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1. Edward Nell Company v. Pacific Farms Inc.

Edward Nell secured a judgment for the sum of P1,853 representing the unpaid balance of the
price of a pump sold by petitioner to Insular Farms. A writ of execution was returned unsatisfied
stating that Insular Farms had no leviable property. Soon after, petitioner filed with the court this
action against Pacific Farm for the collection of the judgment in earlier civil case (the one against
Insular Farms) on the theory that Pacific Farms is the alter ego if Insular Farms.

The theory that Pacific Farms is an alter ego of Insular farms was based on the fact that
Pacific Farms purchased all or substantially all of the shares of stock of Insular Farms, both real and
personal properties. These facts do not prove that Pacific Farms is an alter ego of Insular or is liable
for its debts. Generally where one corporation sells its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor except: 1) if it expressly or impliedly agrees to
assume such debts, 2) where the transaction amounts to a consolidation or merger, 3) where the
purchasing corporation is merely a continuance of the selling corporation and 4) where the
transaction is entered into fraudulently to escape liability.
In the case at bar, there is no proof or allegation that Pacific Farms agreed to assume the debt
of Insular Farms, or that Pacific is a continuation of Insular or that the sale of the shares of stock was
made to escape liability. In fact, the sale took place six months before the rendition of the favorable
judgment to petitioner. Moreover Pacific purchased the shares of stock at an auction as the highest
Neither is it claimed that these transactions have resulted in consolidation or merger. On the
contrary, the theory to the effect that Pacific is an alter ego of Insular negates such consolidation or

2. Gonzales v. Sugar Regulatory Administration

Petitioners-spouses Gonzales obtained a loan from Republic Planters Bank (RP Bank) secured
by a real estate mortgage. The amortization payments are to be remitted by Philippine Sugar
Commission (Philsucom) to RP Bank. RP Bank is owned and controlled by Philsucom. Petitioners
received a statement of account from RP Bank and it appeared that they already more than fully
repaid their loan. Petitioners prayed that the mortgage be cancelled and that Philsucom and Sugar
Regulatory Administration (SRA) be required to reimburse the petitioners the overpaid amount.
Respondends RP Bank, Philsucom and SRA moved to dismiss the complaint. SRA noted that
when the overpayment complaint was made, SRA itself had been created by EO 18 and hence, its not a
party to the mortgage.
Petitioners filed an amended complaint assailing the constitutionality of EO 18. They urged
that the abolition of Philsucom destroyed petitioners right to recover from Philsucom. They assert
that they had been deprived of their right to claim the overpaid amount (deprived of property) and
that the abolition of Philsucom and the transfer of assets from Philsucom to SRA are unconstitutional
and ineffective. Their theory is that they have a right to follow Philsucoms assets in SRAs hands.

W/N petitioners have a valid claim against SRA due to the transfer of Philsucoms assets to

EO 18 abolished Philsucom, created SRA and authorized the transfer of assets from
Philsucom to SRA. Sec. 13 of EO 18 provides that xxx although the Philsucom is hereby abolished, it
shall nevertheless continue as a juridical entity for 3 years after the time when it would have been so
abolished, for the purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey its property and to distribute its assets xxx.
EO 18 did not provide for a universal succession. Under said section, SRA has been authorized
to determine which assets and records of Philsucom would they (SRA) carry on or undertake. EO 18 is
silent as to the liabilities of Philsucom as it does not speak of assumption of liabilities by SRA.
We believe that such section is not to be interpreted as authorizing SRA to disable Philsucom
from paying its obligations by simply taking over Philsucoms assets and immunizing them from
legitimate claims. We believe that the assets of Philsucom not adequate to pay for all its lawful claims,
SRA should be held liable to the extent of fair value of assets actually taken over by SRA from
Philsucom. To this extent, petitioners have a right to follow Philsucoms assets in the hands of SRA.

3. Villa Rey Transit, Inc. v. Ferrer

Jose Villarama was an operator of a bus transportation under the name Villa Rey Transit,
pursuant to 2 certificates of public convenience granted him by the Public Service Commission (PSC).
On January 8, 1959, he sold the 2 certificates of public convenience to Pangasinan Transportation
Company, Inc. (Pantranco) for P350K with the condition, among others, that 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."
However, barely 3 months after such sale, a corporation called Villa Rey Transit, Inc. was
organized where the wife of Villarama was one of the incorporators and the brother and sister-in-law
of Villarama were the stockholders of the corporation. The new corporation Villa Rey Transit then
bought 5 certificates of public convenience, buses and other equipment from one Valentin Fernando.
Subsequent to this, the Sheriff of Manila then levied on 2 of the 5 certificates of public convenience
pursuant to a writ of execution in favor of Eusebio Ferrer, a creditor of Fernando. A public sale was
then conducted where the 2 certificates of public convenience was then issued to the highest bidder
Ferrer. Ferrer then sold the 2 certificates to Pantranco.
Villa Rey Transit then filed a complaint for the annulment of the sheriffs sale of the 2 certificates of
public convenience against Ferrer, Pantranco, and the PSC. The lower court ruled in favor Villa Rey
Transit and declared null and void the sheriffs sale of the 2 certificates of public convenience.

Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that
to new lines only or does it include existing lines?
W/N such stipulation is valid and enforceable

The Supreme Court first held that the evidence has sufficiently established that the new
Corporation Villa Rey Transit is an aler ego of Villarama therefore the restrictive clause in the contract
entered into by the latter and Pantranco is also enforceable and binding against the said Corporation.
The restrictive clause in the contract applies to both existing and new lines. It is
evident from the context thereof that the intention of the parties was to eliminate the seller as a
competitor of the buyer for ten years along the lines of operation covered by the certificates of public
convenience subject of their transaction. The clear intention of the parties was to prevent the seller
from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply
for authorization to operate along such lines for the duration of such period.
The evident intention behind the restriction was to eliminate the sellers as a competitor, and this
must be, considering such factors as the good will that the seller had already gained from the riding
public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on
Contracts has this to say:

When one buys the business of another as a going concern, he usually wishes to
keep it going; he wishes to get the location, the building, the stock in trade, and
the customers. He wishes to step into the seller's shoes and to enjoy the same
business relations with other men. He is willing to pay much more if he can get
the "good will" of the business, meaning by this the good will of the customers,
that they may continue to tread the old footpath to his door and maintain with
him the business relations enjoyed by the seller.
... In order to be well assured of this, he obtains and pays for the seller's
promise not to reopen business in competition with the business sold.

Such restraint in trade is valid and enforceable. The rule became well established
that if the restraint was limited to "a certain time" and within "a certain place," such contracts
were valid and not "against the benefit of the state." Later cases, and we think the rule is now well
established, have held that a contract in restraint of trade is valid providing there is a limitation
upon either time or place. A contract, however, which restrains a man from entering into business
or trade without either a limitation as to time or place, will be held invalid.
In the case at bar, the suppression or restraint is only partial or limited: first, in scope, it
refers only to application for TPU by the seller in competition with the lines sold to the buyer;
second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the
restraint is only along the lines covered by the certificates sold. In view of these limitations,
coupled with the consideration of P350Kfor just 2 certificates of public convenience, and
considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the
same is reasonable and it is not harmful nor obnoxious to public service. It does not appear that
the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to
operate along the lines in question, thereby establishing monopoly or predominance
approximating thereto. The main purpose of the restraint was to protect for a limited time the
business of the buyer.

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


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
LESTEVECOs 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.


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


1. Yes. Caltex may recover the judgment debt from PSTC not because of a stipulation in Caltexs
favor but because the Agreement provides that PSTC shall assume all the obligations of
LUSTEVECO. LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECOs
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
formers obligations. To allow an assignor to make a transfer without the consent of its
creditors and without requiring the assignee to assume the formers 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 LUSTEVECOs 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 PSTCs obligations will defraud Caltex.

5. Rivera vs Litam & Company, Inc.

Rafael Litam was married to Marcosa Rivera. He died on January 10, 1950. Upon his death,
intestate proceedings were instituted by Dy Tam who alleged that he is Rafaels son. Rafael previously
married in China. The court approved the appointment of Rivera (nephew of Marcosa) as the
administrator. During the pendency of the intestate proceedings, Marcosa filed a claim for money
against the intestate because of the debts Rafael owed her. These debts were supported by documents
(Kasulatan ng Pagkakautang).
During his lifetime, Rafael was the President and General Manager of the Li Tam and
Company, Inc. and he had 54/204 shares therein. Rivera asked for the income of these shares but Lee
Chu (president) alleged that at the time of Rafaels death, he was no longer the owner of the shares
since he already transferred these to his other children (China family).
The children (China family) also claim that the corporation in which Rafael had shares of
stock is no longer existing and the present corporation, Li Tam Company Inc, is formed by different

The court ruled that the transfer was simulated, fictitious and in fraud of creditors. Our
examination of the certificates of stock shows that the deceased Rafael Litam's signatures to the
indorsement were authentic, but the dates of indorsement and the names are not; so we believe,
Rafael must have signed the indorsement not on January 25, 1950 but before, and the shares actually
transferred in the books already after 1952. From these circumstances we conclude that the
certificates of stock must have been delivered, already signed by the deceased, before his death, in
secret, to his alleged children, the defendants herein, who, after Rafael Litam's death in January 1951,
wrote their names on the shares as endorsees, in secret also. Their purpose is evident so that upon
Rafael's death his Filipino wife would not be able to claim the shares of stock as part of Rafael's assets
and same (shares) would not be subject to the payment of his debts.
The corporation is liable to the estate for the equivalent number of shares of stock. One last
point needs consideration, and this is the claim made by the defendant corporation that its obligation
to transfer the shares of stock to the estate could not be inferred from the Articles of Incorporation,
because the two corporations are distinct and separate, and under the authorities cited by it, even if
the new succeeded the old corporation. This claim would have been correct had not the defendant
corporation expressly acquired the assets and properties of the old Li Tam and Company, Inc., and
assumed its obligations and liabilities in the articles of incorporation.

6. San Teodore Development Enterprises, Inc. V. Social Security System, 8 SCRA 96
In 1959, San Teodoro Sawmill Co. Inc. (previously Chua Lam & Co., a limited partnership
doing business under the name San Teodoro Sawmill) received a letter from the Administrator of SSS,
stating that it fell under the compulsory coverage of the SS Law effective last Sept. 1957, and that the
effectivity date of its employees was Sept 1957, while its coverage started from Aug 1957.
STSC stated that it was exempt from the coverage, as it was only incorporated last Jan. 1957, while the
partnership was organized last June 1951 - it being separate and distinct from one another. The SS
Commission issued a resolution upholding the findings of the administrator, stating that the newly
incorporated company was merely a continuation of the previous partnership, Chua Lam.

W/N STSC is, indeed, a continuation of the previous partnership, thereby making it fall under
the coverage of the SS Law?

YES. The government correctly pointed out the fact that even before the partnership was
dissolved, 4 out of 5 of the original partners already intended to form a corporation to expand the
business of the partnership about to close. Even the Articles of Incorporation of the new company had
the same scope and purpose as the previous partnership. This shows that STSC is definitely a
continuation of the business of Chua Lam, and as such, brings it under the purview of the SS Law.

7. Oromeca Lumber Co., Inc. v. Social Security Commission and Social Security System,
4 SCRA 1188 (1962)

Petitioner requested Defendant to refund premiums the former paid to the latter for
November and December 1957 claiming that they were not yet subject to the compulsory coverage of
the Social Security Act
. Their claim relies on the doctrine of Separate Corporate Personality as it was
incorporated only on 11 April 1956. The SSS objected to the petition claiming that Oromeca merely
took over the business Ortega, Roman & Lacson De Leon Company doing business under Oromeca
Lumber Co since 1947.

W/N Petitioner is subject to the compulsory coverage of the Social Security Act.

Yes. The Articles of Dissolution contained a resolutory clause wherein they were "to wind up
the affairs of the partnership and dissolve it" with the desire and express will of the partners to have it
(partnership) organized into a corporation for the purpose of expanding its business in the
exploitation and development of the lumber industry in the Philippines" to be "effective upon the date
of registration of the new corporation which shall assume all the assets and liabilities" of the

8. Garcia v. Social Security Commission Legal and Collection, 540 SCRA 456 (2007)

LnLlLles LhaL have been ln operaLlon for Lwo years become sub[ecL Lo Lhe compulsory coverage of Lhe Soclal SecurlLy AcL.
noLe LhaL Lhe company was formed and organlzed on 04 Aprll 1936 whlle Lhe Arlcles of lncorporaLlon were flled on 06
Aprll 1936 (buL reglsLered on 11 Aprll 1936)- Lhe same daLe when Lhe ArLlcles of ulssoluLlon were recorded wlLh Lhe SLC.
Immaculada Garcia, Eduardo de Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo
Villanueva were directors of IMPACT Corporation, engaged in the business of manufacturing
aluminium tube containers and operated 2 factories. In 1978, IMPACT started encountering financial
problems, and it started to experience labor unrest among the employees. IMPACT filed a petition for
suspension of payments with the SEC. In addition, employee union of IMPACT filed a notice of strike,
and the Ministry of Labor certified the labor dispute for compulsory arbitration to the NLRC, noting
the inability of IMPACT to pay wages and SSS remittances. The SSS then filed a case before the Social
Security Commission (SSC) against IMPACT and its directors (Garcia, et al) for the unremitted SSS
premium contributions from its employees. SSC held IMPACT and Garcia (alone, other directors were
not served summons due to death) liable to SSS for the unremitted contributions. CA affirmed.

Whether or not Garcia can be made liable for the obligations of IMPACT? YES

As a covered employer under the Social Security Law (SSL), it is the obligation of IMPACT to
deduct from its employees monthly salaries their shares as premium contributions and remit the
same to the SSS. However, IMPACT has already been dissolved.

Sec. 22 of the SSL required every employer to deduct and remit premium contributions from
its employees and failure to do so is penalized under Sec. 28 of the same law. Sec. 28 (f) states:

If the act or omission penalized by the Act be committed by an association,
partnership, corporation or any other institution, its managing head,
directors or partners shall be liable to the penalties provided in this Act for
the offense.

The SC mentioned that penalties provided by the law included not only penalties per se, but also the
payment of the unremitted contributions.

Garcia alleges that as a stockholder of IMPACT, she is only liable only to the extent of her
subscription. SC holds otherwise for an exception to the rule on limited liability is when a director,
trustee or officer is made, by specific provision of law, personally liable for his/her corporate action.
Sec. 28(f) is one such provision.

Although a corporation once formed is conferred a juridical personality separate and distinct
from the persons comprising it, this will be disregarded by the courts when invoked in support of an
end contrary to the law.

9. Philippine Veterans Investment Development Corporation v. CA, 181 SCRA 669

Private respondent Borres was injured in an accident that was later found to be due to the
negligence of Phividec Railways, Inc. (PRI). The accident occurred on March 1979. On May of the
same year, PHIVIDEC sold all its rights and interests in the PRI to PHILSUCOM. Two days later,
PHILSUCOM caused, the creation of Panay Railways Inc., to operate the railway assets acquired from
PHIVIDEC. Subsequently, Borres filed a complaint for damages against PRI and Panay Railways.
Panay denied liability. It instead filed a third-party complaint against PHIVIDEC on the ground that
the Agreement between PHIVIDEC and PHILSUCOM provided that the latter will be exempt from
liability for any action or claim that may arise from contracts or transactions prior to the turn-over.
Both the RTC and the CA held that PRI was negligent and since PRI was a wholly-owned subsidiary of
PHIVIDEC, the latter should answer for PRIs liability.

Whether PHIVIDEC can be held solely liable for the negligence of PRI.

YES. PHIVIDEC should answer for PRIs liability. Although PRI may be said to have a
separate and distinct existence, PHIVIDEC may still be held liable as the rule states: if a parent-
holding company assumes complete control of the operation of its subsidiarys business, the separate
corporate existence of the subsidiary must be disregarded. PHIVIDECs act of selling PRI to
PHILSUCOM shows that PHIVIDEC had complete control of PRIs business. PHIVIDEC as the
holding company may rightfully be held responsible for the negligence of the employees of the
subsidiary as if it were the holding companys own subsidiary.
PHILSUCOM may not be held liable because the evidence on record is clear that by virtue of
the agreement between PHIVIDEC and PHILSUCOM, PHIVIDEC has expressly assumed liability for
any claim against PRI.

10. North Davao Mining Corp. V. NLRC, 254 SCRA 721 (1996)

Facts: Petitioner North Davao Mining Corporation (North Davao) was incorporated as a 100%
privately-owned company. Later, the Philippine National Bank (PNB) became part owner as a result
of a conversion into equity of a portion of loans obtained by North Davao from said bank. On June 30,
1986, PNB transferred all its loans to and equity in North Davao in favor of the national government
which was later turned over to petitioner Asset Privatization Trust (APT). As of December 31, 1990 the
national government held 81.8% of the common stock and 100% of the preferred stock of said
On May 31, 1992, petitioner North Davao completely ceased operations due to serious
business reverses. All told, as of December 31, 1991, or five months prior to its closure, its total
liabilities had exceeded its assets by 20.392 billion pesos. When it ceased operations, its remaining
employees were separated and given the equivalent of 12.5 days pay for every year of service,
computed on their basic monthly pay, in addition to the commutation to cash of their unused vacation
and sick leaves. However, it appears that, during the life of the petitioner corporation, it had been
giving separation pay equivalent to thirty (30) days pay for every year of service. Moreover, inasmuch
as the region where North Davao operated was plagued by insurgency and other peace and order
problems, the employees had to collect their salaries at a bank in Tagum, Davao del Norte, some 58
kilometers from their workplace and about 2 !hours travel time by public transportation .
A complaint was filed with respondent labor arbiter by respondent Wilfredo Guillema and 271
other separated employees for: (1) additional separation pay of 17.5 days for every year of service; (2)
back wages equivalent to two days a month; (3) transportation allowance; (4) hazard pay; (5) housing
allowance; (6) food allowance; (7) post-employment medical clearance; and (8) future medical
allowance, all of which amounted to P58,022,878.31 as computed by private respondent.
The NLRC ruled in favor of the private respondents, ordering North Davao to pay the
additional separation pay, backwages, and transportation allowance.

Issue: Whether or not the Government, being the owner of 81.8% of the common stock and 100% of
the preferred stock, can be held liable for the payment of separation pay

Held: NO. The Solicitor General concludes that since North Davao was among the assets transferred
by PNB to the national government, and that the APT was constituted trustee of this government
asset, it would be incongruous to declare that the National Government, which should always be
presumed to be solvent, could not pay now private respondents money claims. Such argumentation is
completely misplaced. Even if the national government owned or controlled 81.8% of the common
stock and 100% of the preferred stock of North Davao, it remains only a stockholder thereof, and
under existing laws and prevailing jurisprudence, a stockholder as a rule is not directly, individually
and/or personally liable for the indebtedness of the corporation. The obligation of North Davao
cannot be considered the obligation of the national government, hence, whether the latter be solvent
or not is not material to the instant case. The respondents have not shown that this case constitutes
one of the instances where the corporate veil may be pierced. From another angle, the national
government is not the employer of private respondent and his co-complainants, so there is no reason
to expect any kind of bailout by the national government under existing law and jurisprudence.

N.B. Given that the closure of the business was due to serious business losses or financial reverses,
and the companys inability to pay, the Court set aside the Resolution ordering payment of the
separation pay. However, the Court affirmed the Labor Arbiters resolution ordering the payment of
backwages and transportation allowances. Since the latter issues are factual, the determination of
which are best left to the NLRC. It is well settled that the Court is bound by the findings of fact of the
NLRC, so long as the findings are supported by substantial evidence.

11. PNB v. Andrada Electric and Engineering Co.,

Facts: Respondent is engaged in the business of general construction for the repairs and/or
construction of different kinds and machineries. Sometime in August 1975, PNB acquired the assets of
PASUMIL (Pampanga Sugar Mills) that were earlier foreclosed by the DBP under LOI 311. Prior to
October 1971, defendant PASUMIL engaged the services of Andrada for electrical rewinding and
repair, most of which were partially paid by PASUMIL, leaving several unpaid accounts with Andrada.
Out of the total obligation of P777,263.80, PASUMIL has only paid 250,000 leaving an unpaid
balance amounting to P527,263. Out of said balance, PASUMIL made a partial payment of P14,000 in
broken amounts, leaving an unpaid balance of P513,263.80. Both PASUMIL and PNB failed and
refused to pay Andrada their just, valid and demandable obligation when the former benefited from
the works, and the electrical, as well as the engineering and repairs formed by the latter; and that
because of the failure and refusal of the Plaintiffs to pay their just, valid and demandable obligations,
Respondent suffered actual damages in the amount of P513,263.80.
PNB sought to dismiss the case on the ff grounds: PNB is not a party to the contract as the
alleged services of the Respondent to PASUMIL was rendered long before PNB took possession of the
assets of PNB; PNBs take-over of the assets of PASUMIL was solely for the purpose of reconditioning
the sugar central so that PASUMIL may resume its operations; that moreover, LOI 311 did not
authorize or direct PNB to assume the corporate obligations of PASUMIL; and that at most, what was
granted to PNB was the authority to make a study of and submit recommendation on the problems
concerning the claims of PASUMIL creditors.

Issue: W/N PNB is liable for the unpaid debts of PASUMIL to respondent?

Held: No. PNB is not liable for the unpaid debts of PASUMIL to respondent as there is no merger or
consolidation with respect to PASUMIL and PNB.
Since a merger or consolidation involves fundamental changes in the corporation, as well as in
the rights of stockholders and creditors, there must be an express provision of law authorizing them.
For a valid merger or consolidation, the approval by the SEC of the articles of merger or consolidation
is required. These articles must likewise be duly approved by a majority of the respective stockholders
of the constituent corporations.
In the case at bar, there is no merger or consolidation with respect to PASUMIL and PNB as
the procedure prescribed in the Corporation Code was not followed. In fact, PASUMILs corporate
existence, as correctly found by the CA, had not been legally extinguished or terminated. Further,
prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial payments in
the amount of P250,000 and P14,000 to respondent for the formers obligation in the amount of
P777,263.80. Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to
respondent. LOI 11 explicitly provides that PNB shall study and submit recommendations on the
claims of PASUMILs creditors. Clearly, the corporate separateness between PASUMIL and PNB
remains, despite respondents insistence to the contrary.

Facts: 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
Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the
Amended Articles of Incorporation. The defendant Sarmiento executed in favor of Associated
Bank a promissory note whereby the former undertook to pay the latter the sum of P2.5 M
payable. Sarmiento, to date, still owes plaintiff bank the amount despite repeated demands.
Sarmiento alleged as defenses that the complaint states no valid cause of action; that the plaintiff is
not the proper party in interest because the promissory note was executed in favor of Citizens Bank
and Trust Company (CBTC). Sarmiento also contends that, since he issued the promissory note to
CBTC two years after the merger agreement had been executed -- CBTC could not have conveyed or
transferred to petitioner its interest in the said note, which was not yet in existence at the time of the
merger. Therefore, petitioner, the surviving bank, has no right to enforce the promissory note on
private respondent; such right properly pertains only to CBTC.
Issue: Whether 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
PNB created the NASUDECO
to take ownership and
possession of its assets
Held: YES. 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 fact that the promissory note was executed after the effectivity date of the merger does not
militate against petitioner. 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. 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
petitioner bank, as if such reference [was a] direct reference to the latter for all intents and
No other construction can be given to the unequivocal stipulation. Being clear, plain and free of
ambiguity, the provision must be given its literal meaning and applied without a convoluted
In light of the foregoing, the Court holds that petitioner has a valid cause of action against private
respondent. Clearly, the failure of private respondent to honor his obligation under the promissory
note constitutes a violation of petitioners right to collect the proceeds of the loan it extended to the

13. Poliand Industrial Limited v. National Development Company
Facts: GALLEON was a domestic corporation engaged in the maritime transport of goods. It had
obtained extended credit accommodations from Asia Hardwood, a Hong Kong corporation, to
augment its working capital. It also obtained loans from different Japanese lenders to finance the
acquisition of five new vessels and two second-hand vessels, which was guaranteed by DBP. To secure
DBPs guarantee, GALLEON executed a mortgage contract over its five vessels in favor of DBP.
On August 1981, then President Marcos then issued LOI 1155 directing NDC to acquire the entire
shareholdings of GALLEON. NDC and GALLEON executed a Memorandum of Agreement (MOA)
whereby they both agreed to execute a share purchase agreement.
Asian Hardwood assigned its rights to World Universal Trading, and subsequently to Poliand. Poliand
made claims against GALLEON, NDC and DBP for the outstanding balance of GALLEON and claimed
that under LOI 1155 and the MOA, the defendants are solidarily liable. It likewise claimed preferred
maritime liens over the proceeds of the extrajudicial foreclosure. The RTC ordered NDC and DBP to
pay Poliand, the CA affirmed with modifications, absolving DBP.
Issue: Whether NDC or DBP or both are liable to Poliand on the loan accommodations and credit
advances incurred by GALLEON
Held: No. The LOI does not have the force and effect of a statute. Although it was done due to the
extraordinary legislative power of the President, it did not meet the any of the conditions set out that
there be grave emergency or that the Legislative failed to act on it. Thus LOI 115 was in the nature of a
mere administrative issuance, which cannot be a valid source of obligation. Thus, both NDC and DBP
are not liable.
The Court cannot accept Poliands theory that with the effectivity of the LOI, NDC ipso facto acquired
interests in GALLEON without disregarding the applicable statutory requirements governing the
acquisition of a corporation. The merger does not become effective upon the mere agreement of the
constituent corporations but shall be effective upon the issuance of a certificate of merger by SEC. The
records do not show the approval of the SEC. Compliance with the statutory requirements is a
condition precedent to the effective transfer of the shareholdings in GALLEON to NDC.

14. Paper Industries Corporation of the Philippines v. Court of Appeals
Facts: Picop is a Philippine corporation registered with the Board of Investments as a preferred
pioneer enterprise with respect to its integrated pulp and paper mill, and as a preferred non-pioneer
enterprise with respect to its integrated plywood and veneer mills. On April 1983, CIR assessed and
demanded from Picop the following: (a) deficiency for transaction tax and for documentary and
science stamp tax; and (b) deficiency income tax for 1977. Picop protested but was denied by CIR. On
appeal, CTA modified the findings of CIR and reduced the aggregate amount, which was further
reduced by the CA. Among the contentions of Picop was its claim as deductible expense the net
operating loss of Rustan Pulp and Paper Mills (RPPM).
It was shown that on 18 January 1977, Picop entered into a merger agreement with RPPM and Rustan
Manufacturing Corporation (RMC) where the rights, properties, privileges, powers and franchises of
RPPM And RMC were to be transferred and conveyed to Picop as surviving corporation. RPPM and
RMC were likewise BOI-registered and that immediately before the mergers effectivity, RPPM had
over preceding years accumulated losses of P81M, which Picop is now claiming as deduction. Picop
relies on RA 5186 which provided incentives of a net operating loss carry-over (NOLCO) that can be
claimed as deduction six years after the loss.
Picop secured a letter-opinion from BOI allowing it carry over the losses of Rustan upon effectivity of
the merger. The CIR disallowed because the losses were incurred by another taxpayer, RPPM. CTA
and CA allowed the deduction because, by such time, RPPM and Picop were no longer separate and
different taxpayers.
Issue: Whether Picop is entitled to deductions against income of net operating losses incurred by
Held: No. The ordinary rule with respect to corporations NOT registered with the BOI as a preferred
pioneer enterprise is that net operating losses cannot be carried over. Under our Tax Code, both in
1977 and at present, losses may only be claimed as deduction if such losses were actually sustained in
the same year that they are deducted or charged off. It is thus clear that under our law and outside the
special realm of BOI-registered enterprises, there is no such thing as NOLCO. It is that Section 7(c) of
RA 5186 introduced the NOLCO as a very special incentive to be granted only to registered pioneer
enterprises and only with respect to their registered operations. The Court considers that the statutory
purpose can be served only if the accumulated operating losses are carried over and charged off
against income subsequently earned and accumulated by the same enterprise engaged in the same
registered operations. Picops claim for deduction is not only bereft of statutory basis but also does
violence to the legislative intent which animates the tax incentive granted by Section 7(c) of RA 5186.
15. Reyes v. Blouse

Facts: Plaintiffs as minority stockholders of the Laguna Tayabas Bus Co, instituted an action to
restrain its Board of Directors composed of the defendants from carrying out a resolution to take the
necessary steps to consolidate the properties and franchises of the Laguna Tayabas Bus Co. with those
of the Batangas Transportation Co as the merger or consolidation of the two companies would be
prejudicial to the appellants who do not own shares of stock of BT Co. as the dividends declared by
LTB Co were increasing while the dividends declared by BR Co were decreasing. Furthermore, the
proposed consolidation or merger was illegal because the unanimous vote of the stockholders was not
secured and contrary to law.


W/N the real purpose of the disputed resolution is the merger or consolidation of the
properties and franchises of the Laguna Tayabas Bus Co with those of Batangas Transportation Co.?
W/N said merger or consolidation can be carried out under the law in force in the Philippines?

Held: Yes. What is intended by the resolution is a merely a consolidation of properties and assets, to
be managed and operated by a new corporation, and not a merger of the corporations themselves. The
purpose of the resolution is not to dissolve the Laguna Tayabas Bus Co but merely to transfer its assets
to a new corporation in exchange for its corporation stock. This is deducible from the provision that
the Laguna Tayabas Bus Co will not be dissolved but will continue existing until its stockholders
decided to dissolve the same.

Yes. The claim that a merger or consolidation of two land transportation companies cannot be
carried out in this jurisdiction because it is prohibited by Act No 2772, is untenable in the light of the
provisions of said act. A careful analysis of the act will show that it only regulates the merger or
consolidation of railroad companies, or of a railroad company with any other carrier by land or water.
Said act does not apply to the merger or consolidation of two corporations exclusively engaged in land

On the question of whether the proposed consolidation or merger of the two corporations
would be prejudicial to the stock holders of LTB Co who do not own shares of stock of BT Co, the
lower court reached the conclusion that the merger would not be prejudicial or disadvantageous to the
appellants. The resolution was approved because the stockholders found that with the consolidation,
the two companies would enjoy the services of the same technical men, would invest much less in
spare parts, would effect savings in running one machine shop, would employ less personnel and in
general, would effect a substantial economy in men, materials and operation expenses.

Facts: Hotel Mabuhay, Inc. (Mabuhay) leased the premises belonging to Santiago Syjuco, Inc.
(Syjuco). However, due to non-payment of rentals, a case for ejectment was filed by Syjuco against
Mabuhay. Mabuhay offered to amicably settle the case by surrendering the premises to Syjuco and to
sell its assets and personal property to any interested party.
Syjuco offered the said premises for lease to petitioner Sundowner. Mabuhay offered to sell its assets
and personal properties in the premises to Sundowner. As a result, A deed of assignment of said assets
and personal properties was executed by Mabuhay in favor of Sundowner.
On same date Syjuco formally turned over the possession of the leased premises to Sundowner who
actually took possession and occupied the same.
Respondent National Union of Workers in Hotel, Restaurant and Allied Services (NUWHRAIN for
short) held a strike in the premises as a result of the turnover. They picketed the leased premises,
barricaded the entrance to the leased premises and denied Sundowners officers, employees and
guests free access to and egress from said premises. Sundowner sued.
A complaint for damages with preliminary injunction and/or temporary restraining order was filed by
Sundowner with the Regional Trial Court of Manila. On the same day, a restraining order was issued
against respondent NUWHRAIN and its officers and members as prayed for in the petition.
Nevertheless, NUWHRAIN maintained their strike on the subject premises but filed an answer to the
Subsequently an order was issued by public respondent Secretary of Labor assuming jurisdiction over
the labor dispute and in the interim, requiring all striking employees to return to work and for
respondent Mabuhay to accept all returning employees pending final determination of the issue of the
absorption of the former employees of Mabuhay.
Mabuhay alleged among others that it had sold all its assets and personal properties to Sundowner
and that there was no sale or transfer of its shares whatsoever and that Mabuhay completely ceased
operation and surrendered the premises to Sundowner so that there exists a legal and physical
impossibility on its part to comply with the return to work order specifically on absorption.
Respondent NUWHRAIN alleged connivance between Mabuhay and petitioner in selling the assets
and closing the hotel to escape its obligations to the employees of Mabuhay and so it prays that
Sundowner accept the workforce of Mabuhay and pay backwages from the day Mabuhay stopped
Issue: Whether the purchaser of the assets of an employer corporation can be considered a successor
employer of the latter's employees.
Held: NO. The rule is that 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.
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 the 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 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.
In the case at bar, the court finds no cogent basis for bad faith. Thus, the absorption of the employees
of Mabuhay may not be imposed on petitioner.

17. Yu v. NLRC

Facts: Private respondents were employees of the respondent corporation, Tanduay Distillery, Inc.
(TDI). 22 employees, including private respondents, received a memorandum from TDI terminating
their services for reasons of retrenchment. All 22 employees filed for a TRO against the retrenchment
but instant petition involves only the four private respondents. On or after respondents-employees
had ceased as such employees, a new buyer of TDI's assets, Twin Ace Holdings, Inc. took over the
business. Twin Ace assumed the business name Tanduay Distillers. The employees filed a motion to
implead herein petitioners James Yu and Wilson Young, doing business under the name and style of
Tanduay Distillers, as party respondents in said cases. Petitioners filed an opposition thereto,
asserting that they are representatives of Tanduay Distillers an entity distinct and separate from TDI,
the previous owner, and that there is no employer-employee relationship between Tanduay Distillers
and private respondents. Respondents-employees then contend that petitioner James Yu, as officer-
in-charge of Tanduay Distillers, had informed the president of TDI labor union of Tanduay Distillers'
decision to hire everybody with a clean slate on a probation basis. The Labor Arbiter decided that the
retrenchment was illegal, ordering respondent Tanduay Distillery, Inc., to reinstate the complainants
to their former position, or that in the event of change in management, TDI was ordered to pay the
complainants their respective separation benefits. When private respondents moved to execute said
decision, petitioners opposed on the ground that Tanduay Distillers is an entity separate and distinct
from respondent TDI. In resolving the motion for execution, respondent NLRC Labor Arbiter Cueto
ordered TDI, Young and Yu to immediately reinstate complainants.
Issue: Whether Yu and Young can be held liable.
Held: No. The Labor Arbiters decision did not in any manner obligate Tanduay Distillers, or even
petitioners Yu and Young to reinstate respondents. Only TDI was held liable to reinstate respondents
up to the time of change of ownership, and for separation benefits. It was Labor Arbiter Cueto who
went beyond what was disposed by the decision and issued the assailed order. The order of execution
therefore amended the decision by the Labor Arbiter which became final and executory.
Neither may be said that petitioners and Tanduay Distillers are one and the same as TDI, as seems to
be the impression of respondents when they impleaded petitioners as party respondents in their
compliant for unfair labor practice, illegal lay off, and separation benefits.
Such a stance is not supported by the facts. The name of the company for whom the petitioners are
working is Twin Ace Holdings Corporation, As stated by the Solicitor General, Twin Ace is part of the
Allied Bank Group although it conducts the rum business under the name of Tanduay Distillers. The
use of a similar sounding or almost identical name is an obvious device to capitalize on the goodwill
which Tanduay Rum has built over the years. Twin Ace or Tanduay Distillers, on one hand, and
Tanduay Distillery Inc. (TDI), on the other, are distinct and separate corporations. There is nothing to
suggest that the owners of TDI, have any common relationship as to identify it with Allied Bank Group
which runs Tanduay Distillers.
The genuine nature of the sale to Twin Ace is evidenced by the fact that Twin Ace was only a
subsequent interested buyer. At the time when termination notices were sent to its employees, TDI
was negotiating with the First Pacific Metro Corporation for the sale of its assets. Only after First
Pacific gave up its efforts to acquire the assets did Twin Ace or Tanduay Distillers come into the
The corporation itself Twin Ace or Tanduay Distillers was never made a party to the case.
Another factor to consider is that TDI as a corporation or its shares of stock were not purchased by
Twin Ace. The buyer limited itself to purchasing most of the assets, equipment, and machinery of TDI.
Thus, Twin Ace or Tanduay Distillers did not take over the corporate personality of DTI although they
manufacture the same product at the same plant with the same equipment and machinery. Obviously,
the trade name "Tanduay" went with the sale because the new firm does business as Tanduay
Distillers and its main product of rum is sold as Tanduay Rum.
In fine, the fiction of separate and distinct corporate entities cannot, in the instant case, be
disregarded and brushed aside, there being not the least indication that the second corporation is a
dummy or serves as a client of the first corporate entity.
18. MDII Supervisors & Confidential Employees Association (FFW) v. Presidential
Assistance on Legal Affairs

Facts: The employees of Marikina Dairy Industries, Inc. (MDII), a corporation engaged in the
manufacture of dairy products, were affiliated with two unions: MDII Supervisors & Confidential
Association and MDII Employees & Workers Organization. The MDIIs stockholders passed a
resolution amending its articles of incorporation by shortening its corporate life (same month and
year) on the ground of heavy losses. The SEC approved such amendment. Because of this, MDII filed
an application for clearance to terminate the employment of all its personnel with the Secretary of
Labor. The two unions opposed the application, stating that the financial losses were imaginary and
the dissolution was a scheme to escape legal and social obligations with its employees and filed a case
against MDII. The trustees in liquidation sold the plant of MDII and part of its assets to GF Equity ad
Holland Milk Products. The unions then filed a motion seeking to restrain GF Equity and Holland
Milk Products from operating the plan unless the members of the unions were the ones hired to
operate the plant under the terms and conditions specified in the CBA.
The NLRC found that the dissolution of MDII was a legitimate act brought about by continued
operating losses. It granted the clearance for the termination of the services of the MDII employees
and made provisions for the retirement pay and the commutation of unused sick and vacation leaves
of the dismissed employees. It likewise directed Holland Milk Products and GF Equity to give
preference in employment to all separated employees. This was affirmed by the Secretary of Labor
and the Presidential Assistant for Legal Affairs. The two unions filed a petition for review of the
Presidential decision and prayed that GF Equity and Holland Milk Products be ordered to reinstate
the members of the unions with full back wages.
Issue: Whether the Presidential Assistant on Legal Affairs committed grave abuse of discretion in
affirming the conclusion of the NLRC that MDII complied substantially with the legal requirements
for the termination of the services of its employees.
Held: No. There is no law requiring that the purchases of MDIIs assets should absorb its employees.
As there is no such law, the most that the NLRC could do, for reasons of public policy and social
justice, was to direct GF Equity to give preference to the qualified separated employees of MDII in
filling up of vacancies in the facilities of GF Equity.

19. Sunio v. NLRC

Facts: EM Ramos (EMRACO) and Cabugao Ice Plant (CIPI) sold an ice plant to Rizal Devt (RDFC)
and subsequently terminated the services of all their employees including private respondents and
paid them their separation pay. RDFC then sold the ice plant to Ilocos Commercial (ICC) headed by its
President and General Manager, petitioner Alberto S. Sunio who also hired their own employees as
respondents were no longer in the plant. As both RDFC and ICC failed to pay the balance of the
purchase price, the ice plant was sold at public auction and eon by EMRACO-CIPI. EMRACO-CIPI
then sold the ice plant to Nilo Villanueva, subject to the right of redemption of RDFC, who then
rehired private respondents. On 1975, RDFC redeemed the ice plant but because EMRACO-CIPI were
unable to turn over the possession to RDFC because of the sale to Nilo Villanueva, the court ordered a
mandatory injunction placing RDFC in possession of the ice plant. On 1978, RDFC and petitioners
finally obtained possession of the ice plant. Petitioners did not re-employ private respondents.
Private respondents filed complaints against petitioners for illegal dismissal. The NLRC
affirmed the Regional Directors decision reasoning that when RDFC took possession of the ice plant
and respondents were terminated in 1973, the latter already had a vested right to their security of
tenure, and when they were rehired, those rights were continued.

Issue: W/N Sunio, as general manager of petitioner corporation should be made personally liable for
the payment of the back wages of the respondents?

Held: No. Petitioner Sunio should not be made personally liable as there appears to be no evidence
on record that he acted maliciously or in bad faith in terminating the services of private respondents.
No succession of employment rights and obligations can be said to have taken place between
EMRACO-CIPI-Nilo Villanueva and petitioners on the other. His act, therefore, was within the scope
of his authority and was a corporate act. It is basic that a corporation law is invested with a personality
separate and distinct from those of the persons composing it as well as from that of any legal entity to
which it may be related. Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock is not of itself sufficient ground for disregarding the separate corporate

Facts: Private respondents Bana-ay, Cosculluela, and Palma (Respondents) were among the regular
and permanent employees of Central Azucarera del Danao (Central Danao, for short), owner-operator
of a sugar mill.
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, 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.
The Respondents were all rehired but hey were also subsequently terminated by Dadeco.
As a consequence thereof, the respondents filed separate complaints for recovery of termination pay
with damages against Dadeco and Central Danao as common defendants. The complaints respectively
alleged among other things, that Dadeco maliciously, and fraudulently dismissed them without
justifiable cause or any advance notice of separation.
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
By way of cross-claim, Dadeco contended that the liability for the termination pay corresponding to
complainants' (now private respondents) should be shouldered by Central Danao, private
respondents' previous owner and employer.
On the other hand, Petitioner Central Danao argues that it cannot be held accountable to the three
private respondents for the latter's termination pay since the responsibility therefor should be borne
by Dadeco, the purchasing corporation. In support of its theory, Central Danao contends that when it
sold all its sugar mill properties and assets to Dadeco on July 7, 1961, the employees were not
terminated as would entitled them to termination pay. Instead they were absorbed, re-employed and
in fact, continued working in the sugar mill upon Dadeco's takeover of the management and
operation. Private respondents (employees) therefore should have directed their claims solely against
their present employer, Dadeco, because at the time they were allegedly terminated, there was no
employer-employee relationship between them and Central Danao.
Issue: Whether or not 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 relieve the
selling corporation (Central Danao) from its obligation to its employees under the Termination Pay
Held: NO. In the exercise of 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.
The records 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. Technically then, the employees were actually terminated and/or separated
from the service on the date of the sale, or on July 7, 1961. Worse, they were not at all given
the required notice of their termination. Inasmuch as there was no notice of termination whatsoever
given to the employees of Central Danao coupled with the fact that no efforts were exerted by Central
Danao to apprise its employees of the consequences of the sale or disposition of its assets to Dadeco,
justice and equity dictate that private respondents be entitled to their termination or separation pay
corresponding to the number of years of service with Central Danao until June 7, 1961.
In Philippine Refining Company, Inc. vs. Garcia, theCourt, 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.

21. San Felipe Neri School of Mandaluyong v. NLRC

Facts: Petitioners were the incorporators, stockholders and/or trustees of a corporation known as
the San Felipe School of Mandaluyong, Inc. which owned and operated petitioner school. Private
respondents were formerly teachers of the aforesaid institution. Sometime in 1981, petitioner-school
and the Roman Catholic Archbishop of Manila (RCAM) executed a Deed of Absolute Sale of Real and
Personal Properties where the seller does sell, transfer, and convey, absolutely and in perpetuity unto
the buyer, the real and personal properties therein. Private respondents, upon reporting for work,
were surprised to learn from school authorities that the school was already under new ownership and
management. The new owner, RCAM, required respondent teachers to apply as new employees
subject to the usual probation. Said teachers thereafter inquired about their rights from the former
school owner, herein petitioners, but to no avail. Respondent teachers then filed a complaint before
the NLRC against all the petitioners, inc RCAM, the vendee or transferee, as alternative defendant for
separation pay, differential pay and other claims.

Issue: W/N respondent teachers employment was terminated by the sale and transfer of San Felipe
School to the RCAM that would entitle them to separation pay?

Held: Yes. It is not disputed that San Felipe School sold its properties and assets to RCAM but RCAM
did not buy the school or assume its liabilities. RCAM, as the transferee-purchaser, continued the
operation of the school, but applied for a new permit to operate the same. In short, there was a change
of ownership or management of the school properties and assets. Change of ownership or
management of an establishment or company, however, is not one of the just causes provided by law
for the termination of employment. 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
insulate the employer or selling corporation (petitioner in this case) from its obligations to its
employees, particularly the payment of separation pay. Records show that RCAM expressly
manifested its unwillingness to absorb the petitioner schools employees or to recognize their prior
service. The most that the purchasing company may do is to give preference to the qualified separated
employees of their selling company. This, RCAM did. It required private respondents to re-apply as
new employees subject to the usual probationary status. Thus, petitioners are still liable to pay private
respondents their separation pay.

Facts: Bisudeco-Philsucor Corfarm Workers Union (Union) is composed of workers of Bicolandia
Sugar Development Corporation (BISUDECO), a sugar plantation.
On the other hand, Asset Privatization Trust (APT), was a public trust mandated to take title to and
possession of, manage and dispose of non-performing assets of the government identified for
privatization or disposition.
President Corazon Aquino issued Administrative Order No. 14 identifying certain assets of
government institutions that were to be transferred to the National Government. Among the assets
transferred was the financial claim of the Philippine National Bank against BISUDECO in the form of
a secured loan. APT was constituted as trustee over BISUDECOs account with the PNB.
BISUDECO contracted the services of Philippine Sugar Corporation (Philsucor) to take over the
management of the sugar plantation and milling operations until August 31, 1992.
Meanwhile, because of the continued failure of BISUDECO to pay its outstanding loan with PNB, its
mortgaged properties were foreclosed and subsequently sold in a public auction to APT, as the sole
Then, Bicol-Agro-Industrial Cooperative (BAPCI) purchased the foreclosed assets of BISUDECO from
APT and took over its sugar milling operations under the name PENSUMIL
The union under BISUDECO filed a complaint for unfair labor practice, illegal dismissal, illegal
deduction and underpayment of wages and other labor standard benefits as against BISUDECO,
Pensumil and APT.
BISUDECO, Pensumil and APT all interposed the defense of lack of employer-employee relationship.
APT was held liable by the NLRC, such ruling wass reversed by the CA.
Issue: Whether APT, as mortgagee of BISUDECO, is liable for the unions claims.
Held: NO. The duties and liabilities of BISUDECO, including its monetary liabilities to its employees,
were not all automatically assumed by APT as purchaser of the foreclosed properties at the auction
sale. Any assumption of liability must be specifically and categorically agreed upon. In Sundowner
Development Corp. v. Drilon, the Court ruled that, unless expressly assumed, labor contracts like
collective bargaining agreements are not enforceable against the transferee of an enterprise. Labor
contracts are in personam and thus binding only between the parties.
No succession of employment rights and obligations can be said to have taken place between the two.
Between the employees of BISUDECO and APT, there is no privity of contract that would make the
latter a substitute employer that should be burdened with the obligations of the corporation. To rule
otherwise would result in unduly imposing upon APT an unwarranted assumption of accounts not
contemplated in Proclamation No. 50 or in the Deed of Transfer between the national government
and PNB.
Furthermore, under the principle of absorption, a bona fide buyer or transferee of all, or substantially
all, the properties of the seller or transferor is not obliged to absorb the latters employees. The most
that the purchasing company may do, for reasons of public policy and social justice, is to give
preference of reemployment to the selling companys qualified separated employees, who in its
judgment are necessary to the continued operation of the business establishment.
In any event, the national government (in whose trust APT previously held the mortgage credits of
BISUDECO) is not the employer of petitioner-unions members, who had been dismissed sometime in
May 1991, even before APT took over the assets of the corporation. Hence, under existing law and
jurisprudence, there is no reason to expect any kind of bailout by the national government.
The liabilities of the previous owner to its employees are not enforceable against the buyer or
transferee, unless (1) the latter unequivocally assumes them; or (2) the sale or transfer was made in
bad faith. Thus, APT cannot be held responsible for the monetary claims of petitioners who had been
dismissed even before it actually took over BISUDECOs assets.

23. Pepsi-Cola Bottling Co. v. NLRC (1992)

Facts: Private Respondent Oscar Encabo is a licensed mechanical and electrical engineer and was
employed by Pepsi-Cola as maintenance manager of its beverage plant at Tanauan, Leyte. Since the
plant soaker machine needed rehabilitation, a contractor, PREMACOR offered a bid to rehabilitate
said machine. The offer was accepted by Pepsi Bottling Co. (PBC). Thus, the Plant General Manager of
PBC wired a certain Castillo to prepare a complete list of spare parts needed for the overhaul of the
soaker machine. The former also informed the latter that the maintenance manager of the Pepsi-Cola
plant in Iloilo, will come over to handle the work. Castillo thereafter transmitted the wired instruction
to Encabo who subsequently prepared and submitted Purchase Requisition Orders as required by the
contractor. These requisition orders were revised by Doromal and personally brought by him to
Manila for the corresponding purchase. Nonetheless, PREMACOR failed to make the soaker machine
fully operational. Castillo then asked Encabo to take over the work. Assisted by the men directly under
him, Encabo did so and in three weeks time, the soaker machine became operational again at an
efficiency rate of sixty-five per cent [65%]. The personnel manager of the company informed Encabo
that his position may be sacrificed because of the delay in the rehabilitation of the soaker machine. He
was told to resign and was offered the amount of P12,000.00. He rejected the offer. A letter of
termination was sent to Encabo through a security guard of the company. He filed a complaint for
illegal dismissal and unfair labor practice against petitioners before the National Labor Relations
Commission. He claimed that he was denied due process because he was not formally charged.
Petitioners alleged that private respondent was terminated from employment for: (a) negligence in
failing to install preventive measures in maintenance thus resulting in machine breakdown and line
stoppages; and (b) negligent repair of the Soaker Machine by allowing outside contractors to repair
the same without his close supervision. The Labor Arbiter declared the dismissal illegal and ordered
the reinstatement of the dismissed employee. Pepsi-Cola Products Philippines Inc. (PCPPI) returned
the writ of execution unsatisfied and in a motion for reconsideration filed with the NLRC argued that
reinstatement was no longer possible since Pepsi-Cola Bottling Co. (PBC) and PCD closed down and
PCPPI, the new franchise holder, is a distinct and separate entity from either PBC or PCD. The NLRC
denied said motion and ordered PCD and its successor-in-interest PCPPI to reinstate Encabo.

Issue: WON PCPPI is liable for the reinstatement of the private respondent considering that PCPPI 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.

Held: Yes. 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
softdrinks 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. There is no evidence presented showing that PCPPI,
as the new entity or purchasing company is free from any liabilities incurred by the former
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

24. Avon Dale Garments, Inc. v. NLRC

Facts: Private respondents were employees of petitioner Avon Dale Garments, Inc. and its
predecessor-in-interest, Avon Dale Shirt Factory. A compromise agreement was entered into between
petitioner and private respondents wherein the latter were terminated from service and given their
corresponding separation pay. Upon refusal of the petitioner to include in the computation of private
respondents separation pay the period during which the latter were employed by Avon Dale Shirt
Factory, private respondents filed a complaint with the labor arbiter claiming a deficiency in their
separation pay. The NLRC ruled in favor of the private respondents.

Issue: W/N the NLRC committed a grave abuse of discretion in holding that petitioner should
likewise include private respondents employment with Avon Dale Shirt Factory in computing the
latters separation pay?

Held: No. Petitioner failed to establish that Avon Dale Garments is a separate and distinct entity from
Avon Dale Shirt Company, absent any showing that there was indeed an actual closure and cessation
of the operations of the latter. The mere filing of the Articles of Dissolution with the SEC is not enough
to support the conclusion that actual dissolution of an entity in fact took place. Petitioner company is
not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely continued the operations
of the latter under the same owners, the same business venture, at same address, end even continued
to hire the same employees.

25. DBP v. NLRC (1990)
Facts: Philippine Smelters Corporation (PSC]obtained a loan from the Development Bank of the
Philippines (DBP), to finance its iron smelting and steel manufacturing business. To secure said loan,
PSC mortgaged to DBP real properties with all the buildings and improvements thereon and chattels,
with its President, Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority stockholder of PSC. Subsequently, it
took over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to DBP foreclosed and acquired the
mortgaged real estate and chattels of PSC in the auction sales.
Further, PSC faced several complaints of for Involuntary Insolvency.
Sbusequently the employees of PSC filed a complaint with the Department of Labor against PSC for
nonpayment of salaries, 13th month pay, incentive leave pay and separation pay. The complaint was
amended to include DBP as party respondent. DBP filed its position paper on September 7, 1987,
invoking the absence of employer-employee relationship between private respondents and DBP and
submitting that when DBP foreclosed the assets of PSC, it did so as a foreclosing creditor.
In addition, During the dates material to the foregoing proceedings, Article 110 of the Labor Code
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.

Issue: Whether DBP could be held liable to the employees as a foreclosing creditor under Art 110 of
the Labor code?
Held: NO.
Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in
isolation but must be read in relation to the Civil Code scheme on classification and preference of
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an Identified immovable property, which a
preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the
Civil Code on classification of credits. The preference given by Article 110, when not falling within
Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an
ordinary preferred credit although its impact is to move it from second priority to first priority in the
order of preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra).
In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in
any effective way prior to the time of its presentation in distribution proceedings. It will find
application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the
'claims of the Government and other creditors' may be paid. But, for an orderly settlement of a
debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and
thereafter the preference determined in the course of judicial proceedings which have for their object
the subjection of the property of the debtor to the payment of his debts or other lawful obligations.
Thereby, an orderly determination of preference of creditors' claims is assured; the adjudication made
will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal
scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law,
and the Labor Code is preserved in harmony.
On the foregoing considerations and it appearing that an involuntary insolvency proceeding has been
instituted against PSC, private respondents should properly assert their respective claims in said
26. Manlimos v. NLRC
Facts: Manlimos and other petitioners were hired as patchers, taper-graders, receiver-dryers
(employees) of Super Mahogany Plywood Corporation. On 1991, a new owner/management group
headed by Alfredo Roxas acquired complete ownership of Super Mahogany. Petitioners were informed
of such change of ownership but they continued to work for the new owner and were only considered
as terminated come December 1991. All of them executed a Release and Waiver which they
acknowledged before the DOLE receiving their separation pay and all other benefits.

The new owner published that they would be hiring the old employees of Super Plywood but only on a
probationary basis. Petitioners filed their applications and, except for one Rosario Cuatro, were hired
for probationary status. During the 6-month period, 2 employees were let go because of abandonment
of work while the rest who were hired were also let go because of inefficiency in their work. 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.
On the other hand, the private respondent contended that the petitioners were deemed legally
terminated from their previous employment as evidenced by the execution of the Release and Waiver
and the filing of their applications for employment with the new owner; that the new owner was well
within its legal right or prerogative in considering as terminated the petitioners'
probationary/temporary appointment; and that the petitioners were not illegally dismissed; hence,
they are not entitled to the reliefs prayed for.

Labor Arbiter ruled on the basis of the Labor Code, that the cessation of business was not due to
business reverses, hence a violation of security of tenure. NLRC ruled on the opposite citing that the
change of ownership was in good faith since there was no evidence that there was conspiracy between
the new and old owner to insulate the former managements liability to the employees. Hence this

Issue: Were the employees illegally dismissed?

Held: No. Court disagrees with Labor Arbiters methods. Labor Arbiters use of Mobil Employees vs.
NLRC was not applicable because it involved a termination of employment of the Labor Code and not
termination as a result of change of ownership as in the case of Super Plywood. In the case at bar,
there was only a change of ownership of Super Mahogany Plywood Corporation which resulted in a
change of ownership. In short, the corporation itself, as a distinct and separate juridical entity,
continues to exist. The issue of whether there was a closing or cessation of business operations which
could have operated as a just cause for the termination of employment was not material. The change
in ownership of the management was done bona fide and the petitioners did not for any moment
before the filing of their complaints raise any doubt on the motive for the change. On the contrary,
upon being informed thereof and of their eventual termination from employment, they freely and
voluntarily accepted their separation pay and other benefits and individually executed the Release or
Waiver which they acknowledged before no less than a hearing officer of the DOLE.

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.

27. Robledo v. NLRC

Facts: Petitioners were former employees of Bacani Security and Protective Agency (BSPA) as
security guards until it ceased to operate on 1989. BSPA was a single proprietorship owned, managed,
and operated by the late Felipe Bacani. In 1989, Felipe Bacani retired the business which ceased to
operate and in 1990 Felipe Bacani died.
Sometime in 1989, respondent Bacani Security and Allied Services Co., Inc, (BASEC) was
organized and registered as a corporation with the SEC. The incorporators were Bacanis daughter,
Alicia Bacani and his wife, Lydia Bacani as well as Felipe Bacani himself, who had the smallest share.
Most of the petitioners after losing their job in BSPA were employed by BASEC.
In 1990, some of the petitioners filed a complaint with DOLE for underpayment of wages and
nonpayment of overtime pay, legal holiday pay, separation pay and/or retirement resignation
benefits, and for the return of their cash bond which they posted with BSPA. Both BSPA and BASEC
were made respondents.

Issue: W/N BASEC and Alicia Bacani can be held liable for claims of petitioners against BSPA?

No. As correctly found by the NLRC, BASEC is an entity separate and distinct from BSPA.
BSPA is a single proprietorship owned and operated by the late Felipe Bacani. Hence, its debts and
obligations were the personal obligations of its owner. The rule is settled that unless expressly
assumed labor contracts are not enforceable against the transferee of an enterprise. The reason for
this is that labor contracts are in personam. Thus, claims for backwages earned from the former
employer cannot be filed against the new owners of an enterprise.
According to petitioners, the Bacani family merely continued the operation of BSPA by
creating BASEC in order to avoid the obligations of the former. They anchor their claim on the fact
that Felipe Bacani, after having ceased to operate BSPA, became an incorporator of BASEC together
with his wife and daughter. Thus, they urge piercing the veil of corporate entity in order to hold
BASEC liable for BSPAs obligations.
Here, there is no reason to pierce the veil of corporate entity because there is no question that
petitioners claims, assuming them to be valid are the personal liability of the late Felipe Bacani. There
are several reasons why BASEC is not liable for the personal obligations of the late Felipe Bacani. For
one, BASEC came into existence before BSPA was retired as a business concern. Before BSPA was
retired, BASEC was already existing. It is therefore not true that BASEC is a mere continuity of BSPA.
Second, Felipe Bacani was only one of the five incorporators of BASEC. That his wife and
daughter were also incorporators of the same company is not sufficient to warrant the conclusion that
they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were transferred to BASEC. If
BASEC was a mere continuation of BSPA, all or at least a substantial part of the latters assets should
have found their way to BASEC. Neither can respondent Alicia Bacani be held liable for the BSPAs
obligations. Although she was Executive Directress of BSPA, she was merely an employee of BSPA,
which was a single proprietorship.

Facts: The Commercial Bank and Trust Company, a Philippine banking institution, entered into a
collective bargaining agreement (CBA) with the Commercial Bank and Trust Company Union (Union),
representing the rank and file of the bank.
During the renewal of the CBA, the bank had meanwhile entered into a merger with the Bank of the
Philippine Islands, another Philippine banking institution, which assumed all assets and liabilities
As a consequence, the union went to the then Court of First Instance of Manila, presided over by the
respondent Judge, on a complaint for specific performance, damages, and preliminary injunction
against the private respondents.
Predictably, the private respondents moved for the dismissal of the case on the ground, essentially, of
lack of jurisdiction of the court.
The respondent Judge issued an order, dismissing the case for lack of jurisdiction. According to the
court, the complaint partook of an unfair labor practice dispute notwithstanding the incidental claim
for damages, jurisdiction over which is vested in the labor arbiter.
On appeal, the Union argues that since the Bank of the Philippine Islands "was not an employer at the
time the act was committed a recourse to the NLRC is not proper.
Issue: Whether the Labor Arbiter has jurisdiction despite the fact that BPI was not an employer.
Held: YES.
We sustain the dismissal of the case, which is, as correctly held by the respondent court, an unfair
labor practice controversy within the original and exclusive jurisdiction of the labor arbiters and the
exclusive appellate jurisdiction of the National Labor Relations Commission. The claim against the
Bank of Philippine Islands the principal respondent according to the petitioners for allegedly
inducing the Commercial Bank and Trust Company to violate the existing collective bargaining
agreement in the process of re-negotiation, consists mainly of the civil aspect of the unfair labor
practice charge referred to under Article 247 of the Labor Code.
The act complained of is embraced under the Labor Code. Since it involves collective bargaining
whether or not it involved an accompanying violation of the Civil Code it may rightly be categorized
as an unfair labor practice. The civil implications thereof do not defeat its nature as a fundamental
labor offense.
The fact that the Bank of the Philippine Islands "was not an employer at the time the act was
committed' does not abate a recourse to the labor arbiter. It should be noted indeed that the Bank of
the Philippine Islands assumed "all the assets and liabilities" of the Commercial Bank and Trust
Company. Moreover, under the Sec 80 (5) of the Corporation Code:
xxx xxx xxx
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any claim, action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against the surviving or
consolidated corporation, as the case may be. Neither the rights of creditors nor any
lien upon the property of any of such constituent corporations shall be impaired by
such merger or consolidation.
29. San Miguel Corporation Employees Union-PTGWO v. Confesor
Facts: Petitioner San Miguel Corporation Employees Union PTGWO entered into a Collective
Bargaining Agreement (CBA) with private respondent San Miguel Corporation (SMC) to take effect
upon the expiration of the previous CBA. SMC then had four operating divisions, namely: (1) Beer, (2)
Packaging, (3) Feeds and Livestocks, (4) Magnolia and Agri-business. 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.
The CBA was renegotiated in accordance with the terms of the CBA and Article 253-A of the Labor
Code. 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. 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.
The negotiations failed until there was a deadlock declared by Petitioners and a Notice of Strike was
filed against SMC. The Secretary of Labor issued the assailed order, directing, among others, that the
renegotiated terms of the CBA shall be effective for the period of three (3) years and that such CBA
shall cover only the employees of SMC and not of Magnolia and SMFI.
Issue: Whether or not the bargaining unit of SMC includes also the employees of the Magnolia and

Held: No. The Court affirmed the order of the Secretary of Labor that the CBA should not include the
employees of Magnolia and SMFI. Magnolia and SMFI were spun-off to operate as distinct
companies. Management saw the need for these transformations in keeping with its vision and long-
term strategy as it explained in its letter addressed to the employees. Undeniably, the transformation
of the companies was a management prerogative and business judgment which the courts cannot 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. 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. 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. As a result of the spin-offs:
1. Each of the companies are run by, supervised and controlled by different management teams
including separate human resource/personnel managers.
2. Each Company enforces its own administrative and operational rules and policies and are not
dependent on each other in their operations.
3. Each entity maintains separate financial statements and are audited separately from each
Indubitably, therefore, Magnolia and SMFI became distinct entities with separate juridical
personalities. 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. SMC is engaged in the
business of the beer manufacturing. Magnolia is involved in the manufacturing and processing of
diary products, while SMFI is involved in the production of feeds and the processing of chicken. 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.