2A DIGESTS, SY 2015-2016

Corporat
ion Law

Atty. Joey Hofilea

Central Azucarera del Danao v. CA

No. L-41615
June 29, 1985
Effects on Employees of CorporationBusiness-Enterprise Transfers
FACTS
This case involves separate cases for Recovery of Termination Pay with Damages under R.A. 1787
(Termination Pay Law) which ordered petitioner Central Azucerera (Central Danao) to pay termination pay to
private respondent (1) Bana-ay (railroad repair man) (2) Cosculluela (superintendent of transportation unit) (3)
Palma (machinist). Private respondents were the regular employees of Central Danao, the owner-operator of a
sugar mill in Danao, Negros Occidental. In 1961, Central Danao sold its sugar mill properties and other assets to
Danao Development Corporation (Dadeco). After which, in the same year, Dadeco took over the management
and operation of the purchased sugar mill properties pursuant to a Deed of Sale. Unfortunately, the document
did not contain the continued employment status of old employees of Central Danao. Dadeco hired petitioners
regular employees in accordance with its hiring and selection policies. During their new employment, private
respondents were all terminated and as a consequence they filed separate complaints for recovery of
termination pay with damages against Dadeco and Central Danao. Dadeco denied liability for termination pay
asserting that they were not the employers for the period stated in the pleadings of the respondentsthus, a
lack of cause of action. While Central Danao claimed that it was Dadeco who is liable since it had already sold
all its assets via a Deed of Sale. The CFI of Negros rendered judgment in favor of respondents and ordered
Central Danao (not Dadeco) to pay for termination pay, hence, this petition
ISSUE/S
Whether or not the CFI and IAC erred in ruling that:
(1) Petitioner is liable to pay employees separation pays 1935-1961YES
(2) Respondents employment with petitioner was terminated when Dadeco purchased and assumed operation of
the milling company YES
(3) Respondent employees were not guilty of lachesNO
HELD: Petitioner Central Danao is liable for termination pay.
(1) &(2) No, the court did not err. There is no question that the closing of an establishments operation may be
considered as just cause for termination of employment without a definite period. Although in this case, it stops
short of closing or cessation of operation since it involves the sale of all or substantially all of the properties of
Central Danao to Dadeco. While, what is authorized as just cause for termination of employment is the closing or
cessation of operation, the law also recognizes the right of an employer to sell, dispose or lease his business
enterprise provided that it is not intended to defeat the law. When the sale happened, Dadeco as the purchasing
corporation continued the integral business operation of its predecessor in an essentially unchanged manner
that is milling of sugar cane and manufacture of centrifugal sugar. In short, there was only a change of ownership
or management of a business enterprise, although such situation is NOT one of the just causes under the
Termination Pay Law to terminate employment without definite period. It is also not synonymous to the closing or
cessation of operation of an establishment. Thus, the real issue in this case it whether or not the change of
ownership or management of an establishment or corporation by virtue of the sale of all or substantially all of its
properties and assets operated to insulate the selling corporation from its obligation (simply put, if the sale
included the obligation to its employees under the Termination Pay Law).
Under the law the employer is not required to served any notice nor pay the termination pay to
employees concerned, If the termination is without just cause, the employer must serve timely notice to the
employee otherwise the employee us obliged to pay termination pay except where other applicable statutes
provide a different remedy. At the same time, the court recognizes the right of the employer to merge or
consolidate its business with another and sell all of its assets and properties, which may bring
dismissal, or termination of its employees in the processbut such dismissal cannot be used by

Arcaina Austria Baadera Cheng Coloquio Diploma Fajardo Layno Lim, J. Perez Regis Villarin, L.
1
Villarin, P.

2A DIGESTS, SY 2015-2016

Corporat
ion Law

Atty. Joey Hofilea

employer to escape liability to pay for termination pay. Such sale or disposition must have been
attended with good faith to exempt from liability.
There was no mention of any continued employment by Dadeco of Centrals employees and
hired them under their own policies and terms. Also, the negotiations or the sale and assets of petitioner
were held behind the back of the employees who were taken by surprise that ultimately terminated their
employment. Inasmuch that they were not notified of the plans, justice and equity dictate that private
respondents to their termination or separation pay corresponding to the number of years of service
within Central Danao.
(3) NO, they are not. Central Danao cannot take refuge under the doctrine of laches to shield itself from an
obligation created by law to protect the workingman.
DENIED
DOCTRINE (accdg. to CLV outline)
There is no law requiring that the purchaser should absorb the employees of the selling company. Wellestablished is the principle that it is within the employers legitimate sphere of management control of the
business to adopt economic policies to make some changes or adjustments in their organization or operation
that would insure profit or protect the investments of its stockholders. As in the exercise if 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.

Arcaina Austria Baadera Cheng Coloquio Diploma Fajardo Layno Lim, J. Perez Regis Villarin, L.
2
Villarin, P.