Mergers and Acquisitions Midterms Digests

March 3, 2018 | Author: Bless Carpena | Category: Mergers And Acquisitions, Tax Deduction, Corporations, Assignment (Law), Consolidation (Business)
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1. Edward Nell Company v. Pacific Farms Inc. Facts: 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. Held: 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 bidder. 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 merger. 2. Gonzales v. Sugar Regulatory Administration Facts: 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 petitioner’s 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 Philsucom’s assets in SRA’s hands. Issue: W/N petitioners have a valid claim against SRA due to the transfer of Philsucom’s assets to SRA Held: 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 Philsucom’s 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 Philsucom’s assets in the hands of SRA. 3. Villa Rey Transit, Inc. v. Ferrer Facts: 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 sheriff’s 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 sheriff’s sale of the 2 certificates of public convenience. Issues: • Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "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," apply to new lines only or does it include existing lines? • W/N such stipulation is valid and enforceable Held: 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 LESTEVECO’s properties. Upon learning of the Agreement between PSTC and LUSTEVECO, Caltex demanded payment from PSTC and brought the action. The RTC ruled in favor of Caltex but the CA reversed on appeal. CA ruled that Caltex has no personality to sue PSTC, that non-compliance with the Agreement could only be questioned by signatories of the contract, and that only LUSTEVECO and PSTC who can enforce Agreement. The CA also rendered fatal the omission of LUSTEVECO, as real party in interest, as party defendant, and that Caltex is not a beneficiary of a stipulation pour atrui because there is no stipulation which clearly and deliberately favors Caltex.



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



Yes. Caltex may recover the judgment debt from PSTC not because of a stipulation in Caltex’s favor but because the Agreement provides that PSTC shall assume all the obligations of LUSTEVECO. LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECO’s business, properties and assets pertaining to its tanker and bulk business “together with all the obligations relating to the said business, properties and assets.” The assumption of obligations was stipulated not only in the Agreement of Assumption of Obligations but also in the Agreement of Transfer. Even without the Agreement, PSTC is still liable. While the Corporation Code allows the transfer of all or substantially all the properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor by holding the assignee liable for the former’s obligations. To allow an assignor to make a transfer without the consent of its creditors and without requiring the assignee to assume the former’s obligations will defraud creditors. In the case of Oria v. McMicking, the Court enumerated the badges of fraud including a transfer made by a debtor after suit has been begun and while it is pending against him, and the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially. The Agreement also constitutes a novation of LUSTEVECO’s obligations by substituting the person of the debtor. And because it was done without the consent of Caltex, the assets transferred remain even in the hands of PSTC still subject to execution to satisfy the judgment claim of Caltex. 2. Yes. Ordinarily, one who is not privy to a contract may not bring an action to enforce it. But this case falls under the exception when those who are not principally or subsidiarily obligated in a contract may show their detriment that could result from it. In this case, nonperformance of PSTC’s obligations will defraud Caltex. 5. Rivera vs Litam & Company, Inc. Facts: 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 Rafael’s 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 Rafael’s 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 incorporators. Held: 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 (1963) Facts: 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. Issue: the

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

Held: 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) Facts: 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 Act1. 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. Issue: W/N Petitioner is subject to the compulsory coverage of the Social Security Act. Held: 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 partnership.2 8. Garcia v. Social Security Commission Legal and Collection, 540 SCRA 456 (2007) Facts:

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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. Issue: Whether or not Garcia can be made liable for the obligations of IMPACT? – YES Held: 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. Doctrine: 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 (1990) Facts: 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 PRI’s liability. Issue: Whether PHIVIDEC can be held solely liable for the negligence of PRI. Ruling: YES. PHIVIDEC should answer for PRI’s 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 subsidiary’s business, the separate corporate existence of the subsidiary must be disregarded.” PHIVIDEC’s act of selling PRI to PHILSUCOM shows that PHIVIDEC had complete control of PRI’s 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 company’s 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 company. 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 company’s inability to pay, the Court set aside the Resolution ordering payment of the separation pay. However, the Court affirmed the Labor Arbiter’s 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.,

PNB created the NASUDECO to take ownership and possession of its assets 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; PNB’s 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, PASUMIL’s corporate existence, as correctly found by the CA, had not been legally extinguished or terminated. Further, prior to PNB’s acquisition of the foreclosed assets, PASUMIL had previously made partial payments in the amount of P250,000 and P14,000 to respondent for the former’s 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 PASUMIL’s creditors. Clearly, the corporate separateness between PASUMIL and PNB remains, despite respondent’s insistence to the contrary. 12. ASSOCIATED BANK V. CA (1998) 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 signed.

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 purposes.” 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 interpretation. 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 petitioner’s right to collect the proceeds of the loan it extended to the former.

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 DBP’s 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 Poliand’s 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 merger’s 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 RPPM. 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. Picop’s 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. Issue: 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 transportation. 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. 16. SUNDOWNER DEV. CORP V. DRILON (1989) 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 Sundowner’s 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 complaint. 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 operation. 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 officerin-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 Arbiter’s 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 picture. 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 MDII’s 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 MDII’s 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 Director’s 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 personality. 20. CENTRAL AZUCARERA DEL DANAO V. CA (1985) 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 Law. 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 school’s 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.

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

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 latter’s 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 read: 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 credits.

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 proceeding. 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 management’s liability to the employees. Hence this petition.

Issue: Were the employees illegally dismissed? Held: No. Court disagrees with Labor Arbiter’s methods. Labor Arbiter’s 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 Bacani’s 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? Held: 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 BSPA’s 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 latter’s assets should have found their way to BASEC. Neither can respondent Alicia Bacani be held liable for the BSPA’s obligations. Although she was Executive Directress of BSPA, she was merely an employee of BSPA, which was a single proprietorship.

28. NATIONAL UNION OF BANK EMPLOYEES V. LAZARO (1988) 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 thereof. 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 SMFI.

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 longterm 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 other. 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.

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