Claparols vs. Court of Industrial Relations

A bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation. Where an employer regularly or periodically gives bonuses to employees as a matter of tradition, such bonuses form part of the employees' recoverable wages and may be included in an award of back wages. Additionally, the corporate fiction may be disregarded where the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, and two corporations may be merged into one where a successor corporation is created to evade financial obligations to employees.

Petitioners Eduardo Claparols, Romulo Agsam, and/or Claparols Steel and Nail Plant were the employers of private respondents, who were members of the Allied Workers' Association. The case arose from the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant on account of their union activities. The Claparols Steel and Nail Plant ceased operations on June 30, 1957, and was succeeded by the Claparols Steel Corporation effective July 1, 1957, which in turn stopped operations on December 7, 1962. Both entities were owned and controlled by petitioner Eduardo Claparols.

Petitioners Eduardo Claparols, Romulo Agsam, and/or Claparols Steel and Nail Plant were the employers of private respondents, who were members of the Allied Workers' Association. On August 6, 1957, a complaint for unfair labor practice was filed by the Allied Workers' Association, Demetrio Garlitos, and ten respondent workers against petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant.

On September 16, 1963, respondent Court rendered its decision finding Mr. Claparols guilty of union busting and of having dismissed the complainants because of their union activities, ordering petitioners to cease and desist from committing unfair labor practices, and to reinstate the complainants to their former or equivalent jobs with back wages from the date of their dismissal up to their actual reinstatement. A motion to reconsider was denied by respondent Court en banc on January 27, 1964.

On March 30, 1964, counsel for respondent workers filed a motion for execution of the September 16, 1963 decision. On May 14, 1964, respondent Court granted execution and directed petitioners to reinstate the complainants within five days, and directed the Chief of the Examining Division to examine payrolls and compute back wages. This was reiterated in a subsequent order dated November 10, 1964.

On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay, Negros Occidental to the company compound to report for reinstatement per order of the court, but were refused reinstatement by company accountant Francisco Cusi, who had no order from plant owner Eduardo Claparols nor from his lawyer Atty. Plaridel Katalbas. The same refusal occurred on December 15, 1964.

On January 15, 1965, the CIR Chief Examiner submitted his report containing three computations: the first covering February 1, 1957 to October 31, 1964; the second up to and including December 7, 1962, when the corporation stopped operations; and the third only up to June 30, 1957, when the Claparols Steel and Nail Plant ceased to operate. The examiner explained that the Claparols Steel Corporation was established on July 1, 1957, succeeding the Claparols Steel and Nail Plant which ceased operations on June 30, 1957, and that the Claparols Steel Corporation stopped operations on December 7, 1962.

On January 23, 1965, petitioners filed an opposition alleging that petitioner Claparols could not personally reinstate respondent workers, that back wages should be limited to three months pursuant to Sta. Cecilia Sawmills vs. CIR, and that re-employment cannot go beyond December 7, 1962. Respondent workers filed a reply alleging that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.

On November 28, 1966, after conducting a series of hearings, respondent Court issued an order approving the Examiner's Report and directing the Corporation Auditing Examiner to recompute back wages and compute bonuses for each complainant except Honorato Quioyo. Petitioners filed a motion for reconsideration on December 7, 1966, assailing the ruling that Sta. Cecilia Sawmills does not apply and that bonus should be included in recoverable wages. On February 8, 1967, respondent Court dismissed the motion for being pro forma.

Petitioners filed a petition for certiorari with the Supreme Court in G.R. No. L-27272, which was denied on April 27, 1967 and reiterated on May 19, 1967. On July 13, 1967, respondent Court directed recomputation of back wages. On March 21, 1968, the Chief Examiner submitted his report computing bonuses totaling P9,107.79 for the ten complainants. Petitioners filed their opposition on April 16, 1968 on grounds already rejected by respondent Court and the Supreme Court.

On May 30, 1969, respondent Court issued the order subject of the present appeal, approving the Examiner's Report and directing petitioners to pay the respective back wages and bonuses of the complainants. Petitioners filed a motion for reconsideration on June 7, 1969 on practically the same grounds previously raised, which was opposed by respondents on June 30, 1969.

• Bonus Not Adjudicated in Original Decision: Petitioners argued that respondent Court erred and/or acted with grave abuse of discretion, amounting to lack of jurisdiction, in holding that bonuses should be paid to respondent workers despite the fact that the same was not adjudicated in its original decision of September 16, 1963.

• Applicability of Sta. Cecilia Sawmills Doctrine: Petitioners argued that respondent Court erred and/or acted with grave abuse of discretion in not applying the doctrine laid down in Sta. Cecilia Sawmills, Inc. vs. CIR, which limited recoverable back wages to only three months, because the Claparols Steel and Nail Plant ceased operations due to enormous business reverses.

• Limitation of Back Wages to December 7, 1962: Petitioners argued that since the Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond that date.

• Law of the Case: Private respondents argued that the issues raised, namely whether bonuses should be included in the award for back wages, had already been resolved by respondent Court in its orders dated November 28, 1966 and December 7, 1966, and in the resolutions of the Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, and the same is already a settled and final issue.

• Pro Forma Motion for Reconsideration: Private respondents argued that petitioners' motion for reconsideration was merely a rehash of previous arguments, effete and unrejuvenated, pro forma, and intended merely to delay the proceedings.

• Identity of Corporations: Private respondents alleged that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.

• Bar by Prior Resolution: Whether the present petition is barred by the resolutions of the Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, which constitute the law of the case.

• Inclusion of Bonuses in Back Wages: Whether bonuses should be included in the award of back wages to respondent workers despite not being expressly adjudicated in the original decision of September 16, 1963.

• Applicability of Sta. Cecilia Sawmills Doctrine: Whether the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, limiting recoverable back wages to three months, should apply to the present case.

• Piercing the Corporate Veil: Whether the Claparols Steel Corporation, as successor to the Claparols Steel and Nail Plant, may be treated as one with its predecessor for purposes of liability to respondent workers.

• Bar by Prior Resolution: Yes. The present petition is barred by the resolutions in G.R. No. L-27272, which constitute the law of the instant case, wherein petitioners raised again practically the same issues invoked in the abovementioned case.

• Inclusion of Bonuses in Back Wages: Yes. A bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation. Where the employer regularly or periodically gives bonuses to employees, such bonuses form part of recoverable wages.

• Applicability of Sta. Cecilia Sawmills Doctrine: No. The Sta. Cecilia Sawmills doctrine does not apply because the Claparols Steel Corporation was a continuation and successor of the Claparols Steel and Nail Plant, and the back wages recoverable should accrue up to December 7, 1962 when the Claparols Steel Corporation ceased operations.

• Piercing the Corporate Veil: Yes. The corporate fiction may be pierced where the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, and two corporations may be merged into one where a successor corporation was deliberately created to evade financial liability to employees.

• Bar by Prior Resolution: The Court held that the present petition is barred by its resolutions of April 26, 1967 and May 19, 1967 in G.R. No. L-27272, wherein petitioners invoked the applicability of the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR and impugned the illegality of the order of respondent Court dated November 28, 1966 directing the computation and payment of bonuses aside from back wages. The denial of the petition in G.R. No. L-27272 suffices to warrant the denial of the present petition.

• Inclusion of Bonuses in Back Wages: The Court reiterated the governing principles, holding that "a bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation." Citing Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association, the Court noted that whether bonus forms part of wages depends upon the condition or circumstance for its payment — if it is additional compensation which the employer promised and agreed to give without any condition imposed for its payment, then it is part of the wage. Citing Altomonte vs. Philippine American Drug Co., the Court held that an employee is not entitled to bonus where there is no showing that it had been granted by the employer periodically or regularly as to become part of their wages or salaries, with the clear implication that bonus is recoverable as part of the wage or salary where the employer regularly or periodically gives it to employees. The Court noted that petitioners do not dispute that as a matter of tradition, the company has been doling out bonuses to employees, as evidenced by company balance sheets for the years 1956 to 1962 containing bonus and pension computations which were never repudiated or questioned. Moreover, company accountant Francisco Cusi admitted that the company distributes bonuses to its employees even if the company has suffered losses, specifically in 1962. Since bonuses are part of back wages of private respondents, the order of May 30, 1969 directing payment of their bonuses did not amend the decision of September 16, 1963, which had long become final and executory, but merely implemented it.

• Applicability of Sta. Cecilia Sawmills Doctrine: The Court found that respondent Court's findings that the Claparols Steel and Nail Plant, which ceased operation on June 30, 1957, was succeeded by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, were not disputed by petitioners. The latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor. Both predecessor and successor were owned and controlled by petitioner Eduardo Claparols, and there was no break in the succession and continuity of the same business. The Court agreed with respondent Court that the amount of back wages recoverable by respondent workers should be the amount accruing up to December 7, 1962 when the Claparols Steel Corporation ceased operations.

• Piercing the Corporate Veil: The Court found the "avoiding-the-liability" scheme very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation was owned by petitioner Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. The Court held that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. Citing Yutivo & Sons Hardware Company vs. Court of Tax Appeals, the Court held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, will merge them into one.

• Bonus as Part of Wages — A bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation. Whether bonus forms part of wages depends upon the condition or circumstance for its payment. If it is additional compensation which the employer promised and agreed to give without any condition imposed for its payment, then it is part of the wage. Where the employer regularly or periodically gives bonuses to employees as a matter of tradition, such bonuses form part of the employees' recoverable wages. The Court applied this doctrine to hold that since the company had a tradition of doling out bonuses to employees, as evidenced by company balance sheets from 1956 to 1962 and the admission of company accountant Francisco Cusi that bonuses were distributed even when the company suffered losses, the bonuses formed part of the workers' recoverable wages.

• Piercing the Corporate Veil — When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, will merge them into one. Where a corporation is a dummy and serves no business purpose and is intended only as a blind, or where a corporation is merely an adjunct, business conduit, or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded. The Court applied this doctrine to merge the Claparols Steel Corporation with the Claparols Steel and Nail Plant, finding that the successor corporation was deliberately and maliciously designed to evade financial obligations to employees, with 90% of its subscribed shares owned by petitioner Claparols and all assets of the dissolved plant turned over to the emerging corporation.

• Law of the Case — The denial of a petition for certiorari raising certain issues constitutes the law of the case with respect to those issues, and a subsequent petition raising practically the same issues is barred. The Court applied this doctrine to bar the present petition, noting that petitioners raised again practically the same issues invoked in G.R. No. L-27272, which had been denied by the Supreme Court.

• "a bonus is not a demandable and enforceable obligation, except when it is a part of the wage or salary compensation" — This passage states the controlling doctrine on when bonuses are recoverable as part of wages, and is the canonical formulation of the rule applied in this case.

• "Whether or not bonus forms part of wages depends upon the condition or circumstance for its payment. If it is an additional compensation WHICH THE EMPLOYER PROMISED AND AGREED to give without any condition imposed for its payment ... then it is part of the wage." — This passage, quoted from Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association, defines the test for determining when a bonus forms part of wages.

• "when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one." — This passage, quoted from Yutivo & Sons Hardware Company vs. Court of Tax Appeals, states the doctrine on piercing the corporate veil as applied to the successor corporation in this case.

• Sta. Cecilia Sawmills, Inc. vs. CIR, L-19273-74, February 29, 1964, 10 SCRA 433 — Cited by petitioners as controlling authority for limiting recoverable back wages to three months where the company ceased operations due to business reverses. Distinguished by the Court because the Claparols Steel Corporation was a continuation and successor of the Claparols Steel and Nail Plant, with no break in succession and continuity of the same business.

• Philippine Education Co. vs. CIR and the Union of Philippine Co. Employees (NLU), 92 Phil. 381 — Cited as authority for the doctrine that a bonus is not a demandable and enforceable obligation except when it is a part of the wage or salary compensation.

• Ansay, et al. vs. National Development Co., et al., 107 Phil. 998 — Cited as authority for the same doctrine on bonuses as part of wages.

• Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association, 92 Phil. 754 — Cited for the principle that whether bonus forms part of wages depends upon the condition or circumstance for its payment, and that if it is additional compensation which the employer promised and agreed to give without any condition imposed, then it is part of the wage.

• Altomonte vs. Philippine American Drug Co., 106 Phil. 137 — Cited for the principle that an employee is not entitled to bonus where there is no showing that it had been granted by the employer periodically or regularly as to become part of their wages or salaries, with the clear implication that bonus is recoverable where the employer regularly or periodically gives it to employees.

• Yutivo & Sons Hardware Company vs. Court of Tax Appeals, L-13203, January 28, 1961, 1 SCRA 160 — Cited as controlling authority for the doctrine that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, will merge them into one.

• Liddel & Company, Inc. vs. Collector of Internal Revenue, L-9687, June 30, 1961, 2 SCRA 632 — Cited for the principle that where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored.

• Commissioner of Internal Revenue vs. Norton and Harrison Company, L-17618, August 31, 1964, 11 SCRA 714 — Cited for the principle that where a corporation is merely an adjunct, business conduit, or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded.

• Republic vs. Razon, L-17462, May 29, 1967, 20 SCRA 234 — Cited as a decision to the same uniform effect on disregarding the corporate fiction.

• A.D. Santos, Inc. vs. Vasquez, L-23586, March 20, 1968, 22 SCRA 1156 — Cited as a decision to the same uniform effect on disregarding the corporate fiction.

• Article 1700, Civil Code (implied) — The Court's discussion of wages and back wages as obligations of the employer to employees is grounded in the general labor law principle that wages are part of the compensation due to employees, though no specific codal provision is expressly cited in the decision.

• Justice Castro (Chairman)
• Justice Esguerra
• Justice Muñoz Palma
• Justice Martin

N/A — No dissenting opinions are noted in the text. Justice Teehankee was on leave.