SME BANK vs ELICERIO GASPAR Espiritu, then the general manager of SME Bank, held a meeting with
G.R. No.184517/ OCT 8, 2013/ SERENO, J./CORPO- CORPORATE ENTITY/MBDELACRUZ
NATURE Petition for review on certiorari
PETITIONERS SME Bank Inc. Abelardo P. Samson, Olga P. Samson, et al.
RESPONDENTS Elicerio Gaspar, Ricardo Gaspar, Jr. Eufemia Rosete, et al.
SUMMARY. Ees were asked to resign because 86.365% companys shares
of stock were being sold, with the promise that they would be rehired. The
Ees werent rehired by the new mgmt so they filed an ID case against the
bank, the old principal SHs, and the new principal SHs. Bank is alleging
that the transfer of shares constituted a transfer in the business
establishment hence theres no obligation to rehire. SC said that there was
no transfer but merely a change in the new majority shareholders of the
corpn! What happened here was a stock sale wherein the individual or
corporate shareholders sell a controlling block of stock to new or existing
shareholders. The shift in the composition of its shareholders wont affect
its existence and continuity. The corpn continues to be the er of its people
and continues to be liable for the payment of their just claims. Hence, they
cannot lawfully dismiss corporate ees absent a just or authorized cause.
DOCTRINE. IN STOCK SALES: oBecause the corporation possesses a
personality separate and distinct from that of its shareholders, a shift in
the composition of its shareholders will not affect its existence and
continuity. Notwithstanding the stock sale, the corporation continues to be
the employer of its people and continues to be liable for the payment of
their just claims.
FACTS.
Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.
(Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon
Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato) were
employees of Small and Medium Enterprise Bank, Incorporated
(SME Bank).
The principal shareholders and corporate directors of the bank were
Agustin and De Guzman.
SME Bank experienced financial difficulties. Officials proposed its sale
to Samson. Samson sent Letter Agreements to Agustin and De
Guzman, demanding the following as preconditions for the sale of SME
Banks shares of stock:
4. You shall guarantee the peaceful turnover of all assets as well as
the peaceful transition of management of the bank and shall
terminate/retire the employees we mutually agree upon, upon
transfer of shares in favor of our groups nominees;
ISSUES & RATIO.
7. All retirement benefits, if any of the above
officers/stockholders/board of directors are hereby waived upon
consummation [sic] of the above sale. The retirement benefits
of the rank and file employees including the managers shall be
honored by the new management in accordance with B.R. No.
10, S. 1997.9
They accepted the terms and conditions proposed by Samson.
all the employees of the head office and of the Talaveraand Muoz
branches of SME Bank and persuaded them to tender their
resignations, with the promise that they would be rehired upon
reapplication. His directive was allegedly done at the behest of
petitioner Olga Samson.
They tendered their resignations and submitted application letters
which were transmitted by Espiritu to Samsons representative.
Agustin and De Guzman signified their conformity to the Letter
Agreements and sold 86.365% of the shares of stock of SME Bank to
spouses Abelardo and Olga Samson. Spouses Samson then became the
principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was
appointed bank president.
Respondent employees, except for Simeon, Jr., were not rehired. After a
month in service, Simeon, Jr. again resigned.
Respondent-employees demanded the payment of their respective
separation pays, but their requests were denied.
They then filed a Complaint before the NLRC and sued SME Bank,
spouses Abelardo and Olga Samson and Aurelio Villaflor (the Samson
Group) for unfair labor practice; illegal dismissal; illegal deductions;
underpayment; and nonpayment of allowances, separation pay and
13th month pay. Subsequently, they amended their Complaint to
include Agustin and De Guzman as respondents to the case.
LA: that the buyer of an enterprise is not bound to absorb its
employees, unless there is an express stipulation to the contrary.
However, he also found that respondent employees were illegally
dismissed, because they had involuntarily executed their resignation
letters after relying on representations that they would be given their
separation benefits and rehired by the new management.
Agustin and De Guzman brought separate appeals to the NLRC.
NLRC: there was only a mere transfer of shares and therefore, a mere
change of management from Agustin and De Guzman to the Samson
Group. As the change of management was not a valid ground to
terminate respondent bank employees, the NLRC ruled that they had
indeed been illegally dismissed. It further ruled that Agustin, De
Guzman and the Samson Group should be held jointly and severally
liable for the employees separation pay and backwages.
CA: affirmed the NLRC.
The Samson Group then filed two separate Rule 45 Petitions
questioning the CA Decisions and Resolutions; consolidated.
1. WON RESP-EES were illegally dismissed? YES.
A. Samson Group: Elicerio, Ricardo, Fidel, and Liberato voluntarily
resigned from their posts, while Eufemia retired from her position.
As their resignations and retirements were voluntary, they were not
dismissed from their employment. In support of this argument, it
 presented copies of their resignation and retirement letters, which
were couched in terms of gratitude.
SC: While resignation letters containing words of gratitude may indicate
that the employees were not coerced into resignation, this fact alone is not
conclusive proof that they intelligently, freely and voluntarily resigned.
In order to withstand the test of validity, resignations must be
made voluntarily and with the intention of relinquishing the office,
coupled with an act of relinquishment. We cannot merely rely on the
tenor of the resignation letters, but must take into consideration the
totality of circumstances in each particular case.
Records show that Elicerio, Ricardo, Fidel, and Liberato only tendered
resignation letters because they were led to believe that, upon
reapplication, they would be reemployed by the new management. Their
reliance on the representation that they would be reemployed gives
credence to their argument that they merely submitted courtesy
resignation letters because it was demanded of them, and that they had no
real intention of leaving their posts. The fact that Eufemia retired and did
not resign, however, does not change our conclusion that illegal dismissal
took place.
B. Samson Group: assuming the employees were dismissed, the
dismissal is legal because cessation of operations due to serious
business losses is one of the authorized causes of termination
under Article 283 of the Labor Code.
SC: The law permits an employer to dismiss its employees in the event of
closure of the business establishment. However, the employer is required
to serve written notices on the worker and the Department of Labor at
least one month before the intended date of closure. Moreover, the
dismissed employees are entitled to separation pay, except if the closure
was due to serious business losses or financial reverses. However, to be
exempt from making such payment, the employer must justify the
closure by presenting convincing evidence that it actually suffered
serious financial reverses.
Records do not support the contention of SME Bank that it intended to
close the business establishment. On the contrary, the intention of the
parties to keep it in operation is confirmed by the provisions of the Letter
Agreements requiring Agustin and De Guzman to guarantee the "peaceful
transition of management of the bank" and to appoint "a manager of [the
Samson Groups] choice x x x to oversee bank operations."
C. Samson Group: there being a transfer of the business
establishment, the innocent transferees no longer have any
obligation to continue employing respondent employees,
and that the most that they can do is to give preference to
the qualified separated employees; hence, the employees
were validly dismissed.
There was no transfer of the business establishment to speak of,
but merely a change in the new majority shareholders of the
corporation.
2 types of corporate acquisitions: asset sales and stock sales.
In asset sales, the corporate entity sells all or substantially all of its
assets to another entity.
o The seller in good faith is authorized to dismiss the
affected employees, but is liable for the payment of
separation pay under the law.
o The buyer in good faith, on the other hand, is not obliged
to absorb the employees affected by the sale, nor is it
liable for the payment of their claims. The most that it may
do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the
selling firm.
In stock sales, the individual or corporate shareholders sell a
controlling block of stock to new or existing shareholders.
o transaction in stock sales takes place at the shareholder
level
o Because the corporation possesses a personality
separate and distinct from that of its shareholders,
a shift in the composition of its shareholders will not
affect its existence and continuity.
o Notwithstanding the stock sale, the corporation
continues to be the employer of its people and
continues to be liable for the payment of their just
claims.
o The corporation or its new majority shareholders are
not entitled to lawfully dismiss corporate employees
absent a just or authorized cause.
In the case at bar:
The Letter Agreements show that their main object is the
acquisition by the Samson Group of 86.365% of the shares of stock
of SME Bank.
This case involves a stock sale, whereby the transferee acquires
the controlling shares of stock of the corporation.
Respondent employees may not be dismissed except for
just or authorized causes under the Labor Code.
D. Samson Group: following ruling in Manlimos v. NLRC, even in cases
of stock sales, the new owners are under no legal duty to absorb
the sellers employees, and that the most that the new owners
may do is to give preference to the qualified separated employees.
Thus, petitioner bank argues that the dismissal was lawful.
In disposing of the merits of the Manlimos case, the Court then upheld the
validity of the employees separation from employment, pronouncing that
a change of ownership in a business concern is not proscribed bylaw.
The Manlimos ruling is revisited now insofar as it applied a
doctrine on asset sales to a stock sale case. The transactions in
the cases it cited were not made at the shareholder level, but at
the corporate level. Thus, applicable to those cases were the rules
in asset sales: the employees may be separated from their employment,
but the seller is liable for the payment of separation pay; on the other
hand, the buyer in good faith is not required to retain the affected
employees in its service, nor is it liable for the payment of their claims.
The rule should be different in Manlimos, as this case involves a
stock sale. The transfer only involved a change in the equity composition
of the corporation. To reiterate, the employees are not transferred to a new
employer, but remain with the original corporate employer,
notwithstanding an equity shift in its majority shareholders. This being
so, the employment status of the employees should not have been
affected by the stock sale. A change in the equity composition of
the corporate shareholders should not result in the automatic
termination of the employment of the corporations employees.
Neither should it give the new majority shareholders the right to
legally dismiss the corporations employees, absent a just or
authorized cause.
We therefore see it fit to expressly reverse our ruling in Manlimos
insofar as it upheld that, in a stock sale, the buyer in good faith
has no obligation to retain the employees of the selling
corporation; and that the dismissal of the affected employees is
lawful, even absent a just or authorized cause.
E. Samson Group: Simeon, Jr., likewise voluntarily resigned from his
post.
Simeon, Jr. was constructively dismissed. He was made to resign, then
rehired under conditions that were substantially less than what he was
enjoying before the illegal termination occurred. Thus, for the second time,
he involuntarily resigned from his employment. Clearly, this case is
illustrative of constructive dismissal, an act prohibited under our labor
laws.
2. WON SME Bank, Eduardo M. Agustin, Jr. and Peregrin de
Guzman, Jr. are liable for illegal dismissal? YES. Spouses
Samson and Aurelio VIllaflor are not liable however.
The settled rule is that an employer who terminates the
employment of its employees without lawful cause or due process
of law is liable for illegal dismissal.
SME Bank was the employer of respondent employees. The fact that
there was a change in the composition of its shareholders did not affect the
employer-employee relationship between the employees and the
corporation, because an equity transfer affects neither the existence nor
the liabilities of a corporation.
As the employer of the illegally dismissed employees before and after the
equity transfer, petitioner SME Bank is liable for the satisfaction of their
claims.
As to the liability of Agustin, De Guzman and the Samson Group for illegal
dismissal, there is no privity of employment contracts between
Agustin, De Guzman and the Samson Group, on the one hand, and
respondent employees on the other. Rather, the employment
contracts were between SME Bank and the employees.
However: Unless they have exceeded their authority, corporate officers
are, as a general rule, not personally liable for their official acts, because a
corporation, by legal fiction, has a personality separate and distinct from
its officers, stockholders and members. However, this fictional veil may
be pierced whenever the corporate personality is used as a means
of perpetuating a fraud or an illegal act, evading an existing
obligation, or confusing a legitimate issue. In cases of illegal
dismissal, corporate directors and officers are solidarily liable with the
corporation, where terminations of employment are done with malice or in
bad faith.
Whether they may be considered as corporate directors or officers; and,
whether the terminations were done maliciously or in bad faith.
Agustin and De Guzman were clearly corporate directors of SME
Bank.
o Dismissal of the employees was done in bad faith. Instead
of going through the proper procedure, the bank manager
induced respondent employees to resign or retire from
their respective employments, while promising that they
would be rehired by the new management. Fully relying on
that promise, they tendered courtesy resignations or
retirements and eventually found themselves jobless.
Clearly, this sequence of events constituted a gross
circumvention of our labor laws and a violation of the
employees constitutionally guaranteed right to security of
tenure.
o Agustin and De Guzman are corporate directors who have
acted in bad faith, they may be held solidarily liable with
SME Bank for the satisfaction of the employees lawful
claims.
Spouses Samson do not appear to be either corporate directors or
officers of SME Bank at the time the illegal termination occurred.
The Samson Group had already taken over as new management
when Simeon, Jr. was constructively dismissed. Not being corporate
 directors or officers, spouses Samson were not in legal control of
the bank and consequently had no power to dismiss its employees.
o Even if spouses Samson were already in control of the
corporation at the time that Simeon, Jr. was constructively
dismissed, we refuse to pierce the corporate veil and find
them liable in their individual steads. There is no
showing that his constructive dismissal amounted to
more than a corporate act by SME Bank, or that
spouses Samson acted maliciously or in bad faith in
bringing about his constructive dismissal.

As regards Aurelio Villaflor, while he may be considered as a

corporate officer, being the president of SME Bank, the records are
bereft of any evidence that indicates his actual participation in the
termination of respondent employees.

DECISION.

Petitions for Review are PARTIALLY GRANTED. Ruling in

Manlimos v. NLRC reversed insofar as it upheld that, in a
stock sale, the buyer in good faith has no obligation to
retain the employees of the selling corporation, and that
the dismissal of the affected employees is lawful even
absent a just or authorized cause.