23. INDUSTRIAL TIMBER G.R. No.

164518
CORPORATION, INDUSTRIAL PLYWOOD GROUP CORPORATION, TOMAS TANGSOC, JR., LORENZO
TANGSOC and TOMAS TAN, - versus - VIRGILIO ABABON,
Before us are two petitions for review under Rule 45 of the Rules of Court. G.R. No. 164518 assails the
October 21, 2002 Decision[1] of the Court of Appeals, in CA-GR. SP No. 51966, which set aside the May 24,
1995 Decision[2] of the National Labor Relations Commission (NLRC), as well as the July 16, 2004
Resolution[3] denying its motion for reconsideration. G.R. No. 164965 assails only the July 16, 2004
Resolution of the Court of Appeals which denied their partial motion for reconsideration. These cases were
consolidated because they arose out of the same facts set forth below.

Industrial Plywood Group Corporation (IPGC) is the owner of a plywood plant located at Agusan, Pequeo,
Butuan City, leased to Industrial Timber Corporation (ITC) on August 30, 1985 for a period of five
years.[4] Thereafter, ITC commenced operation of the plywood plant and hired 387 workers.

On March 16, 1990, ITC notified the Department of Labor and Employment (DOLE) and its workers that
effective March 19, 1990 it will undergo a no plant operation due to lack of raw materials and will resume
only after it can secure logs for milling. [5]

Meanwhile, IPGC notified ITC of the expiration of the lease contract in August 1990 and its intention not to
renew the same.

On June 26, 1990, ITC notified the DOLE and its workers of the plants shutdown due to the non-
renewal of anti-pollution permit that expired in April 1990.[6] This fact and the alleged lack of logs for milling
constrained ITC to lay off all its workers until further notice. This was followed by a final notice of closure or
cessation of business operations on August 17, 1990 with an advice for all the workers to collect the benefits
due them under the law and CBA.[7]

On October 15, 1990, IPGC took over the plywood plant after it was issued a Wood Processing Plant
Permit No. WPR-1004-081791-042,[8] which included the anti-pollution permit, by the Department of
Environment and Natural Resources (DENR) coincidentally on the same day the ITC ceased operation of the
plant.

This prompted Virgilio Ababon, et al. to file a complaint against ITC and IPGC for illegal dismissal,
unfair labor practice and damages. They alleged, among others, that the cessation of ITCs operation was
intended to bust the union and that both corporations are one and the same entity being controlled by one
owner.

On January 20, 1992, after requiring both parties to submit their respective position papers, Labor
Arbiter Irving A. Petilla rendered a decision which refused to pierce the veil of corporate fiction for lack of
evidence to prove that it was used to perpetuate fraud or illegal act; upheld the validity of the closure; and
ordered ITC to pay separation pay of month for every year of service. The dispositive portion of the decision
reads:

PREMISES CONSIDERED, judgment is hereby rendered ordering respondent Industrial

Timber Corporation (ITC) to pay herein ninety-seven individual complainants their separation
pay at the rate of one-half (1/2) months pay for every year of service, a fraction of at least six
(6) months to be considered as one whole year, reckoned until August 1990.

All other claims of complainants are hereby ordered DISMISSED for want of merit.

SO ORDERED.[9]
Ababon, et al. appealedto the NLRC. On May 20, 1993, the NLRC set aside the decision of the Labor Arbiter
and ordered the reinstatement of the employees to their former positions, and the payment of full back wages,
damages and attorneys fees.[10]

ITC and IPGC filed a Motion for Reconsideration through JRS, a private courier, on June 24,
1993.[11] However, it was dismissed for being filed out of time having been filed only on the date of actual
receipt by the NLRC on June 29, 1993, three days after the last day of the reglamentary period. [12] Thus, they
filed a Petition for Relief from Resolution, [13] which was treated as a second motion for reconsideration by the
NLRC and dismissed for lack of merit in a Resolution dated September 29, 1994. [14]
From said dismissal, petitioners filed a Notice of Appeal with the Supreme Court. [15] Subsequently, they filed a
Motion for Reconsideration/Second Petition for Relief with the NLRC. [16]

On December 7, 1994, the Supreme Court dismissed the Notice of Appeal for being a wrong mode of
appeal from the NLRC decision.[17] On the other hand, the NLRC granted the Second Petition for Relief and set
aside all its prior decision and resolutions. The dispositive portion of the May 24, 1995 decision reads:

WHEREFORE, the decision of this Commission dated May 10, 1993 and its subsequent
resolutions dated June 22, 1994 and September 29, 1994 are Set Aside and Vacated.
Accordingly, the appeal of complainants is Dismissed for lack of merit and the decision of the
Labor Arbiter dated January 20, 1992 is Reinstated and hereby Affirmed.

SO ORDERED.[18]
On October 2, 1995, Virgilio Ababon, et al. filed a Petition for Certiorari with the Supreme Court, which was
docketed as G.R. No. 121977.[19] However, pursuant to our ruling in St. Martins Funeral Home v. NLRC, we
referred the petition to the Court of Appeals for appropriate action and disposition. [20]

On October 21, 2002, the Court of Appeals rendered a decision setting aside the May 24, 1995 decision of the
NLRC and reinstated its May 20, 1993 decision and September 29, 1993 resolution, thus:

WHEREFORE, the petition is GRANTED. The decision dated May 24, 1995 of the National
Labor Relations Commission is ANNULLED and SET ASIDE, with the result that its decision
dated May 20, 1993 and resolution dated September 29, 1994 are REINSTATED.

SO ORDERED.[21]
Both parties filed their respective motions for reconsideration which were denied, hence, the present
consolidated petitions for review based on the following assigned errors:

In G.R. No. 164518

THE COURT OF APPEALS ERRED IN LIBERALLY APPLYING THE RULES OF PROCEDURE

WITH RESPECT TO RESPONDENTS BUT BEING RIGID IN ITS APPLICATION AS REGARDS
PETITIONERS.[22]

In G.R. No. 164965

WITH DUE RESPECT, THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN
IT REFUSED TO APPLY SECTION 279 OF THE LABOR CODE AS AMENDED BY RA 6715 TO
MODIFY THE DECISION OF 20 MAY 1993 WITH RESPECT TO BACKWAGES FOR
PETITIONERS.[23]

ITC and IPGC contend that the Court of Appeals erred in reversing the May 24, 1995 decision of the NLRC
since its May 20, 1993 decision had become immutable for their failure to file motion for reconsideration
within the reglementary period. While they admit filing their motion for reconsideration out of time due to
excusable negligence of their counsels secretary, however, they advance that the Court of Appeals should
have relaxed the rules of technicality in the paramount interest of justice, as it had done so in favor of the
employees, and ruled on the merits of the case; after all, the delay was just three days.

Ordinarily, once a judgment has become final and executory, it can no longer be disturbed, altered or
modified. However, this rule admits of exceptions in cases of special and exceptional nature as we held
in Industrial Timber Corporation v. National Labor Relations Commission:[24]

It is true that after a judgment has become final and executory, it can no longer be
modified or otherwise disturbed. However, this principle admits of exceptions, as where facts
and circumstances transpire which render its execution impossible or unjust and it therefore
becomes necessary, in the interest of justice, to direct its modification in order to harmonize
the disposition with the prevailing circumstances.

A careful scrutiny of the facts and circumstances of these consolidated cases warrants liberality in the
application of technical rules and procedure. We agree with the NLRC that substantial justice is best served
by allowing the petition for relief despite procedural defect of filing the motion for reconsideration three days
late, for to rule otherwise, a greater injustice would be done to ITC by ordering it to reinstate the employees to
their former positions that no longer exist due to valid and legitimate cessation of business and pay huge
judgment award.[25]

Moreover, under Article 218 (c) of the Labor Code, the NLRC may, in the exercise of its appellate
powers, correct, amend, or waive any error, defect or irregularity whether in substance or in form. Further,
Article 221 of the same code provides that in any proceeding before the Commission or any of the Labor
Arbiters, the rules of evidence prevailing in courts of law or equity shall not be controlling and it is the spirit and
intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process.[26]
Also, the rule under Section 14 of Rule VII of the New Rules of Procedure of the NLRC that a motion for
reconsideration of any order, resolution or decision of the Commission shall not be entertained except when
based on palpable or patent errors, provided that the motion is under oath and filed within 10 calendar days
from receipt of the order, resolution or decision should not be interpreted as to sacrifice substantial justice to
technicality. It should be borne in mind that the real purpose behind the limitation of the period is to forestall
or avoid an unreasonable delay in the administration of justice, from which the NLRC absolved ITC and IPGC
because the filing of their motion for reconsideration three days later than the prescribed period was due to
excusable negligence. Indeed, the Court has the power to except a particular case from the operation of the
rule whenever the purposes of justice requires it because what should guide judicial action is that a party is
given the fullest opportunity to establish the merits of his action or defense rather than for him to lose life,
honor, or property on mere technicalities.[27]

We now come to the main issues of whether Ababon, et al. were illegally dismissed due to the closure of ITCs
business; and whether they are entitled to separation pay, backwages, and other monetary awards.

Work is a necessity that has economic significance deserving legal protection. The social justice and
protection to labor provisions in the Constitution dictate so. On the other hand, employers are also accorded
rights and privileges to assure their self-determination and independence, and reasonable return of capital.
This mass of privileges comprises the so-called management prerogatives.Although they may be broad and
unlimited in scope, the State has the right to determine whether an employer's privilege is exercised in a
manner that complies with the legal requirements and does not offend the protected rights of labor. One of
the rights accorded an employer is the right to close an establishment or undertaking. [28]

The right to close the operation of an establishment or undertaking is one of the authorized causes in
terminating employment of workers, the only limitation being that the closure must not be for the purpose of
circumventing the provisions on termination of employment embodied in the Labor Code.

Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date thereof. In case of termination
due to the installation of labor saving devices or redundancy, the worker affected thereby shall
be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall be equivalent to
one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be considered one (1) whole year.

A reading of the foregoing law shows that a partial or total closure or cessation of operations of establishment
or undertaking may either be due to serious business losses or financial reverses or otherwise. Under the first
kind, the employer must sufficiently and convincingly prove its allegation of substantial losses, [29] while under
the second kind, the employer can lawfully close shop anytime [30] as long as cessation of or withdrawal from
business operations was bona fide in character and not impelled by a motive to defeat or circumvent the
tenurial rights of employees,[31] and as long as he pays his employees their termination pay in the amount
corresponding to their length of service.[32] Just as no law forces anyone to go into business, no law can
compel anybody to continue the same. It would be stretching the intent and spirit of the law if a court
interferes with management's prerogative to close or cease its business operations just because the business
is not suffering from any loss or because of the desire to provide the workers continued employment. [33]
In sum, under Article 283 of the Labor Code, three requirements are necessary for a valid cessation of
business operations: (a) service of a written notice to the employees and to the DOLE at least one month
before the intended date thereof; (b) the cessation of business must be bona fide in character; and (c) payment
to the employees of termination pay amounting to one month pay or at least one-half month pay for every
year of service, whichever is higher.
In these consolidated cases, we find that ITCs closure or cessation of business was done in good faith
and for valid reasons.

The records reveal that the decision to permanently close business operations was arrived at after a
suspension of operation for several months precipitated by lack of raw materials used for milling operations,
the expiration of the anti-pollution permit in April 1990, and the termination of the lease contract with IPGC
in August 1990 over the plywood plant at Agusan, Pequeo, Butuan City. We quote with approval the
observation of the Labor Arbiter:

As borne out from the records, respondent ITC actually underwent no plant operation since 19
March 1990 due to lack of log supply. This fact is admitted by complainants (Minutes of
hearing, 28 October 1991). Since then several subsequent incidents prevented respondent ITC
to resume its business operations e.g. expiration and non-renewal of the wood processing plant
permit, anti-pollution permit, and the lease contract on the plywood plant. Without the raw
materials respondent ITC has nothing to produce. Without the permits it cannot lawfully operate
the plant. And without the contract of lease respondent ITC has no option but to cease operation
and turn over the plant to the lessor.[34] (Emphasis supplied)

Moreover, the lack of raw materials used for milling operations was affirmed in Industrial Timber Corporation
v. National Labor Relations Commission[35] as one of the reasons for the valid closure of ITCs Butuan Logs
Plant in 1989. In said case, we upheld the management prerogative to close the plant as the only remedy
available in order to prevent imminent heavy losses on account of high production costs, erratic supply of raw
materials, depressed prices and poor market conditions for its wood products.

In Shoppers Gain Supermarket v. National Labor Relations Commission,[36] we held that the non-renewal of
petitioner corporations lease contract and its consequent closure and cessation of operations may be
considered an event beyond petitioners control, in the nature of a force majeure situation. As such, it
amounts to an authorized cause for termination of the private respondents.

Having established that ITCs closure of the plywood plant was done in good faith and that it was due
to causes beyond its control, the conclusion is inevitable that said closure is valid. Consequently, Ababon, et
al. could not have been illegally dismissed to be entitled to full backwages. Thus, we find it no longer
necessary to discuss the issue regarding the computation of their backwages. However, they are entitled to
separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever
is higher.
Although the closure was done in good faith and for valid reasons, we find that ITC did not comply with the
notice requirement. While an employer is under no obligation to conduct hearings before effecting termination
of employment due to authorized cause,[37] however, the law requires that it must notify the DOLE and its
employees at least one month before the intended date of closure.

In the case at bar, ITC notified its employees and the DOLE of the no plant operation on March 16, 1990 due
to lack of raw materials. This was followed by a shut down notice dated June 26, 1990 due to the expiration
of the anti-pollution permit. However, this shutdown was only temporary as ITC assured its employees that
they could return to work once the renewal is acted upon by the DENR. On August 17, 1990, the ITC sent its
employees a final notice of closure or cessation of business operations to take effect on the same day it was
released. We find that this falls short of the notice requirement for termination of employment due to
authorized cause considering that the DOLE was not furnished and the notice should have been furnished
both the employees and the DOLE at least one month before the intended date of closure.

In Ariola v. Philex Mining Corporation,[38] we held:

In Agabon v. National Labor Relations Commission and Jaka Food Processing Corporation v.
Pacot, the Court sustained the dismissals for just cause under Article 282 and for authorized
 cause under Article 283 of the Labor Code, respectively, despite non-compliance with the
statutory requirement of notice and hearing. The grounds for the dismissals in those cases,
namely, neglect of duty and retrenchment, remained valid because the non-compliance with
the notice and hearing requirement in the Labor Code did not undermine the validity of the
grounds for the dismissals. Indeed, to invalidate a dismissal merely because of a procedural
defect creates absurdity and runs counter to public interest. We explained in Agabon:

The unfairness of declaring illegal or ineffectual dismissals for valid or

authorized causes but not complying with statutory due process may have far-
reaching consequences.

This would encourage frivolous suits, where even the most notorious violators of
company policy are rewarded by invoking due process. This also creates absurd
situations where there is a just or authorized cause for dismissal but a
procedural infirmity invalidates the termination. Let us take for example a case
where the employee is caught stealing or threatens the lives of his co-employees
or has become a criminal, who has fled and cannot be found, or where serious
business losses demand that operations be ceased in less than a month.
Invalidating the dismissal would not serve public interest. It could also
discourage investments that can generate employment in the local economy.

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer
failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was
initiated by the employer’s exercise of his management prerogative, as opposed to a dismissal based on a just
cause under Article 282 with the same procedural infirmity where the sanction to be imposed upon the
employer should be tempered as the dismissal process was, in effect, initiated by an act imputable to the
employee.[39]

In light of the factual circumstances of the cases at bar, we deem it wise and reasonable to award P50,000.00
to each employee as nominal damages.

WHEREFORE, in view of the foregoing, the October 21, 2002 Decision of the Court of Appeals in CA-GR. SP
No. 51966, which set aside the May 24, 1995 Decision of the NLRC, as well as the July 16, 2004 Resolution
denying ITCs motion for reconsideration, are hereby REVERSED. The May 24, 1995 Decision of the NLRC
reinstating the decision of the Labor Arbiter finding the closure or cessation of ITCs business valid,
is AFFIRMED with the MODIFICATIONS that ITC is ordered to pay separation pay equivalent to one month
pay or to at least one-half month pay for every year of service, whichever is higher, and P50,000.00 as
nominal damages to each employee.

SO ORDERED.