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In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities⁠.

 

Magtanggol Mendoza was employed by VSL Service Center, a single proprietorship owned by Valentin Lozada; in 2003, VSL was incorporated and changed its business name to LB&C Services Corporation, and the latter asked Magtanggol to sign a new employment contract, to which Magtanggol refused because it did not consider his humber of years of employment with VSL.  From then on, his work schedule was reduced, until in January, 2004, he was advised by the company Executive Officer, Angeline Aguilar, to not report for work and just wait for the call regarding his work schedule.  He waited patiently, but the company did not call him, thus he filed a complaint for constructive dismissal before the NLRC, which the company denied.  Even so, the Labor Arbiter ruled in favour of Magtanggol, and declared him illsgally dismissed.  The company appealed, but it was dismissed due to non-perfection of the appeal, and the decision became final and executory.  Magtanggol thus filed a motion for issuance of writ of execution, but the petitioner, Valentin, and the company, LB&C Services Corporation, filed a motion to quash the writ of execution, alleging that there was no employer-employee relationship between the petitioner and the respondent; and that LB&C Services Corporation “has been closed and no longer in operation due to irreversible financiallosses.”.  The Labor Arbiter denied the motion to quash, thus the sheriff was able to garnish P5,767.77 in Valentin’s deposit.  Because the judgment remained unsatisfied, the Labor Arbiter directed the sheriff to proceed with further execution of the properties of the petitioner for the satisfaction of the monetary award in favor of the respondent.  On December 19, 2007, the sheriff issued to the petitioner a notice of levy upon realty. The sheriff notified the Registry of Deeds of Las Piñas City on the levy made on the petitioner’s real property with an area of 31.30 square meters covered by Transfer Certificate of Title No. T-43336 of that office. LB&C moved for the lifting of the levy, alleging that the real property was constituted as a family home, and the decision of the LA did not adjudge the petitioner jointly and severally liable with the company.  On appeal by the petitioner to the NLRC, the latter reversed the LA ruling and removed the levy.  Magtanggol assailed the NLRC ruling to the CA, which granted the petition for certiorari. It held that with the closure of LB&C Services Corporation, the award to the respondent was rendered nugatory;  that LB&C Services Corporation, being an artificial being, must have an officer who could be presumed to be the employer, being the person acting in the interest of the corporate employer; and Valentin was such person.

The Issue:

Whether or not the petitioner is liable for the satisfaction of the judgment against a corporation of which he is an officer, despite the absence of a pronouncement of his being solidarity liable with LB&C Services Corporation.

The Ruling:

The appeal is meritorious.

A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the acts .of the directors and officers as the corporate agents are not their personal liability but the direct responsibility of the corporation they represent.⁠1 As a general rule, corporate officers are not held solidarily liable with the corporation for separation pay because the corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.⁠2 

To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith.⁠3

A perusal of the respondent’s position paper and other submissions indicates that he neither ascribed gross negligence or bad faith to the petitioner nor alleged that the petitioner had assented to patently unlawful acts of the corporation. The respondent only maintained that the petitioner had asked him to sign a new employment contract, but that he had refused to do the petitioner’s bidding. The respondent did not thereby clearly and convincingly prove that the petitioner had acted in bad faith. Indeed, there was no evidence whatsoever to corroborate the petitioner’s participation in the respondent’s illegal dismissal. Accordingly, the twin requisites of allegation and proof of bad faith necessary to hold the petitioner personally liable for the monetary awards in favor of the respondent were lacking.

The CA reinstated the Labor Arbiter’s decision by relying on the pronouncement in Restaurante Las Conchas v. Llego,⁠4 where the Court held that when the employer corporation was no longer existing and the judgment rendered in favor of the employees could not be satisfied, the officers of the corporation should be held liable for acting on behalf of the corporation.⁠5 

A close scrutiny of Restaurante Las Conchas shows that the pronouncement applied the exception instead of the general rule. The Court opined therein that, as a rule, the officers and members of the corporation were not personally liable for acts done in the performance of their duties;⁠6 but that the exception instead of the general rule should apply because of the peculiar circumstances of the case. The Court observed that if the general rule were to be applied, the employees would end up with an empty victory inasmuch as the restaurant had been closed for lack of venue, and there would be no one to pay its liability because the respondents thereat claimed that the restaurant had been owned by a different entity that had not been made a party in the case.⁠7 

It is notable that the Court has subsequently opted not to adhere to Restaurante Las Conchas in the cases of Mandaue Dinghow Dimsum House, Co., Inc. v. National Labor Relations Commission-Fourth Division⁠8 and Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission.⁠9 

In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to follow Restaurante Las Conchas because there was showing that the respondent therein, Henry Uytengsu, had acted in bad faith or in excess of his authority. It stressed that every corporation was invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it might be related; and that the doctrine of piercing the veil of corporate fiction must be resorted to with caution.⁠10  The Court noted that corporate directors and officers were solidarily liable with the corporation for the termination of employees done with malice or bad faith; and declared that bad faith did not connote bad judgment or negligence, but a dishonest purpose or some moral obliquity and conscious doing of wrong, or meant a breach of a known duty through some motive or interest or ill will, or partook of the nature of fraud.

In Pantranco Employees Association, the Court rejected the invocation of Restaurante Las Conchas and refused to pierce the veil of corporate fiction, explaining:

As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI, has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent cases.

This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the company’s cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI).

Moreover, in the recent cases Carag v. National Labor Relations Commission and McLeod v. National Labor Relations Commission, the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employer includes any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 31 of the Corporation Code.

More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities⁠11.  [Bold emphasis supplied]

The records of this case do not warrant the application of the exception. The rule, which requires malice or bad faith on the part of the directors or officers of the corporation, must still prevail. The petitioner might have acted in behalf of LB&C Services Corporation but the corporation’s failure to operate could not be hastily equated to bad faith on his part. Verily, the closure of a business can be caused by a host of reasons, including mismanagement, bankruptcy, lack of demand, negligence, or lack of business foresight. Unless the closure is clearly demonstrated to be deliberate, malicious and in bad faith, the general rule that a corporation has, by law, a personality separate and distinct from that of its owners should hold sway. In view of the dearth of evidence indicating that the petitioner had acted deliberately, maliciously or in bad faith in handling the affairs of LB&C Services Corporation, and such acts had eventually resulted in the closure of its business, he could not be validly held to be jointly and solidarily liable with LB&C Services Corporation.

The CA imputed bad faith to LB&C Services Corporation in respect of the cessation of its operations because it still filed an appeal tot he NLRC, which the CA construed as evincing its intent to evade liability. For that reason, the CA deemed it mandatory to pierce the corporate fiction and then identified the petitioner as the person responsible for the payment of the respondent’s money claims. However, the CA pointed out nothing else in the records that showed the petitioner as being responsible for the acts complained of. At the very least, we consider it to be highly improbable that LB&C Services Corporation deliberately ceased its operations if only to evade the payment of the monetary awards adjudged in favor of a single employee like the respondent.

In reinstating the decision of the Labor Arbiter, the CA, although conceding that the petitioner was not among those who should be liable for the monetary award, still went on to pierce the veil of corporate fiction and to declare as follows:

Undoubtedly, respondent Lozada cannot be absolved from his liability as corporate officer. Although, as a rule, the officers and members of a corporation are not personally liable for the acts done in the performance of their duties, this rule admits of exceptions one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee. The corporate officer in such case should be held for acting on behalf of the corporation. Here, the respondent company already ceased its business operation.

x x x x

x x x The petitioner’s claim that respondent Lozada was the real owner of the LB & C Corporation is thus correct and tenable. The conclusion is bolstered by the fact that the respondent company never revealed who were the officers of the LB & C Corporation if only to pinpoint responsibility in the closure of the company that resulted in the dismissal of the petitioner from employment. Respondent Lozada is, therefore, personally liable for the payment of the monetary benefits due to the petitioner, its former employee⁠12. 

The Labor Arbiter did not render any findings about the petitioner perpetrating the wrongful act against the respondent, or about the petitioner being personally liable along with LB&C Services Corporation for the monetary award. The lack of such findings was not assailed by the respondent. On its part, the NLRC did not discuss the matter at all in its decision of May 31, 2006, which ultimately attained finality. To hold the petitioner liable after the decision had become final and executory would surely alter the tenor of the decision in a manner that would exceed its terms.

Moreover, by declaring that the petitioner’s liability as solidary, the Labor Arbiter modified the already final and executory February 23, 2005 decision. The modification was impermissible because the decision had already become immutable, even if the modification was intended to correct erroneous conclusions of fact and law. The only recognized exceptions to the immutability of the decision are the corrections of clerical errors, the making of so-called nunc pro tunc entries that cause no prejudice to any party, and where the judgment is void⁠13.  None of such exceptions applied herein.

It is fully warranted, therefore, that we quash and lift the alias writ of execution as a patent nullity by virtue of its not conforming to, or of its being different from and going beyond or varying the tenor of the judgment that gave it life. To insist on its validity would be defying the constitutional guarantee against depriving any person of his property without due process of law.

In sum, there was no justification for holding the petitioner jointly and solidarily liable with LB&C Services Corporation to pay to the respondent the adjudged monetary award. To start with, the respondent had not alleged the petitioner’s act of bad faith, whether in his complaint or in his position paper, or anywhere else in his other submissions before the Labor Arbiter, that would have justified the piercing of the veil of corporate identity. Hence, we reverse the CA.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the decision promulgated by the Court of Appeals on September 28, 2010; ANNULS and SETS ASIDE the order issued on April 16, 2007 by Labor Arbiter Antonio R. Macam; QUASHES and LIFTS the alias writ of execution; and DIRECTS the National Labor Relations Commission Labor Arbiter to implement with utmost dispatch the final and executory decision rendered on May 31, 2006 against the assets of LB&C Service Corporation only.

No pronouncement on costs of suit.

SO ORDERED.

BERSAMIN, J.:

Sereno, C. J., on leave.

Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ., concur.

FIRST DIVISION, G.R. No. 196134, October 12, 2016, VALENTIN S. LOZADA, PETITIONER, VS. MAGTANGGOL MENDOZA, RESPONDENT.

 

1 Polymer Rubber Corporation v. Salamuding, G.R. No. 185160, July 24, 2013, 702 SCRA 153, 160.

2 Ever Electrical Manufacturing, Inc.(EEMI) v. Samahang Manggagawa ng Ever Electrical/NAMAWU Local, G.R. No. 194795, June 13, 2012, 672 SCRA 562, 569.

3 Polymer Rubber Corporation v. Salamuding, supra, at 161.

4 Id. at p. 32.

5 Id.

6 Ever Electrical Manufacturing, Inc. (EEMI) v. Samahang Manggagawa ng Ever Electrical/NAMA WU Local, supra, note 14, at 570.

7 G.R. No. 161134, March 3, 2008, 547 SCRA 402.

8 G.R. Nos. 170689 and 170705, March 17, 2009, 581 SCRA 598.

9 Supra, note 20, at 414.

10 Supra, note 2l, at 614-616.

11 Rollo, p. 156.

12 Id. at 158-159.

13 Alba v. Yupangco, G.R. No. 188233, June 29, 2010, 622 SCRA 503, 508.

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