later formed Peggy Mills, Inc. with Filsyn having controlling interest. McLeod was absorbed by the new company as its VP and Plant Manager. He started receiving the benefits mentioned above at this time. Respondents failed to pay his benefits. Filsyn then sold Peggy Mills to Far Eastern Textile Mills with Lim as the chairman and president. Peggy Mills was renamed Sta. Rosa Textile. When McLeod reached retirement age, he was only given a reduced 13 month pay. Lim offered McLeod a compromise settlement of P300,000 which McLeod rejected. Respondents allege that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with McLeod. Sta. Rosa only acquired the assets and NOT the liabilities of Peggy Mills. Respondents also allege that they relied on McLeod to settle labor problems but due to his lack of attention and absence the strike continued resulting in closure of the company. They also said that Peggy Mills does not have a retirement program; that whatever amount McLeod is entitled to should be offset with counterclaims (which they also filed). They also claim that McLeod was just hired as a consultant and not as an employee; that McLeods attendance record of absence and two hours daily work during the period of the labor problems wipes out any vacation/sick leave he may have accumulated; that there is no basis for his claim of airline tickets, that he is not entitled to 13th month pay as a consultant; and that he had already received his holiday pay. They also claim that they offered McLeod retirement benefits but McLeod refused. In McLeods reply, he alleged that all the respondents are solidarily liable for all salaries and benefits he is entitled to, being one and the same entity. McLeod said that their offices were all in the same building, their counsel holds office in the same address, and that all respondents have the same

key personnel such as Lim. The Labor Arbiter ruled in favor of McLeod, ordering respondents to pay P5,528,996.55. The NLRC reversed the decision. It ordered only Peggy Mills to pay McLeod his retirement pay. The CA affirmed the NLRC decision and added that Lim is jointly and solidarily liable for the retirement pay, moral and exemplary damages, and attorneys fees. Issues: 1. W/N an employer-employee relationship exists between private respondents and McLeod 2. W/N private respondents may avoid their financial obligations to McLeod by invoking the veil of corporate fiction 3. W/N McLeod is entitled to the relief he seeks against the private respondents Held/Ratio: Held: 1. YES BUT he was an employee of Peggy Mills ONLY. He was a managerial employee of Peggy Mills. He could have presented evidence to support his allegation of an employer-employee relationship between him and any of Filsyn, Sta. Rosa Textile, and Far Eastern Textile Mills. But he didnt. McLeod claims that Peggy Mills was merely renamed Sta. Rosa Textile and that he had continued to work at the same company with the same responsibilities. However, the SC said that what happened between Peggy Mills and Sta. Rosa textile was dation in payment with lease. Peggy Mills had ceded, conveyed and transferred all of its rights, title and interests in and to the assets to Sta. Rosa Textile. 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 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 exceptions is present in the case. Peggy Mills transferred its assets to Sta. Rosa Textile to settle its obligations. The SC held that Peggy Mills did NOT fraudulently transfer its assets to escape liability for any of its debts. As it is, they had already paid its employees their money claims, except for McLeod. 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 constituents are dissolved and absorbed by the new enterprise. In merger, all constituents, except the surviving corporation are dissolved. In both cases, there is no liquidation of assets of the dissolved corporations, and the surviving corporation or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. 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 make Sta. Rosa Textile a mere instrumentality of Peggy Mills. 2. YES. To disregard the separate judicial personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed. Respondent corporations may be engaged in the same business as that of Peggy Mills but that is not enough reason to pierce the veil of corporate fiction. That the respondent corporations also have interlocking incorporators, directors, and officers is of no moment since it does not necessarily imply fraud. Hence, Lim is absolved from personal liability. 3. NO. As a managerial employee, the Labor Code provides that McLeod can

only be entitled to payment of vacation leave and sick leave if he had an agreement with his employer. There is no showing that Peggy Mills and McLeod had an agreement concerning payment of these benefits. Regarding the airline tickets, he was reimbursed by the company once. It cannot be deemed an established practice. Later, as a consultant, he was no longer entitled to 13th month pay. McLeod was also aware that his salary was going to be reduced. He was informed that Peggy Mills were short in finances. McLeod knew that Peggy Mills was suffering from serious business losses. Yet he continued to work there. There is also no basis for the award of moral damages since there is no bad faith on the part of Peggy Mills. 3. Caltex vs PNOC=MAGSUMBOL Doctrine: Even under the provisions of the Civil Code, a creditor has a real interest to go after any person to whom the debtor fraudulently transferred its assents Facts: On 6 July 1979, PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an Agreement of Assumption of Obligations ("Agreement"). The Agreement provides that PSTC shall assume all the obligations of LUSTEVECO with respect to the claims enumerated in Annexes "A" and "B" ("Annexes") of the Agreement. The Agreement also provides that PSTC shall control the conduct of any litigation pending or which may be filed with respect to the claims in the Annexes. The Agreement further provides that LUSTEVECO shall deliver to PSTC all papers and records of the claims in the Annexes. Finally, the Agreement provides 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 the claims in the Annexes. Among the actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon Stevedoring Corporation docketed as AC-G.R. CV No. 62613 which at that time was pending before the IAC. The case was an appeal from the Decision by the then CFI of Manila directing LUSTEVECO to pay Caltex P103,659.44 with legal interest from the filing of the action until full payment. In its 12 November 1985 Decision, the IAC affirmed with modification the Decision of the CFI. The dispositive portion of the Decision reads: WHEREFORE, the decision appealed from is hereby MODIFIED and judgment is rendered ordering the defendant [LUSTEVECO] to pay plaintiff [Caltex]: (a) P126,771.22 under the first cause of action, with legal interest until fully paid;

(b) P103,659.44 under the second cause of action with legal interest until fully paid; (c) 10% of the sums due as and for attorneys fees; (d) costs of the suit. The Decision of the IAC became final and executory. The Regional Trial Court issued a writ of execution in favor of Caltex. However, the judgment was not satisfied because of the prior foreclosure of LUSTEVECOs properties. The Manila Bank Intramuros Branch and the Traders Royal Bank Aduana Branch did not respond to the notices of garnishment. Caltex subsequently learned of the Agreement between PSTC and LUSTEVECO. Caltex sent successive demands to PSTC asking for the satisfaction of the judgment rendered by the CFI. PSTC requested for the copy of the records. Later, PSTC informed Caltex that it was not a party to AC-G.R. CV No. 62613 and thus, PSTC would not pay LUSTEVECOs judgment debt. PSTC advised Caltex to demand satisfaction of the judgment directly from LUSTEVECO. Caltex continued to send several demand letters to PSTC. On 5 February 1992, Caltex filed a complaint for sum of money against PSTC. Issue: W/N Caltex is a real party in interest to file an action to recover from PSTC the judgment debt against LUSTEVECO. Held: Yes. Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides: SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. Ordinarily, one who is not a privy to a contract may not bring an action to enforce it. However, this case falls under the exception. In Oco v. Limbaring, we ruled: The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only the contracting parties are bound by the stipulation in the contract; they are the ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to ones benefit.

As an exception, parties who have not taken part in a contract may show that they have a real interest affected by its performance or annulment. In other words, those who are not principally or subsidiarily obligated in a contract, in which they had no intervention, may show their detriment that could result from it. x x x Caltex may enforce its cause of action against PSTC because PSTC expressly assumed all the obligations of LUSVETECO pertaining to its tanker and bulk business and specifically, those relating to AC-G.R. CV No. 62613. While Caltex is not a party to the Agreement, it has a real interest in the performance of PSTCs obligations under the Agreement because the non- performance of PSTCs obligations will defraud Caltex. Even if PSTC did not expressly assume to pay the creditors of LUSTEVECO, PSTC would still be liable to Caltex up to the value of the assets transferred. The transfer of all or substantially all of the unencumbered assets of LUSTEVECO to PSTC cannot work to defraud the creditors of LUSTEVECO. A creditor has a real interest to go after any person to whom the debtor fraudulently transferred its assets. 4. A.D Santos vs Vasquez=PEREZ Doctrine: (from the book): The Court upheld the judgment against the taxi cab company observing that although in truth the majority stockholder operated the business under a sole proprietorship scheme, it was subsequently transferred to the taxi cab company. Business Enterprise Transfers: the transferee is liable for the liabilities of his transferor arising from the business enterprise transferred. Facts: A.D. Santos, Inc. operates taxi cabs. Ventura Vazquez was one of his taxi drivers. While driving A.D. Santos, Inc.s taxi cab, Vazquez vomited blood. The companys physician, Dr. Roman, treated him. He was sent to and confined in Santo Tomas Hospital. Afterwards, he was admitted at the Quezon Institute where he was diagnosed with pulmonary tuberculosis. He did not resume work. Vazquez filed a claim with the Workmens Compensation Commission. A.D. Santos, Inc. was ordered to

pay compensation and reimburse Vazquez the amount he spent for his treatment. Issues: 1. W/N Vazquez has a cause of action against petitioner. Held/Ratio: 1. YES. Vazquez cause of action against A.D. Santos, Inc. is complete. In its answer to Vazquezs claim, A.D. Santos, Inc. categorically admitted that Vazquez was its taxi driver. Further, Vazquez contracted pulmonary tuberculosis by reason of his employment. Vazquez cited in his testimony that he worked for City Cab, a company operated by a certain Amador Santos. This does not detract the validity of Vazquez right to compensation. Amador Santos was the sole owner and operator of City Cab (sole proprietorship). It was subsequently transferred to A.D. Santos, Inc. in which Amador Santos was a majority stockholder. In business enterprise transfers, the transferee is liable for the liabilities of his transferor arising from the business enterprise transferred. Mentioning Amador Santos as his employer should not confuse the facts relating to the employer-employee relationship. In this case, the veil of the corporate fiction is used as a shield to perpetrate a fraud or confuse legitimate issues. 5. Laguna Trans Co vs SSS=TABAG 6.Pantranco vs NLRC=BISNAR Doctrine: 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. Facts: The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided transportation services, and had its terminal at Quezon City. The terminal stood on four pieces of

real estate (Pantranco properties) registered under the name of Macris. The Gonzales family later incurred financial losses and their creditors took over the management of PNEI and Macris. Subsequently ownership was transferred to, the National Investment Development Corporation (NIDC), a subsidiary of the PNB. Macris was later renamed and merged to another corporation to form the new PNB subsidiary, the PNB-Madecor. NIDC sold PNEI to NETI, PNEI was later placed under sequestration by the PCGG. Subsquently the Asset Privatization Trust (APT) took over the management of PNEI. Eventually PNEI ceased its operation which came with the various labor claims commenced by the former employees of PNEI where the employees won. The labor abiter issued a writ of execution, which levied the Pantrnco Properties, to satisfy the 722M due to the employees of PNEI. Later the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI for 7M, the writ of execution to the extent of the said amount was concerned was considered valid. Note: now Mega Prime is the successor of interest of PNB-Madecor Basically this decision was affirmed by the lower courts. Issue: 1) W/N the former PNEI employees can attach the properties (specifically the Pantranco properties) of PNB, PNB Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI? Held/Ratio: 1) No, First, the subject property is not owned by the judgment debtor, PNEI. The properties were owned by Macris, the predecessor of PNB- Madecor. Hence, they cannot be pursued against by the creditors of PNEI. It is a settled rule, that the court in executing judgments

extends only to properties unquestionably belonging to the judgment debtor alone. Second, The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. Obviously, PNB, PNB- Madecor, Mega Prime, and PNEI are corporations with their own personalities. PNB was only a stockholder of PNB Madecor which later sold its shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one. 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. Lastly, the piercing of the corporate veil cannot apply in the present case because it was not shown that the requirements for piercing the veil is present. Note: PNB cannot also ask for the annulment of the execution sale because it is not a real party in interest, PNBs interest is only inchoate being Mega Primes creditor only, but still the proper part is Mega Prime. Also they did not elevate the matter to the CA hence it is presumed that they agree with 7.Pepsi-Cola Bottling (1992)vs NLRC=BOMBALES Doctrine: Although a corp. may have cease business operations and an entirely new company has been organized to take over, it does not necessarily follow that no one may now be held liable for illegal acts committed by the earlier firm. Facts: Encabo, a licensed mechanical and electrical engineer, was employed by Pepsi-Cola Bottling Co. as maintenance manager of its beverage plant.

 The plants soaker machine needed rehabilitation. A contractor, PREMACOR won the bid to rehabilitate said machine, the Plant General Manager of the company, petitioner Sian, wired co-petitioner Castillo and Dormal to help in the rehabilitaion. PREMACOR failed to make the soaker machine fully operational. Petitioner Castillo then asked Encabo to take over the work, which he did. The soaker machine became operational again. Later the company informed Encabo that he might be fired because of the delay in the rehabilitation of the soaker machine. Disappointed he went on leave. subsequently he was of terminated. Encabo then filed a complaint for illegal dismissal and unfair labor practice against petitioners before the NLRC, where he won. Pepsi-Cola Products Philippines, Inc. (PCPPI) received the writ of execution, addressed to Pepsi-Cola Bottling Co. (PBC) and ordering Pepsi-Cola Distributors of the Philippines (PCD) to reinstate Encabo. PCPPI stated that Encabos reinstatement cannot be satisfied for they are separate and distinct from PBC or PCD, making it an inappropriate party to which the writ of execution should be served. 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. NLRC ruled that PBC and its successor-in-interest PCPPI were held liable for the reinstatement of Encabo. Hence this petition. Issue: 1. W/NEncabo was illegally dismissed? (not important) 2. W/N PCPPI was liable for the reinstatement of Encabo Held/Ratio: 1. Yes, the Labor Arbiter found that Encabo was not remiss of his duties, he was able to maintain functional the dilapidated machine, and in the case of the rehabilitation of the machine his suggestions where ignored, and the rehabilitation was placed under the complete control of the independent contractor, as the petitioners wanted, but when the independent contractor failed, he was the one that repaired the machine. Apart from the Labor Arbiters finding that there is no sufficient basis for the PBC to justify Encabos dismissal on the ground of loss of trust and confidence, it appears that the

dismissal was merely to cover up managements embarrassment. Encabo 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. Also the requirements of due process were not met by the PBC. 2. Yes, PCPPI claims that it is an entirely separate and distinct entity from the PCD. On the ground of serious business losses, PCD alleged that it ceased to operate and PCPPI, a company separate and distinct from PCD acquired the franchise to sell the Pepsi-Cola products. Pepsi-Cola Distributors of the Philippines may have ceased business operations and Pepsi-Cola Products Philippines Inc. may be a new company but it does not necessarily follow that no one may now be held liable for illegal acts committed by the earlier firm. The complaint was filed when PCD was still in existence. Pepsi-Cola never stopped doing business in the Philippines. The same soft drinks products sold in 1988 when the complaint was initiated continue to be sold now. The sale of products, purchases of materials, payment of obligations, and other business acts did not stop at the time PCD bowed out and PCPPI came into being. In fact in the surety bond put up by the petitioners as appeal bond, both PCD and PCPPI bound themselves to answer the monetary awards of the private respondent in case of an adverse decision of the appeal, which clearly implies that the PCPPI as a result of the transfer of the franchise bound itself to answer for the liability of PCD to its employees. Moreover, the liability of petitioners A. C. Sian and Virgilio Castillo as Plant General Manager and Manufacturing Manager respectively of PCD is beyond question as they are the architects of the dismissal of private respondent. 8.Buan vs Alcantara=FERNANDEZ 9.Phividec vs CA=FORTES Doctrine: General Rule: in equity transfer, the transferee does not become personally liable for the obligations of the corporate enterprise under the main doctrine of separate juridical personality. Unless, either the

transferee by contract assumes such obligations, or there is basis for piercing the veil of corporate fiction. Facts: Prior to the selling of Phil. Veterans Investment (PHIVIDECs) railway trains and other assets to Philippine Sugar Commission (PHILSUCOM) Violeta Borres was injured in an accident involving the said train. Trial court: PHIVIDEC Railways, Inc(PRI) is liable for Violetas accident Accident happened on 29 March 1979 Two months after, on 25 May 1979, Phividec sold all rights and interest in the PRI to PHILSUCOM o 2 days (27 May) after PHILSUCOM created a wholly-owned subsidiary Panay Railways, Inc (Panay) to operate the railway assets of Phividec Violeta filed complaint for damages against PRI and Panay Panay filed third party complaint against PRI o Alleged: sale to PHILSUCOM of PRI, corporate name of PRI was changed to Panay Railways, Inc o Panay disclaimed liability as the Agreement between PHIVIDEC and PHILSUCOM stated that: o PHIVIDEC shall hold PHILSUCOM free and harmless from any action that might arise from any act or omission prior to turnover WON: PHIVIDEC should be held liable for the damages to Violeta? Held: Yes. Clear from evidence of record agreement between PHIVIDEC and PHILSUCOM o Stipulation: exempting PHILSUCOM from any claim or liability arising out of any act or transaction prior to the turnover, o PHIVIDEC expressly assumed liability for any claim against PRI o Accident happened before the agreement o PRI ceased to exist after the turnover o PHIVIDEC cannot evade liability for injuries sustained by Violeta

Contrary conclusion would leave Violeta without any recourse for legitimate claim In interest of justice and equity, veil of corporate fiction must be pierced PHIVIDEC and PRI are one and the same entity.

10. Associated Bank vs CA=KLETO FACTS: Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the surviving bank. After the merger agreement had been signed, but before a certificate of merger was issued, respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note, promising to pay the bank P2.5 million on or before due date at 14% interest per annum, among other accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank. Respondent argued that the plaintiff was not the proper party in interest because the promissory note was executed in favor of CBTC.

ISSUE: 1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed, but before a certificate of merger was issued?

HELD: The petition is impressed with merit. Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved, 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 Securities and Exchange Commission (SEC) and majority of the respective stockholders of the constituent corporations must have approved the merger. (Section 79, Corporation Code) It will be effective only upon the issuance by the SEC of a certificate of merger. Records do not show when the SEC approved the merger. But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. 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, herein petitioner. Such must have been deliberately included in the agreement in order 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 petitioner bank. WHEREFORE, the petition is GRANTED. 11.Sundowner vs Drilon=KUNG Doctrine: 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 of the assets or enterprise is not legally bound to absorb in its employ the employers of the seller of such assets or enterprise, the parties are liable to the employees if the transaction between the parties is colored or clothed with bad faith. Unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements 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 personally and does not create any real right which should be respected by third parties. Facts: Hotel Mabuhay, Inc. (Mabuhay) leased the premises belonging to Santiago Syjuco, Inc. (Syjuco) but failed to pay their rentals. A case for ejectment was filed by Syjuco against Mabuhay who offered to amicably settle the case by surrendering the premises to Syjuco and to sell its assets and personal property to any interested party. Sundowner Development Corporation (Sundowner) leased the premises from Syjuco and also agreed to buy Mabuhays assets and personal properties located in the premises. Subsequently, the National Union of Workers in Hotel, Restaurant and Allied Services (NUWHRAIN) picketed the leased premises, barricaded the entrance and denied Sundowners officers, employees and guests free access to and egress. The Secretary of Labor Drilon assumed jurisdiction over the labor dispute and in the interim, ordered all striking employees to return to work and for Mabuhay to accept all returning employees pending final determination of the issue of the absorption of the former employees

of Mabuhay. Mabuhay submitted that since it has ceased operations and had sold all its assets and personal properties to Sundowner, there exists a legal and physical impossibility on its part to comply with the return to work order specifically on absorption. Instead, it entered into a tripartite agreement with Sundowner and NUWHRAIN so that the employees would cease picketing and that Sundowner could continue its operations. NUWHRAIN alleged that Mabuhay and Sundownder connived to sell the assets and close the hotel to escape its obligations to the employees and asked that Sundowner accept the workforce of Mabuhay and pay backwages. The Secretary of Labor issued an order requiring Sundowner to absorb the union members and to pay backwages. Issue: 1. W/N the purchaser of the assets of an employer corporation can be considered a successor employer of the latters employees. Held/Ratio: 1. NO. In the case at bar, contrary to the claim of the Labor Secretary that the transaction between Sundowner and Mabuhay was attended with bad faith, the court finds no cogent basis for such contention. It was only when Mabuhay offered to sell its assets and personal properties in the premises to Sundowner that they came to deal with each other. Thus, the absorption of the employees of Mabuhay may not be imposed on Sundowner. Moreover, in a tripartite agreement that was entered into by Sundowner with NUWHRAIN and Mabuhay, it is clearly stipulated that Immediately after the execution of this Agreement, the FIRST PARTY shall give a list of its members to the THIRD PARTY that it desires to recommend for employment so that the latter can consider them for employment, with no commitment whatsoever on the part of the THIRD PARTY to hire them in the business that it will operate in the premises formerly occupied by the Hotel Mabuhay. It is clear that Sundowner has no liability whatsoever to the employees of 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 is no implied acceptance of the employees of Mabuhay by Sundowner and no commitment or duty to absorb them. Also, while it is true that Sundowner is using the leased property for the

same type of business as that of Mabuhay, there can be no continuity of the business operations from Mabuhay to Sundowner because Mabuhay had not retained control of the business. Sundowner is a corporation entirely different from Mabuhay and has no controlling interest whatever in the same. What is obvious is that the Sundowner, by purchasing the assets in the hotel premises, enabled Mabuhay to pay its obligations to its employees. There being no employer-employee relationship between the Sundowner and the Mabuhay employees, it cannot be compelled to absorb the latter and to pay them backwages. 12.Central Azucarera vs CA=MAGSUMBOL 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. 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. Although the document of sale made no express mention of the continued employment status of the old employees of Central Danao upon the consequent change of its ownership and management, Dadeco, the purchasing corporation, however hired Central Danao's regular and permanent employees but in accordance with its own hiring and selection policies. During the period of their new employment with Dadeco, Nonelon Bana-ay was terminated on December 15, 1961; Gorgonio Palma on July 10, 1966, and Jose Cosculluela, on February 1, 1967. As a consequence thereof, Nonelon Bana-ay, along with eight others, Jose Cosculluela, and Gorgonio Palma, filed separate complaints for recovery of termination pay with damages against Dadeco and Central Danao as common defendants with the then CFI of Negros Occidental, Bacolod City. Controverting said complaints, Dadeco denied liability for termination pay, asserting lack of cause of action since Dadeco was not their employer for the period in question and prior to the time it took over the management

and operation of the sugar central on July 8, 1961. By way of cross-claim, Dadeco contended that the liability for the termination pay corresponding to complainants' (now private respondents) years of employment until the date of sale on July 7, 1961 should be shouldered by Central Danao, private respondents' previous owner and employer. On the other hand, Central Danao invoked the defense of lack of cause of action, prescription, and laches in denying liability and by way of cross- claim, shifted the burden to Dadeco. Central Danao claimed that Dadeco assumed the liability to pay the termination pay corresponding to the alleged years of employment prior to July, 8, 1961, contending, that the assets of Central Danao had already been sold to Dadeco pursuant to the Deed of Sale of July 7, 1961; and that at the time of their alleged termination, Dadeco was already their employer. 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 under the Termination Pay Law. Held: Central Danao is held liable for the termination pay. Under the Termination Pay Lawthen enforced prior to the activity of the New labor Code on November 1, 1974an employee may be terminated with or without just cause. If 'here is just cause, the employer is not requires to serve any notice nor pay termination pay to employees concerned. If the termination -is without just cause, the employer must serve notice to the employee, otherwise the employer is obliged to pay termination pay, except where other applicable statutes provide a different remedy as in unfair labor practice. The purpose of the Termination Pay Law, as a regulatory measure, is to give the employer the opportunity to find replacement or substitute; and other place of employment or source of livelihood in the case of an employee. The law should be interpreted with the aim in view of advancing the beneficient purpose thereof to give protection to the laborers so dismissed and their families. 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. In a number of cases on this point, the rule has been laid down that the sale or disposition must be motivated by good faith as an element of exemption from liability. Indeed, an innocent transferee of a business establishment has no liability to the employees of the transferor to continue employing them. Nor is the transferee liable for past unfair labor practices of the previous owner, except, when the liability therefor is assumed by the new employer under the contract of sale, or when liability arises because of the new owner's participation in thwarting or defeating the rights of the employees. A judicious examination of the pertinent Deed of Sale dated July 7, 1961 reveals no express stipulation whatsoever relative to the continued employment by Dadeco of the former employees of Central Danao. Their fate under the new owners appeared unprovided for. And there is no law requiring that the purchaser should absorb the employees of the selling company. 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. In Philippine Refining Company, Inc. vs. Garcia, this Court, speaking thru Justice J.B.L. Reyes, stated thus: "Except where other applicable statutes provide differently, it is not the cause for the dismissal but the employer's failure to serve notice upon the employee that renders the employer answerable to the employee for termination pay." 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. By way of reminder, employers should exercise caution and care in dealing with its employees to prevent suspicion that the adoption of certain corporate combinations such as merger or consolidation or outright sale or disposition of assets is but a scheme to evade payment of termination pay to its employees.

 13.Complex Electrics vs NLRC=PEREZ FACTS The petitioners are employees of the Complex Electronics corporation, a corporation engaged in the manufacture of electronic products. Due to the low cost of Chinese manufacturers, and its inability to compete with such low prices, Complex decided to close the operations of one of its assembly lines, Lite On. However the company promised the employees to be retrenched that the retrenchment will not take place until after 1 month, and they will also be given other legal benefits On March 25, 1993, the Union filed a notice of strike with the National Conciliation and Mediation Board (NCMB) 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. The following day, a total closure of company operation was effected at Complex. A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor practice, illegal closure/illegal lockout, money claims etc 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 the Labor Code and the existing CBA. Ionics was impleaded as a party defendant because the officers and management personnel of Complex were also holding office at Ionics with Lawrence Qua as the President of both companies. Complex, on the other hand, averred that since the time the Union filed its notice of strike, there was a significant decline in the quantity and quality of the products in all of the production lines. The delivery schedules were not met prompting the customers to lodge complaints against them. 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. Thus, Complex was compelled to cease operations. 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. While admitting that Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied having Qua as their owner. Ionics further argued that the hiring of some displaced workers of Complex was an exercise of management prerogatives. Likewise, the transfer of the machinery, equipment and materials from Complex was the decision of the owners who were common customers of Complex and Ionics. ISSUE: Could Ionics be impleaded in the case and be made liable to rehire the employees or pay their money claims? RULING: No, It is Complex Electronics Corp that should be held liable for the backwages of the employess and not Ionics. The most that Ionics could do is absorb some of Complexs employees or give them a preference in employment. But as a general rule, it is Complex that should be held liable pursuant to the rules of Business Enterprise transfers. Furthermore in case of closures or cessation of operation of business establishments not due to serious business losses or financial reverses, 31 the employees are always given separation benefits. In the instant case, notwithstanding the financial losses suffered by Complex, such was, however, not the main reason for its closure. Complex admitted in its petition that the main reason for the cessation of the operations was the pull-out of the materials, equipment and machinery from the premises of the corporation as dictated by its customers. It was actually still capable of continuing the business but opted to close down to prevent further losses. Under the facts and circumstances of the case, we find no grave abuse of discretion on the part of the public respondent in awarding the employees one (1) month pay for every year of service as termination pay. 14.Pepsi Cola Distibutors (1995) vs NLRC=TABAG 15.Manlimos vs NLRC=BISNAR

Facts: There are 16 petitioners in this case. Manlimos, along with the other petitioners, were regular employees of Super Mahogany Plywood Corporation, a domestic corporation based in Butuan City. In 1991, a new management group acquired complete ownership over Super Mahogany. The employees were advised of the change of ownership, and were eventually terminated with their conformity in December 1991. By virtue of such termination, the employee-petitioners received separation pay and all other benefits due them. Upon receipt of such amounts, they were made to sign a release and waiver in the presence of the hearing officer of the DOLE. After such termination, the new owners caused the publication of a notice for the hiring of new workers. The employee-petitioners applied and were re-hired on probationary status. During the course of their probationary employment, two of the petitioners, Cumpay and Etic, were dismissed on the ground of abandonment on May 4, 1992. The rest of the petitioners were also eventually dismissed, upon the ground that they committed acts prejudicial to the interest of the new management, specifically alleging unsatisfactory work performance. The date of their termination was pushed from June 13 to June 20, 1992, due to the pleas of the employees. Subsequently, two groups of employees filed their separate complaints for illegal dismissal, with prayers for reinstatement, backwages and other amounts due them before the NLRC. These separate complaints were consolidated. The employee-petitioners allege that they remained regular employees of the corporation because the change in ownership and management of Super Mahogany left its separate juridical personality unaffected. In their defense, the corporation claims that it was within their management prerogative to terminate the employee-petitioners, as they were rehired by the new management under probationary status. The Labor Arbiter ruled in favor of the employees. Upon appeal, the fifth division of the NLRC reversed. Hence, this petition. Issues: 1) W/N the employees were illegally dismissed

 Held/Ratio: 1) No as to the employees who were dismissed based on unsatisfactory performance; Yes as to the two employees dismissed on the ground of abandonment. The Supreme Court emphasized that the issue in this case is the validity of the termination of the employees as a result of the change of corporate ownership. Thus, it was not incumbent upon the corporation to prove that the cessation of business operations was based on just cause because there was no cessation to speak of, only a change of ownership. Such change in ownership had no effect on the distinct and separate juridical entity of Super Mahogany which continued to exist. It is within the new owners prerogative to hire new employees in place of old ones, as long as such termination is not used as a mechanism to escape payment of termination pay. In this case, it must be noted that the employees signed a waiver upon termination, acknowledging receipt of amounts due them. The fact that they were re-hired by the new owners did not change the fact that they were terminated upon change of corporate ownership. Their re- employment under probationary status was not a continuation of their regular employment under the old management of Super Mahogany. Termination of the employees was effective June 20. This date coincided with the date of expiration of the six month probationary period, thus rendering moot the question of illegal dismissal, it being within the sole prerogative of management to renew the probationary contracts. While the other petitioners were validly dismissed, the same cannot be said for Cumpay and Etic. They were dismissed on an earlier date (May 4) on the ground of abandonment. Because Super Mahogany failed to prove the intent to abandon on the part of these two employees, their premature dismissal was consequently illegal. However, since their contracts already expired prior to the rendering of the present decision, they were no longer reinstated but were

instead granted backwages covering the period from the date they were illegally dismissed, to the date of expiration of their probationary contracts. 16.Filipinas Port Services vs NLRC=BOMBALES Doctrine: Unless expressly assumed, labor contracts are not enforceable against a transferee of an enterprise, labor contracts being in personam. Facts: On Feb. 16, 1977, the government adopted a policy in Davao that only one company can operate stevedoring and arrastre services in the ports of Davao. This was approved in Customs Memorandum Order 28075 which was later superseded by the General Port Regulations of the Philippine Ports Authority (PPA) which fully implemented the policy. Because of this, the companies providing such services consolidated together and formed a corporation named Davao Dockhandlers, Inc. which was later renamed Filipinas Port Services. Among the corporations in the consolidation agreement was Davao Maritime Stevedoring Corporation (DAMASTICOR) (others were: Allied Stevedoring Corporation, Davao Southern Stevedoring Corporation, Mt. Apo Stevedoring Corporation, United Stevedoring Corporation, Mindanao Terminal Brokerage Services, Inc. and Bay United Stevedoring Corporation) In the articles of incorporation of the new corporation, it provided that: Sec. 118. Absorption of labor - Subject to the provisions of the immediate preceding section, and consistent with the actual operational requirements of the new management, all labor force together with its necessary personnel complement, of the merging operators shall be absorbed by the merged or integrated organization to constitute its labor force.

 Hence, most of the employees of the consolidating companies were employed by Filipinas. Private respondent, an employee of DAMASTICOR, upon retirement from Filipinas, was paid his retirement fee from 1977-1987. He however contends that his employment from DAMASTICOR should be counted in computing his retirement fee. He brought the case against the labor arbiter which upheld his claim and ordered petitioner to pay respondent at the rate of one-half month pay for every year of service, a fraction of at least six months being considered as one year, less payment made arguing that as successor, Filipinas should be liable to the employees of its consolidating companies. Issue: 1. 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. Held/Ratio: 1. No. Unless expressly assumed, labor contracts are not enforceable against a transferee of an enterprise, labor contracts being in personam. Petitioner cannot be held liable 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. 17.SMC employees vs Conferssor=FERNANDEZ Facts: SMC-Union entered into a Collective Bargaining Agreement (CBA) with SMC to take effect upon the expiration of the previous CBA or on June 30, 1992. SMC management informed its employees in a letter that the company which was composed of 4 operating divisions (1) beer, (2) packaging, (3) feed and livestocks and (4) Magnolia and Agri-business would undergo a restructuring. Magnolia and Feeds and Livestock divisions were spun-off and became 2 separate and distinct corporations: Magnolia Corp. (Magnolia) and San

Miguel Foods (SMFI). Notwithstanding the spin-offs, the CBA remained in force and effect. After June 30, 1992, the CBA was renegotiated with the two parties submitting respective proposals. During the negotiations, SMC-Union insisted that the bargaining unit of SMC should still include the employees of the spun-off corporation and the CBA shall be effective for 2 years. 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 and that the CBA should be effective for 3 years PURSUANT TO THE LABOR CODE (Art. 253-A). There was a deadlock. SMC-Union filed a notice of strike against SMC. In order to avert the strike, the Secretary of Labor assumed jurisdiction over the dispute. The secretary of labor issued an order that the renegotiated terms of the CBA shall be effective for 3 years and the such CBA shall cover only the employees of SMC and not of Magnolia and SMFI. Issues: 1.W/N the duration of the renegotiated terms of the CBA is to be effective for three years or for only two years 2.W/N the bargaining unit of SMC includes also the employees of Magnolia and SMFI. Held/Ratio: 1.YES. Art. 253-A states that the CBA has a term of five (5) years instead of three years, before the amendment of the law as far as the representation aspect is concerned. All other provisions of the CBA shall be negotiated not later than three (3) years after its execution. 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 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 five (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) cannot 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. 2.NO. Magnolia and SMFI were spun-off to operate as distinct companies. 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. As a result of the spin-offs: a. Each of the companies are run by, supervised and controlled by different management teams including separate human resource/personnel managers. Each Company enforces its own administrative and operational rules and policies and are not dependent on each other in their operations. Each entity maintains separate financial statements and are audited separately from each other.

b.

c.

Magnolia and SMFI became distinct entities with separate juridical personalities. Thus, they can not belong to a single bargaining unit. In determining an appropriate bargaining unit, the test of grouping is mutuality or commonality of interests. 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.