Arimao, Sittie Norleah U.

Topic: Right of Succession

099256

SME Bank, Inc. v. De Guzman

Nos. 184517 & 186641, October 8, 2013

FACTS:
• Respondents, Elicerio, Ricardo, Eufemia, Fidel, Simeon, and Liberato were employees of Small
and Medium Enterprise Bank, Inc. (SME Bank).
• The principal shareholders and corporate directors of the bank were Eduardo Agustin and
Peregin de Guzman.
• When SME experienced financial difficulties, Agustin and de Guzman offered to sell the bank’s
shares of stock to Abelardo Samson.
• Samson, through letter of agreements demanded as preconditions for sale of SME bank that the
peaceful turnover of management shall include the termination and/or retirement of employees
they will mutually agree upon, and that said employees’ retirement benefits will be waived upon
consummation of the sale.
• Agustin and De Guzman accepted the terms of sale and persuaded the respondents to tender
their resignations, with the promise to rehire them upon reapplication.
• Respondents tendered their resignation but only Simeon was rehired thereafter. Furthermore,
respondents demanded payment of their respective separation pays but such was denied.

ISSUES:

1) Whether or not employees of a corporation may be terminated by reason of change of

management through stock sales.
2) Whether or not Agustin, de Guzman, and spouses Samson are liable for the claims of the illegally
dismissed employees as corporate directors or officers.

HELD:

1) No, employees of a corporation may not be terminated by reason of change of

management or stock sales. There are two types of corporate acquisitions: asset sales and stock
sales. In asset sales, the corporate entity sells all or substantially all of its assets to another entity. The
effect would be the seller in good faith has the authority to dismiss the affected employees and will
be liable to pay the dismissed employee’s separation pay. As for the buyer in good faith, he shall not
be obliged to absorb employees affected by the sale and will not be liable to pay their claims.
However, in stock sales the individual or corporate shareholders sell a controlling block of
stock to new or exiting shareholders. This takes place at the shareholder level and so despite the new
majority shareholders, the corporation is still the employer of its people and the employees cannot be
terminated without authorized cause.
This case involves a stock sale as the Letter Agreements showed that the main object of the
sale is acquisition by Samson Group of 86.365% of SME bank’s shares of stock. Thus, the employees
are not transferred to a new employer but remain with the original corporate employer. A
change in the equity composition of the corporate shareholders should not result in the automatic
termination of the employment of the corporation’s employees. Neither should it give the new
majority shareholders the right to legally dismiss the corporation’s employees, absent a just or
authorized cause.
Arimao, Sittie Norleah U. Topic: Right of Succession
099256

2) Agustin and de Guzman are liable but not spouses Samson. Generally, a corporation has
a personality separate and distinct from that of its individual shareholders or members, such that a
change in the composition of its shareholders or members would not affect its corporate liabilities.
Thus, in the case it is SME bank that is the employer of the illegally dismissed employees and is
therefore liable for the satisfaction of their claims.
But, Agustin and de Guzman are also for illegal dismissal because they are corporate directors
or officers of SME bank at the time of the employee’s dismissal. In Bago-Medellin Suagrcane
Planters Association, Inc. v. NLRC, it was held that in cases of illegal dismissal, corporate directors
and officers are solidarily liable with the corporation, where terminations of employment are
done with malice or in bad faith. In the case, Agustin and de Guzman, motivated by their desire to
dispose of their shares of stock to Samson, induced their employees to resign with the promise of
rehiring them after the sale of stocks.
Spouses Samson are not liable because they were not corporate directors or officers at the
time of the illegal dismissal of employees.