Sundowner Development Corporation v. Drilon
REITERATIONFacts
The Antecedents: Hotel Mabuhay, Inc. (Mabuhay) leased premises from Santiago Syjuco, Inc. (Syjuco). Due to non-payment of rentals, Syjuco filed an ejectment case. Mabuhay offered to settle by surrendering the premises and selling its assets. Syjuco leased the premises to petitioner Sundowner Development Corporation (Sundowner) and Sundowner also agreed to purchase Mabuhay's assets. Mabuhay executed a deed of assignment of its assets to Sundowner. Sundowner took possession of the premises. The National Union of Workers in Hotel, Restaurant and Allied Industries (NUWHRAIN) picketed the premises, barricading the entrance. Sundowner filed a complaint for damages with preliminary injunction. The Secretary of Labor assumed jurisdiction over the labor dispute, ordering striking employees to return to work and Mabuhay to accept them, pending determination of absorption. Mabuhay submitted a position paper stating it sold all assets to Sundowner and ceased operations, making compliance with the return-to-work order impossible. Sundowner, NUWHRAIN, and Mabuhay entered into a tripartite agreement where Mabuhay paid NUWHRAIN a sum of money, and NUWHRAIN agreed to lift the picket. NUWHRAIN filed a position paper alleging connivance between Mabuhay and Sundowner to escape obligations and prayed for Sundowner to absorb Mabuhay's workforce and pay backwages. Sundowner filed a partial motion for reconsideration, alleging denial of due process and errors in findings of fact. The Secretary of Labor issued an order requiring Sundowner to absorb Mabuhay's members and pay backwages. Sundowner filed a motion for reconsideration, arguing that the theory of implied acceptance and assumption of statutory wrong does not apply and that there is no law requiring bona fide purchasers of assets to absorb employees. The motion was denied. Procedural History: The Secretary of Labor issued orders dated January 20, 1988, and March 8, 1988, requiring petitioner Sundowner Development Corporation to absorb the members of respondent NUWHRAIN and pay backwages. Petitioner filed a petition for review with the Supreme Court. The Petition: Petitioner seeks to reverse and set aside the orders of the Secretary of Labor, arguing that it cannot be compelled to absorb the employees of respondent Mabuhay.
Issue(s)
Whether or not the purchaser of the assets of an employer corporation can be considered a successor employer of the latter's employees, and whether petitioner Sundowner Development Corporation may be compelled to absorb the employees of respondent Hotel Mabuhay, Inc. Whether or not the transaction between petitioner and Mabuhay was attended with bad faith.
Ruling
The petition is GRANTED. The questioned orders of the Secretary of Labor and Employment dated January 20, 1988, and March 8, 1988, are REVERSED and SET ASIDE. The temporary restraining order issued by the Supreme Court on March 20, 1988, is made PERMANENT.
Ratio Decidendi
On the issue of whether the purchaser of assets can be considered a successor employer and compelled to absorb employees: The general 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, as labor contracts are in personam, binding only between the parties. This is supported by the constitutional right of an employer to select employees, which can only be restricted by law through the exercise of police power. As a general rule, there is no law requiring a bona fide purchaser of the assets of an on-going concern to absorb the employees of the latter. However, if the transaction between the parties is colored or clothed with bad faith, the purchaser may be liable to the employees. In this case, the Court found no cogent basis to conclude that the transaction between petitioner and Mabuhay was attended with bad faith, thus, the absorption of Mabuhay's employees may not be imposed on petitioner. The Court noted that Mabuhay had nothing to do with the negotiation and consummation of the lease contract between petitioner and Syjuco, and their dealings only commenced when Mabuhay offered to sell its assets to petitioner. The deed of assignment explicitly stated that it was purely for the sale/transfer and assignment of personal properties and assets and in no way involved any assumption or undertaking by petitioner of any debts or liabilities whatsoever of Mabuhay. This liability should be interpreted to include any other liability or obligation arising from the operation of its business, including its liability to its employees. Furthermore, the tripartite agreement clearly stipulated that petitioner would consider Mabuhay's members for employment, with no commitment whatsoever to hire them. Therefore, petitioner has no liability whatsoever to the employees of Mabuhay, and its responsibility was only to consider them for re-employment. There can be no implied acceptance of the employees of Mabuhay by petitioner, nor acceptance of statutory wrong, as it was expressly provided that petitioner had no commitment or duty to absorb them. The Court also found no duty on the part of petitioner to inform NUWHRAIN of its lease and purchase, and its failure to do so cannot be an indicium of bad faith. There was also no evidence that petitioner and Mabuhay were joint tortfeasors, as Mabuhay had not retained control of the business, and petitioner is a corporation entirely different from Mabuhay, with no privity and being strangers to each other. The Court concluded that petitioner, by purchasing the assets of Mabuhay, enabled Mabuhay to pay its obligations to its employees. Since there was no employer-employee relationship between petitioner and Mabuhay employees, the petition must fail, and petitioner cannot be compelled to absorb the employees of Mabuhay and pay them backwages. On the issue of whether the transaction between petitioner and Mabuhay was attended with bad faith: In this case, the Court found no cogent basis to conclude that the transaction between petitioner and Mabuhay was attended with bad faith. The Court noted that Mabuhay had nothing to do with the negotiation and consummation of the lease contract between petitioner and Syjuco, and their dealings only commenced when Mabuhay offered to sell its assets to petitioner. The deed of assignment explicitly stated that it was purely for the sale/transfer and assignment of personal properties and assets and in no way involved any assumption or undertaking by petitioner of any debts or liabilities whatsoever of Mabuhay. This liability should be interpreted to include any other liability or obligation arising from the operation of its business, including its liability to its employees. Furthermore, the tripartite agreement clearly stipulated that petitioner would consider Mabuhay's members for employment, with no commitment whatsoever to hire them. Therefore, petitioner has no liability whatsoever to the employees of Mabuhay, and its responsibility was only to consider them for re-employment. There can be no implied acceptance of the employees of Mabuhay by petitioner, nor acceptance of statutory wrong, as it was expressly provided that petitioner had no commitment or duty to absorb them. The Court also found no duty on the part of petitioner to inform NUWHRAIN of its lease and purchase, and its failure to do so cannot be an indicium of bad faith. There was also no evidence that petitioner and Mabuhay were joint tortfeasors, as Mabuhay had not retained control of the business, and petitioner is a corporation entirely different from Mabuhay, with no privity and being strangers to each other. The Court concluded that petitioner, by purchasing the assets of Mabuhay, enabled Mabuhay to pay its obligations to its employees.
Main Doctrine
A bona fide purchaser of the assets of an enterprise is generally not legally bound to absorb the employees of the seller, unless the transaction is attended with bad faith.