Title
A.C. Ransom Labor Union-CCLU vs. National Labor Relations Commission
Case
G.R. No. 69494
Decision Date
May 29, 1987
RANSOM's officers and ROSARIO held jointly liable for unpaid backwages after corporate veil pierced to prevent evasion of labor obligations.
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Case Digest (G.R. No. 69494)

Facts:

Background of the Case:
In a joint Decision by the Court of Industrial Relations (CIR) on August 19, 1972, A.C. Ransom Philippine Corporation (RANSOM) was found guilty of unfair labor practices, including interference and discrimination. The CIR ordered RANSOM to cease such practices, declared the strike legal, and mandated the reinstatement of 22 employees with full backwages from July 25, 1969, until actual reinstatement.
Execution and Financial Issues:
Despite the finality of the CIR Decision, RANSOM claimed financial difficulties and opposed immediate execution of the backwages. The amount was initially computed at P199,276.00 but was later reduced to P164,984.00 after hearings. RANSOM was granted clearance to cease operations on May 1, 1973.
Formation of Rosario Industrial Corporation (ROSARIO):
The Union alleged that RANSOM's officers and stockholders formed ROSARIO, a new corporation, using the same equipment, personnel, and business assets as RANSOM. ROSARIO, established in 1969, was owned and managed by the same Hernandez family and engaged in the same business line as RANSOM.
Writs of Execution and Garnishment:
Successive Writs of Execution were issued against RANSOM, but they were unenforceable due to the company’s lack of assets. The Union sought garnishment against RANSOM’s officers and agents. Labor Arbiter Tito F. Genilo, in an Order dated March 11, 1980, held seven officers and agents of RANSOM liable for the backwages.
NLRC’s Decision:
The National Labor Relations Commission (NLRC) relieved the officers and agents of personal liability, stating that there was no evidence they had exceeded their authority. The Union sought Certiorari, and the Supreme Court reinstated the Labor Arbiter’s Order but limited liability to RANSOM’s Presidents.

Issue:

  1. Whether the officers and agents of RANSOM could be held personally liable for the backwages awarded to the 22 employees.
  2. Whether the corporate veil of RANSOM should be pierced to hold ROSARIO liable for the unpaid backwages.
  3. Whether the employees’ right to backwages should be prioritized over other creditors, including mortgagees.

Ruling:

The Supreme Court set aside the NLRC Decision and reinstated the Labor Arbiter’s Order with modifications. It held that the officers and agents of RANSOM, as well as ROSARIO, should be jointly and severally liable for the payment of backwages. The Court emphasized that the corporate veil should be pierced to prevent injustice and evasion of financial obligations. ROSARIO was ordered to reinstate the 22 employees or award them separation pay equivalent to one month’s salary for every year of service.

Ratio:

  1. Personal Liability of Corporate Officers:
    The Court ruled that corporate officers and agents could be held personally liable for the corporation’s obligations, especially when they are part of the same family and use the corporation to evade justice. The CIR Decision, affirmed by the Supreme Court in 1973, explicitly ordered RANSOM’s officers and agents to reinstate the employees with backwages.
  2. Piercing the Corporate Veil:
    The Court found that ROSARIO was a “run-away corporation” deliberately organized to evade RANSOM’s financial obligations. The corporate veil was pierced to hold ROSARIO and its officers jointly and severally liable for the unpaid backwages.
  3. Worker Preference in Bankruptcy:
    Under Article 110 of the Labor Code, workers’ wages enjoy first preference over other creditors, including mortgagees. The Court emphasized that the unpaid backwages must be paid in full before other claims are settled, even if the employer’s assets are encumbered by a mortgage.
  4. Social Justice and Protection to Labor:
    The Court reiterated the constitutional principle of social justice and protection to labor, ensuring that workers are not deprived of their rightful earnings despite the employer’s financial difficulties or legal maneuvers.


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