Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 164518 January 25, 2006

INDUSTRIAL TIMBER CORPORATION, INDUSTRIAL PLYWOOD GROUP

CORPORATION, TOMAS TANGSOC, JR., LORENZO TANGSOC and TOMAS TAN,
Petitioners
vs.
VIRGILIO ABABON, IGNACIO ABACAJEN, ANGELINA ABAY-ABAY, EDITH
ABREA, SAMUEL ABREA, BIENVENIDO ACILO, RODRIGO ACILO, VICTOR
ACILO, ARTURO ADVINCULA, GERTRUDES AMPARO, VIRGILIO ANTONIO,
MILA ARQUITA, PRUDENCIO ARQUITA, ALBERT ATON, WARLITA AUTIDA,
ALICIA AWITAN, LEOPOLDO AYATON, ARTURO BALBOTEN, DANILO BANATE,
LOLITA BATAN, RAMIL BUTALON, CARMILITA CAINGLES, VICENTE
CAHARIAN, BENEDICTA CAJIPE, FELIPE CALLANO, ALFREDO CARILLO, NILA
CARILLO, ALGER CORBETA, GREGORIO DABALOS, TERESITA DABALOS,
VENERANDO DALAUTA, RICARDO DANGCULOS, MONTANO DAPROSA, LUISITO
DIAZ, FELIZARDO DUMULAO, EDITHA DUMANON, ALFREDO FAELNAR, RAUL
FORTUN, MAXIMO GALLA, ANGELES GALUPO, PERFECTO GAMBE, VERGINITA
GANGCA, RUPERTO GORGONIO, ROMEO HERRERO, SERGIO HORO-HORO,
FRANCISCO IBARRA, ABRAHAM JALE, DANDY LABITAD, ANTONINA
LAMBANG, ERNESTO LAUSA, VICTORIA LOOD, NEMESIO LOPE, JR.,
ESCARLITO MADLOS, MARCOS MAKINANO, REMEGIO MAKINANO, VICENTE
MAKINANO, REYNALDO MASUHAY, HELEN MARATAS, ELIZABETH MENDOZA,
GUILBERTA MONTEROSO, GILDA NAVALTA, PILAR NAVARRO, SIMPORIANO
NUEZ, JR., ELISEO ORONGAN, ARMANDO OROPA, ASUNCION OROPA, JOSE
EDWIN OROPA, BALDEMAR PAGALAN, BARTOLOME PAGALAN, DAMASO
PALOMA, MANALO PLAZA, JEREMIAS PELAEZ, FRANCISCO PICARDAL,
HERMINIA PUBLICO, ROMULO QUINTOS, FIDEL QUITA, FELICIANO RANADA,
RODOLFO RARU, LEAN CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL TAGUPA, VICTOR TAGUPA,
BRIGIDA TABANAO, PEDRO TABANAO, ROBERTO TABANAO, MARIA TAN,
RONNIE TAN, TOLENTINO TEE, ROGELIO TAMADA, MINDA TUMAOB and
ROBERTO TUTOR, Respondents.

x--------------------------------------x
G.R. No. 164965 January 25, 2006

VIRGILIO ABABON, IGNACIO ABACAJEN, ANGELINA ABAY-ABAY, EDITH

ABREA, SAMUEL ABREA, BIENVENIDO ACILO, RODRIGO ACILO, VICTOR
ACILO, ARTURO ADVINCULA, GERTRUDES AMPARO, MILA ARQUITA, VIRGILIO
ANTONIO, PRUDENCIO ARQUITA, ALBERT ATON, WARLITA AUDITA, ALICIA
AWITAN, LEOPOLDO AYATON, ARTURO BALBOTEN, DANILO BANATE, LOLITA
BATAN, RAMIL BUTALON, CARMELITA CAINGLES, VICENTE CAHARIAN,
BENEDICTA CAJIPE, FELIPE CALLANO, ALFREDO CARILLO, NILA CARILLO,
ALGIER CORBETA, GREGORIO DABALOS, TERESITA DABALOS, VENERANDO
DALAUTA, RICARDO DANGCULOS, MONTANO DAPROSA, LUISITO DIAZ,
FELIZARDO DUMULAO, EDITHA DUMANON, ALFREDO FAELNAR, RAUL
FORTUN, MAXIMO GALLA, ANGELES GALUPO, PERFECTO GAMBE, VIRGINITA
GANGCA, RUPERTO GORGONIO, ROMEO HERRERO, SERGIO HOR-HORO,
FRANCISCO IBARRA, ABRAHAM JALE, DANDY LABITAD, ANTONINA
LAMBANG, ERNESTO LAUSA, VICTORIA LOOD, NEMESIO LOPE, JR.,
ESCARLITO MADLOS, MARCOS MAKINANO, REMEGIO MAKINANO, VICENTE
MAKINANO, REYNALDO MAHUSAY, HELEN MARATAS, ELIZABETH MENDOZA,
GUILBERTA MONTEROSO, GILDA NAVALTA, PILAR NAVARRO, SIMPORIANO
NUEZ, JR., ELISEO ORONGAN, ARMANDO OROPA, ASUNCION OROPA, JOSE
EDWIN OROPA, BALDEMAR PAGALAN, BARTOLOME PAGALAN, DAMASO
PALOMA, MANALO PLAZA, JEREMIAS PELAEZ, FRANCISCO PICARDAL,
HERMINIA PUBLICO, ROMULO QUINTOS, FIDEL QUITA, FELICIANO RANADA,
RODOLFO RARU, LEAN CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL TAGUPA, VICTOR TAGUPA,
BRIGIDA TABANAO, PEDRO TABANAO, ROBERTO TABANAO, MARIA TAN,
RONNIE TAN, TOLENTINO TEE, ROGELIO TAMADA, MINDA TUMAOB, and
ROBERTO TUTOR, Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, INDUSTRIAL TIMBER CORPORATION,
INDUSTRIAL PLYWOOD GROUP CORPORATION, TOMAS TANGSOC, JR.,
LORENZO TANGSOC and TOMAS TAN, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Before us are two petitions for review under Rule 45 of the Rules of Court. G.R. No. 164518
assails the October 21, 2002 Decision1 of the Court of Appeals, in CA-GR. SP No. 51966, which
set aside the May 24, 1995 Decision2 of the National Labor Relations Commission (NLRC), as
well as the July 16, 2004 Resolution3 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. appealed to 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.1awphi1.net 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 anytime30 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 Commission35 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.1awphi1.net

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 employers 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.

CONSUELO YNARES-SANTIAGO
Associate Justice