G.R. No. L-41615, L-41616, L-41617. June 29, 1985.
CENTRAL AZUCARERA DEL DANAO, petitioner, vs. HON. COURT OF APPEALS, NOQELON BANA-AY, JOSE COSCULLUELA, GORGONIO PALMA, and DANAO DEVELOPMENT CORPORATION, respondents.

FACTS

Private respondents were long-time regular employees of petitioner Central Azucarera del Danao (Central Danao). On July 7, 1961, Central Danao sold its sugar mill assets to respondent Danao Development Corporation (Dadeco). The Deed of Sale contained no stipulation regarding the employment status of Central Danao’s existing personnel. Dadeco subsequently hired the private respondents, but on its own terms and on different dates after the sale. They were later terminated by Dadeco between 1961 and 1967.
Private respondents filed separate complaints for termination pay under Republic Act No. 1052 , as amended, against both Dadeco and Central Danao. The core dispute centered on liability for termination pay corresponding to their years of service with the original employer, Central Danao, prior to the sale. Dadeco, via cross-claim, asserted that Central Danao remained liable for the pre-sale service period. Central Danao, also by cross-claim, argued that Dadeco assumed all employment liabilities upon purchase.

ISSUE

The primary issue is whether petitioner Central Azucarera del Danao is liable to pay termination pay to the private respondents for their years of service rendered prior to the sale of the business, notwithstanding their subsequent employment and termination by the purchasing corporation, Dadeco.

RULING

Yes, Central Danao is liable. The Supreme Court affirmed the Court of Appeals’ decision, holding that the obligation to pay termination pay is personal to the employer at the time the employee’s service is rendered. The sale of the business assets did not automatically transfer this statutory obligation to the buyer, Dadeco, in the absence of an express assumption agreement. Republic Act No. 1052 , as amended by Republic Act No. 1787 , creates an obligation imposed by law on the employer for the protection of labor. Since the private respondents’ employment with Central Danao was severed by the sale—a closure of business not attributable to the serious misconduct of the employees—Central Danao incurred the obligation to pay termination pay for the entire period of service up to July 7, 1961.
The Court rejected Central Danao’s defense of prescription, ruling that an action based on an obligation created by law, such as the payment of termination pay under this social legislation, prescribes in ten years under Article 1144(2) of the Civil Code. The right of action accrued upon the termination of their employment with Central Danao on July 7, 1961, and the complaints filed within the 1960s were timely. Consequently, liability for the pre-sale service period remained with Central Danao, while Dadeco was responsible only for termination pay covering the period of the employees’ service with it.