SUNDOWNER DEVELOPMENT CORPORATION, PETITIONER, VS. HON. FRANKLIN M. DRILON, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, NATIONAL UNION OF WORKERS IN …

The principal issue in this
case is whether or not the purchaser of the assets of an employer corporation
can be considered a successor employer of the latter’s employees.

Private respondent Hotel Mabuhay, Inc.
(Mabuhay for short) leased the premises belonging to
Santiago Syjuco, Inc. (Syjuco for short) located at 1430 A. Mabini St., Ermita, Manila.  However, due to non-payment of rentals, a case for ejectment was
filed by Syjuco against Mabuhay
in the Metropolitan Trial Court of Manila. 
Mabuhay offered to amicably settle the case by
surrendering the premises to Syjuco and to sell its
assets and personal property to any interested party.

Syjuco offered the said premises for lease to
petitioner.  The negotiation culminated
with the execution of the lease agreement on April 16, 1987 to commence on May 1, 1987 and to expire on April 30, 1992.^[1] Mabuhay offered to
sell its assets and personal
properties in the premises to petitioner to which petitioner agreed.  A deed of assignment of said assets and
personal properties was executed by Mabuhay on April
29, 1987 in favor of
petitioner.^[2]

On same date Syjuco formally turned over the possession of the leased
premises to petitioner who actually took possession and occupied the same on May 1,
1987.

On May 4,
1987, respondent
National Union of Workers in Hotel, Restaurant and Allied Services (NUWHRAIN
for short) picketed the leased premises, barricaded the entrance to the leased
premises and denied petitioner’s officers, employees and guests free access to
and egress from said premises.  Thus,
petitioner wrote a letter-complaint to Syjuco.

A complaint for damages
with preliminary injunction and/or temporary restraining order was filed by
petitioner on May 7, 1987 with the Regional Trial Court of Manila
docketed as Civil Case No. 87-40436.  On
the same day, the Executive Judge of said court issued a restraining order
against respondent NUWHRAIN and its officers and members as prayed for in the
petition.  Nevertheless, NUWHRAIN
maintained their strike on the subject premises but filed an answer to the complaint.

On May 14, 1987, an order was issued by public respondent Secretary of Labor assuming
jurisdiction over the labor dispute pursuant to Article 263(g) of the Labor
Code as amended and in the interim, requiring all striking
employees to return to work and for respondent Mabuhay
to accept all returning employees pending final determination of the issue of the absorption of the former employees of Mabuhay.  The
parties were also directed to submit their respective position papers within
ten (10) days from receipt of the order.

On May 25, 1987, Mabuhay submitted its position paper alleging among others
that it had sold all its assets and personal properties to petitioner and that
there was no sale or transfer of its shares whatsoever and that Mabuhay completely ceased operation effective April 28,
1987 and surrendered the premises to petitioner so that there exists a legal
and physical impossibility on its part to comply with the return to work order
specifically on absorption.

On June 26, 1987,
petitioner in order to commence its operation, signed a tri-partite agreement
so the workers may lift their strike, by and among petitioner, respondents
NUWHRAIN and Mabuhay whereby the latter paid to
respondent NUWHRAIN the sum of P638,000.00 in addition to the first payment in
the sum of P386,447.11, for which reason respondent NUWHRAIN agreed to
lift the picket.^[3]

Respondent NUWHRAIN on July
13, 1987 filed its position paper alleging connivance between Mabuhay and petitioner in selling the assets and closing
the hotel to escape its obligations to the employees of Mabuhay
and so it prays that petitioner accept the workforce of Mabuhay
and pay backwages from April 15, 1986 to April
28, 1987, the day Mabuhay stopped
operation.

On the other hand, petitioner filed a “Partial Motion for
Reconsideration and Position Paper,” alleging that it was denied due
process:  that there were serious errors
in the findings of fact which would
cause grave and irreparable damage to its interest; as well as on questions of
law.  On January 20, 1988, the public respondent issued an order requiring petitioner to absorb the members of the union and to
pay backwages from the time it started operations up
to the date of the order.^[4]

Petitioner filed on January 27, 1988 a motion for reconsideration
of the aforesaid order alleging that the theory of implied acceptance and
assumption of statutory wrong does not
apply in the instant case; that the prevailing doctrine that there is no law
requiring bonafide purchasers of the assets of an
on-going concern to absorb in its employ the employees of the latter should be
applied in this case; that the order for absorption of the employees of Mabuhay as well as the payment of their backwages
is contrary to law.  Respondent NUWHRAIN also filed a motion for clarification
of the aforesaid order.

On March 8,
1988, the public
respondent denied said motion for reconsideration and motion for clarification
for lack of merit.

Hence, this petition for review by certiorari with prayer for
preliminary injunction and/or temporary restraining order filed by petitioner
in this Court.  Petitioner present seven
issues for resolution which all revolve about the singular issue of whether or
not under the circumstances of this case the petitioner may be compelled to
absorb the employees of respondent Mabuhay.

On March 23, 1988, this
Court, without giving due course to the petition, required respondents to
comment thereon within ten (10) days from notice and issued a temporary
restraining order enjoining public respondent or his duly authorized
representatives from executing and implementing the orders dated January 20,
1988 and March 8, 1988.

The petition is impressed
with merit.

The rule is that unless
expressly assumed, labor contracts such as employment contracts and collective
bargaining agreements are not enforceable against a transferee of an
enterprise, labor contracts being in personam,
thus binding only between the parties.^[5] A labor contract merely creates an action in
personam and
does not create any real right which should be respected by third parties.  This conclusion draws its force from the
right of an employer to select
his employees and to decide when to engage them as protected under our
Constitution, and the same can only be restricted by law through the exercise of
the police power.^[6]

As a general rule, there is no law requiring a bona fide
purchaser of assets of an on-going concern to absorb in its employ the
employees of the latter.^[7]

However, although the
purchaser of the assets or enterprise is not legally bound to absorb in its
employ the employees of the seller of such assets or enterprise, the parties
are liable to the employees if the transaction between the parties is colored or clothed with bad faith.^[8]

In the case at bar, contrary to the claim of the public
respondent that the transaction between petitioner and Mabuhay
was attended with bad faith, the court finds no cogent basis for such
contention.  Thus, the absorption of the
employees of Mabuhay may not be imposed on petitioner.

It is undisputed that when Mabuhay
surrendered the leased premises to Syjuco and asked Syjuco to offer same to other lessees it was Syjuco who found petitioner and
persuaded petitioner to lease said premises. 
Mabuhay had nothing to do with the negotiation
and consummation of the lease contract between
petitioner and Syjuco.

It was only when Mabuhay offered to sell its assets and personal properties
in the premises to petitioner that they came to deal with each other.  It appears that petitioner agreed to purchase said assets of respondent Mabuhay
to enable Mabuhay to pay its obligations to its
striking employees and to Syjuco.  Indeed,
in the deed of assignment that was executed by Mabuhay
in favor of petitioner on April 14, 1987 for and in consideration of
P2,500,000.00, it is specifically provided therein that the same is
“purely for and in consideration of the sale/transfer and assignment of
the personal properties and assets of Hotel Mabuhay,
Inc. listed x x x” and
“in no way involves any assumption or undertaking on the part of Second
Party (petitioner) of any debts or liabilities whatsoever of Hotel Mabuhay, Inc.”^[9] The liabilities alluded to in this
agreement should be interpreted to mean not only any monetary liability of Mabuhay but any other liability or obligation arising from
the operation of its business including its liability to its employees.

Moreover, in the
tri-partite agreement that was entered into by petitioner with respondents
NUWHRAIN and Mabuhay, it is clearly stipulated as
follows:

“8.  That, immediately
after the execution of this Agreement, the FIRST PARTY shall give a list of its
members to the THIRD PARTY that it desires to recommend for employment so that
the latter can consider them for employment,
with no commitment whatsoever on the part of the THIRD PARTY to hire them in
the business that it will operate in the premises formerly occupied by the
Hotel Mabuhay;”^[10]

From the foregoing, it is clear that petitioner has no liability
whatsoever to the employees of Mabuhay and its
responsibility if at all, is only to consider them for re-employment in the
operation of the business in the same premises. 
There can be no implied acceptance of the employees of Mabuhay by petitioner and acceptance of statutory wrong as it is expressly provided in
the agreement that petitioner has no commitment or duty to absorb them.

Moreover, the court does not subscribe to the theory of public
respondent that petitioner should have informed NUWHRAIN of its lease of the
premises and its purchase of the assets and personal properties of Mabuhay therein so that said employees could have taken
steps to protect their interest.  The
court finds no such duty on the part of petitioner and its failure to notify
said employees cannot be an indicium of bad faith.

Much less is there any evidence that
petitioner and respondent Mabuhay are joint tortfeasors as found by public respondent.  While it is true that petitioner is using the
leased property for the same type of business as that of respondent Mabuhay, there can be no continuity of the business
operations of the predecessor employer by the successor employer as respondent Mabuhay had not retained control of the business.  Petitioner is a corporation entirely different from Mabuhay.  It has no controlling interest whatever in
respondent Mabuhay. 
Petitioner and Mabuhay have no privity and are strangers to each other.

What is obvious is that
the petitioner, by purchasing the assets of respondent Mabuhay
in the hotel premises, enabled Mabuhay to pay its
obligations to its employees. 
There being no employer-employee relationship between the petitioner and
the Mabuhay employees, the petition must fail.  Petitioner
can not be compelled to absorb the employees of Mabuhay
and to pay them backwages.

WHEREFORE, the petition is GRANTED and the questioned
orders of public respondent Secretary of Labor and Employment dated January
20, 1988 and March 8,
1988 are reversed
and set aside.  The restraining order
that this Court issued on March 20,
1988 is hereby made permanent. 
No pronouncement as to costs.

SO ORDERED.

Narvasa, (Chairman), Cruz, Griño-Aquino, and Medialdea, JJ., concur.

^[1]
Annex B to petition.

^[2]
Annex C to petition.

^[3]
Annex K to petition.

^[4]
Annex N to petition.

^[5]
Fernando vs. Angat
Labor Union, 5 SCRA 248, 251 (1962).

^[6]
Visayan Transportation Co., Inc. vs. Java, 93
Phil. 962, 967-968 (1953).

^[7]
MDII Supervisors & Confidential Employees Association vs.
Presidential Assistant on Legal Affairs, 79 SCRA 40 (1977).

^[8]
Majestic and Republic Theaters Employees’ Association vs. CIR, 4 SCRA
457, 460 (1962); Cruz vs. PAFLU, 42 SCRA 68, 77-78 (1971).

^[9]
Annex C to petition, page 27, Rollo.

^[10]
Annex K to petition; page 54, Rollo.