The Supreme Court ruled that there was no merger or consolidation between Peggy Mills, Sta. Rosa Textiles, and the other respondent corporations. [1] The petitioner John McLeod filed a case seeking retirement benefits and other claims against the corporations. [2] The Labor Arbiter ruled the respondents were solidarily liable, but the NLRC and Court of Appeals found Peggy Mills solely liable. [3] The Supreme Court affirmed Peggy Mills' sole liability, as the transfer of assets from Peggy Mills to Sta. Rosa Textiles through a dation in payment did not constitute a merger or consolidation between the corporations.
The Supreme Court ruled that there was no merger or consolidation between Peggy Mills, Sta. Rosa Textiles, and the other respondent corporations. [1] The petitioner John McLeod filed a case seeking retirement benefits and other claims against the corporations. [2] The Labor Arbiter ruled the respondents were solidarily liable, but the NLRC and Court of Appeals found Peggy Mills solely liable. [3] The Supreme Court affirmed Peggy Mills' sole liability, as the transfer of assets from Peggy Mills to Sta. Rosa Textiles through a dation in payment did not constitute a merger or consolidation between the corporations.
The Supreme Court ruled that there was no merger or consolidation between Peggy Mills, Sta. Rosa Textiles, and the other respondent corporations. [1] The petitioner John McLeod filed a case seeking retirement benefits and other claims against the corporations. [2] The Labor Arbiter ruled the respondents were solidarily liable, but the NLRC and Court of Appeals found Peggy Mills solely liable. [3] The Supreme Court affirmed Peggy Mills' sole liability, as the transfer of assets from Peggy Mills to Sta. Rosa Textiles through a dation in payment did not constitute a merger or consolidation between the corporations.
The Supreme Court ruled that there was no merger or consolidation between Peggy Mills, Sta. Rosa Textiles, and the other respondent corporations. [1] The petitioner John McLeod filed a case seeking retirement benefits and other claims against the corporations. [2] The Labor Arbiter ruled the respondents were solidarily liable, but the NLRC and Court of Appeals found Peggy Mills solely liable. [3] The Supreme Court affirmed Peggy Mills' sole liability, as the transfer of assets from Peggy Mills to Sta. Rosa Textiles through a dation in payment did not constitute a merger or consolidation between the corporations.
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I.SHORT TITLE: MCLEOD V.
NLRC
II. FULL TITLE: John F. McLeod, petitioner, versus National Labor Relations Commission (First Division), Filipinas Synthetic Fiber Corporation, Far Eastern Textile Mills, Inc., Patricio L. Lim, and Eric Hu, respondents. – G.R. No. 146667, January 23, 2007, J. Carpio
III. TOPIC: Mergers and Consolidations – Constituents vs. Consolidated Corporation
IV. STATEMENT OF FACTS:
On February 2, 1995, petitioner filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13 th month pay, moral and exemplary damages, attorney’s fees plus interest against Filipinas Synthetic Corporation, Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.
In his position paper, apart from the allegations of the claims of benefits and salaries by the petitioner, he alleged that he was promoted as Senior Manager of Universal Textiles during the tenure as its president of Patricio Lim. Patricio Lim formed Peggy Mills with the Filipinas Synthetic as its stockholder having controlling interest. Having failed to be paid vacation and leave credits, holiday pay, despite being entitled thereto under their CBA, the respondents reduced the petitioner’s monthly salary. Filipinas Synthetic then sold Peggy Mills to Far Eastern Textile Mills. This was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President. The petitioner worked for Sta.Rosa until November 30. When he reached and applied retirement age at the end of 1993, he was only given a reduced 13 th month pay leaving a balance of P15,816. Thereafter, owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles. He then wrote to Patricio Lim about the retirement and other benefits but he was offered a compromise agreement which he subsequently rejected.
In his reply, petitioner further alleges that the Deed of Dation in Payment with Lease proves that Sta. Rosa took over the assets of Peggy Mills.
V. STATEMENT OF THE CASE:
The Labor Arbiter ruled that all the respondents are solidarily liable for the petitioner’s money claims for a total of P5,528,996.55 and $7,350.
Filipinas Synthetic, Far Eastern Textile, Sta. Rosa Textiles, Patricio Lim, and Eric Hu appealed to the NLRC. NLRC reversed and set aside the decision of the labor arbiter. It ordered Peggy Mills to pay the petitioner his retirement pay and all other claims were dismissed.
Upon appeal, the Court of Appeals ruled that the decision of NLRC is affirmed with modification that respondent Patricio Lim is jointly and severally liable with Peggy Mills. The Court of Appeals rejected McLeod’s theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his monetary claims. The appellate court noted that when Sta. Rosa Textiles and Peggy Mills executed the Dation in Payment with Lease, it was clearly stated that the former did not assume the liabilities of the latter incurred before the execution of such contract.
ISSUE: Whether or not there was a merger or consolidation.
VI. RULING:
NO.
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: a. Where the purchaser expressly or impliedly agrees to assume such debts. b. Where the transaction amounts to consolidation or merger. c. Where the purchasing corporation is merely a continuation of the selling corporation. d. Where the selling corporation fraudulently enters into the transaction to escape liability for those debts.
None of these is present.
Consolidation is the union of 2 or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between 2 or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations.
Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business.
The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights, and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation. In this case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that Sta. Rosa Textile is merely an instrumentality of Peggy Mills.
Sta. Rosa Textile did not expressly, or impliedly agree to assume any of Peggy Mill’s debt. It is not correct of petitioner to treat them as the same entity. Mcleod could have presented evidence to support his allegation of employment relationship between him and any of Filipinas Synthetic, Sta. Rosa Textile, Far Eastern Textiles, but he did not.
VII. DISPOSITIVE PORTION:
WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) theretirement pay of John F. McLeod should be computed at ½ month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and exemplary damages and attorney’s fees are deleted. No pronouncement as to costs.
