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.

Case Summary (G.R. No. 152343)

Key Dates and Procedural Milestones

  • CIR Decision (August 19, 1972): Found A.C. Ransom (Phils.) Corporation guilty of unfair labor practice; ordered cease-and-desist, immediate reinstatement of 22 employees with backwages from July 25, 1969, without loss of seniority rights.
  • Supreme Court denial of Ransom’s petition (February 26, 1973): CIR decision affirmed and became final.
  • Secretary of Labor clearance to cease operations (effective May 1, 1973; clearance granted June 7, 1973).
  • Computation and recomputation of backwages initially P199,276.00 reduced to P164,984.00.
  • Repeated motions for execution by the Union (1973–1978) and writs of execution (issued 1976, 1977) unsatisfied.
  • Labor Arbiter Order (March 11, 1980): Named seven officers as included parties and directed issuance of writ of execution for P164,984.00 against the corporation and its officers/agents.
  • NLRC on appeal: Modified the Labor Arbiter’s order by relieving officers/agents of personal liability for lack of evidence and lack of opportunity to be heard.
  • Supreme Court decision (June 10, 1986): Set aside NLRC decision and reinstated Labor Arbiter’s order with modification limiting personal liability to President Ruben Hernandez and subsequent presidents up to corporate termination.
  • Final Supreme Court resolution (amended June 1986 dispositive and promulgated May 29, 1987): Denied private respondents’ reconsideration, granted union’s motion in part, and held ROSARIO and surviving private respondents jointly and severally liable; ordered reinstatement or separation pay and made decision immediately executory.

Applicable Law and Constitutional Basis

Governing statutes and regulations relied upon by the Court: CIR Act (CA No. 103) provisions imposing liability on managers/officers who ordered or authorized violations; Industrial Peace Act (RA 875) definition of "employer" to include persons acting in interest of employer; Minimum Wage Law (RA 602) definitions; Article 110 of the Labor Code (worker preference in bankruptcy/liquidation) and implementing Rules and Regulations (Book III, Rule VIII, Sec. 10). Relevant precedents were also cited on piercing the corporate veil where corporations are instruments to perpetrate fraud or evade obligations.

Facts Determinative to Enforcement and Liability

The CIR’s 1972 finding established that A.C. Ransom committed unfair labor practices and ordered reinstatement with backwages. After that decision became final, RANSOM applied for and obtained clearance to cease operations citing financial difficulties. During pendency and after the CIR proceedings, the same family organized ROSARIO (a closed corporation formed in 1969) that used the same plant, personnel, equipment and address. The Union alleged ROSARIO functioned as a successor to avoid liabilities. RANSOM’s assets were encumbered and some sold (machinery and equipment sold in 1975 for P2M), with proceeds allegedly applied to bank obligations. Multiple writs and motions for execution failed to satisfy the award, prompting the Union to seek garnishment against officers and the successor corporation.

Issues Presented

  • Whether the officers and agents of RANSOM could be held personally liable for the corporation’s obligation to reinstate the 22 employees and pay backwages.
  • Whether ROSARIO, organized and operated by the same family using the same assets and business operations, could be treated as a mere continuation or instrumentality of RANSOM so that its corporate veil should be pierced and ROSARIO held liable.
  • Whether the worker-preference rule in case of bankruptcy/liquidation (Article 110 of the Labor Code) gives employees priority entitlement to proceeds from encumbered assets and thus their backwages must be satisfied ahead of other creditors.

Rulings of the Tribunals and the Court’s Reasoning on Officer Liability

The Labor Arbiter treated the CIR’s final judgment as authority to include named officers as parties and issued execution against them. The NLRC reversed this personal liability because it found no evidence that officers exceeded authority and noted they had not been afforded an opportunity to be heard. This Court concluded the NLRC improperly modified a final CIR decision — the CIR had expressly included officers and agents in its remedial command — and that the Labor Arbiter was implementing that final and executory judgment. The Court recognized the general rule that corporate officers are not personally liable for corporate acts but emphasized established exceptions: where corporate form is used to perpetrate fraud, injustice, or to evade existing obligations, the corporate fiction will be disregarded. Applying those principles, the Court held that, given the family-controlled nature of the corporations and the deliberate organization and use of ROSARIO to frustrate payment of employees’ rights, officers and ROSARIO should be held jointly and severally liable with surviving private respondents. The Court earlier (June 10, 1986) limited personal liability to the President(s) as being included in the term "employer," but in the final disposition it extended liability to ROSARIO and the surviving private respondents.

Piercing the Corporate Veil and Successor Liability

The Court relied on precedent recognizing that when corporations are essentially the same economic unit controlled by a single family and used to evade legal obligations, the corporate veil may be pierced and separate entities merged for liability purposes. The facts here — common ownership and management, same facilities and equipment, identical business operations, continuity of personnel and use of the same address — supported the conclusion that ROSARIO was utilized as an instrument to avoid payment of backwages and reinstatement obligations. Consequently, ROSARIO was ordered to reinstate the 22 employees or, alternatively, to provide separation pay (at least one month’s pay or one-half month per year as allowed in the order) if reinstatement was not feasible.

Worker Preference in Bankruptcy and Priority Over Encumbrances

The Court reaffirmed Article 110 of the Labor Code and its implementing rules: unpaid wages due employees before bankruptcy or liquidation enjoy first preference and must be paid in full prior to other creditors asserting claims against employer assets. This priority persists even when employer properties are encumbered by mortgage, thereby creating an automatic first lien for wages above earlier encumbrances. On the facts, proceeds from the sale of RANSOM machinery and equipment should have recognized the workers’ priority claim, and payments to banks or others could not defeat the workers’ statutory preference. The Court rejected claims by heirs or other parties that personal payments to creditors conferred preferential rights over workers’ claims.

Relief Ordered and Computation of Award

The Court affirmed the subject backwages figure fixed for enforcement purposes at P164,984.00 (the recomputed amount used in the Labor Arbiter’s writ of ex

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