Republic of the
Supreme Court
THIRD DIVISION
|
EVER ELECTRICAL MANUFACTURING, INC., (EEMI) and
VICENTE GO,
Petitioners, - versus - sAMAHANG MANGGAGAWA NG EVER
ELECTRICAL/ NAMAWU LOCAL 224 represented by
felimon panganiban,
Respondents. |
|
G.R.
No. 194795 Present: PERALTA, J., Acting
Chairperson,* ABAD, PERLAS-BERNABE, JJ. Promulgated: June 13, 2012 |
x -----------------------------------------------------------------------------------------------------x
D E C I S I O N
MENDOZA, J.:
This petition for review on certiorari[1]
under Rule 45 of the 1997 Rules of Civil Procedure assails the August 31, 2010
Decision[2]
and the December 16, 2010 Resolution[3] of
the Court of Appeals (CA) in CA-G.R. SP No. 108978.
Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation engaged in the
business of manufacturing electrical parts and supplies. On the other hand, the
respondents are members of Samahang
Manggagawa ng Ever Electrical/NAMAWU Local 224 (respondents) headed by
Felimon Panganiban.
The controversy
started when EEMI closed its business operations on
In its
defense, EEMI explained that it had closed the business due to various factors.
In 1995, it invested in Orient Commercial Banking Corporation (Orient Bank) the sum of P500,000,000.00 and during the
Asian Currency crises, various economies in the South East Asian Region were
hurt badly. EEMI was one of those who suffered huge losses. In November 1996, it obtained a loan in the
amount of P121,400,000.00 from United Coconut Planters Bank (UCPB). As security
for the loan, EEMIs land and its improvements, including the factory, were
mortgaged to UCPB.
EEMIs
business suffered further losses due to the continued entry of cheaper goods
from
In an
attempt to save the company, EEMI entered into a dacion en pago
arrangement with UCPB which, in effect, transferred ownership of the companys
property to UCPB as reflected in TCT No. 429159. Originally, EEMI wanted to lease the premises
to continue its business operation but under UCPBs policy, a previous debtor
who failed to settle its loan obligation was not eligible to lease its acquired
assets. Thus, UCPB agreed to lease it to an affiliate corporation, EGO
Electrical Supply Co, Inc. (EGO), for and
in behalf of EEMI. On P21,473,843.65.[5] On
On
CONFORMABLY
WITH THE FOREGOING, Judgment is hereby rendered ordering the respondent[s] in
solidum to pay the complainants their separation pay, 13th month pay
of the three (3) workers and the balance of their 13th month pay as
computed which computation is made a part of this disposition.
On
Respondents
moved for reconsideration of the NLRC decision, but the NLRC denied the motion in
its
Unperturbed,
respondents elevated the case before the CA via a petition
for certiorari under Rule 65.[10]
On
ACCORDINGLY,
the petition is GRANTED. The Decision
dated
The CA
held that respondents were entitled to separation pay and 13th month
pay because the closure of EEMIs business operation was effected by the
enforcement of a writ of execution and not by reason of business losses. The CA, citing Restaurante
Las Conchas v. Lydia Llego,[12] upheld
the solidary liability of EEMI and Go, declaring that when the employer
corporation is no longer existing and unable to satisfy the judgment in favor
of the employees, the officers should be held liable for acting on behalf of
the corporation.[13]
EEMI and
Go filed a motion for reconsideration but it was denied in the CA Resolution dated
Hence,
this petition.[15]
Issues:
1. Whether the CA erred in
finding that the closure of EEMIs operation was not due to business losses;
and
2. Whether the CA erred in
finding Vicente Go solidarily liable with EEMI.
The
petition is partly meritorious.
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. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or under taking not due to serious
business losses or financial reverses, the separation pay shall be equivalent
to one (1) month pay or 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.
Article 283 of the Labor Code
identifies closure or cessation of operation of the establishment as an
authorized cause for terminating an employee.
Similarly, the said provision mandates that employees who are laid off
from work due to closures that are not due to business insolvency should be
paid separation pay equivalent to one-month pay or to at least one-half month
pay for every year of service, whichever is higher. A fraction of at least six months shall be
considered one whole year.
Although business
reverses or losses are recognized by law as an authorized cause, it is still
essential that the alleged losses in the business operations be
proven convincingly; otherwise, this ground for termination of employment would
be susceptible to abuse by conniving employers, who might be merely feigning business losses or reverses in their business
ventures in order to ease out employees.[16]
In this
case, EEMI failed to establish that the main reason for its closure was
business reverses. As aptly observed by
the CA, the cessation of EEMIs business was not directly brought about by
serious business losses or financial reverses, but by reason of the enforcement
of a judgment against it. Thus, EEMI
should be required to pay separation pay to its affected employees.
As to whether or not Go should be
held solidarily liable with EEMI, the Court agrees with the petitioner.
As a general rule, corporate officers
should not be held solidarily liable with the corporation for separation pay
for it is settled that a 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.[17]
The LA was of the view that Go, as
President of the corporation, actively participated in the management of EEMIs
corporate obligations, and, accordingly, rendered judgment ordering EEMI and Go
in solidum to pay the complainants[18]
their due. He explained that [r]espondent Gos negligence in not paying the
lease rental of the plant in behalf of the lessee EGO Electrical Supply, Inc.,
where EEMI was operating and reimburse expenses of UCPB for real estate taxes
and the like, prompted the bank to file an unlawful detainer case against the
lessee, EGO Electrical Supply Co. This
evasion of an existing obligation, made respondent Go as liable as respondent
EEMI, for complainants money awards.[19] Added the LA, being the President and the
one actively representing respondent EEMI, in major contracts i.e. Real Estate
Mortgage, loans, dacion en pago, respondent Go has to be liable in the
case.[20] As
earlier stated, the CA affirmed the LA decision citing the case of Restaurante
Las Conchas v. Llego,[21] where it was held that when the
employer corporation is no longer existing and unable to satisfy the judgment
in favor of the employees, the officers should be held liable for acting on
behalf of the corporation.[22]
A study of Restaurante Las Conchas case, however, bares
that it was an application of the exception rather than the general rule. As stated in the said case, as a rule, the officers
and members of a corporation are not personally liable for acts done in the
performance of their duties.[23]
The Court therein explained
that it applied the exception because of the peculiar circumstances of the
case. If the rule would be applied, the employees
would end up in an empty victory because as the restaurant had been closed for
lack of venue, there would be no one to pay its liability as the respondents
therein claimed that the restaurant was owned by a different entity, not a
party in the case.[24]
In two
subsequent cases, the Courts ruling in Restaurante
Las Conchas was invoked but the Court refused to consider it reasoning out that
it was the exception rather than the rule. The two cases were Mandaue
Dinghow Dimsum House, Co., Inc. and/or Henry Uytengsu v. National Labor
Relations Commission[25] and Pantranco Employees Association (PEA-PTGWO) v. National
Labor Relations Commission.[26]
In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to apply the ruling in Restaurante Las
Conchas because there was no evidence that the
respondent therein, Henry Uytrengsu, acted in bad faith or in excess of his
authority. It stressed that a 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. For
said reason, the doctrine of piercing the veil of corporate fiction must be
exercised with caution.[27] Citing
Malayang Samahan ng mga Manggagawa sa M.
Greenfield v. Ramos,[28]
the Court explained that corporate directors and officers are solidarily liable
with the corporation for the termination of employees done with malice or bad
faith. It stressed that bad faith does not connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or interest or ill
will; it partakes of the nature of fraud.
In Pantranco
Employees Association, the Court also
rejected the invocation of Restaurante Las Conchas and refused to pierce the veil of
corporate fiction. It explained:
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 companys
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
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 liabilities.[29] [Emphasis supplied]
Similarly, in the case at bench, the records
do not warrant an application of the exception. The rule, which requires the presence
of malice or bad faith, must still prevail. In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung,[30]
the Court absolved the corporations president from liability in the absence of
bad faith or malice. In the said case, the
Court stated:
In
labor cases, corporate directors and officers may be held solidarily liable
with the corporation for the termination of employment only if done with malice
or in bad faith.[31]
Bad faith does not connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach
of a known duty through some motive or interest or ill will; it partakes of the
nature of fraud.[32]
In the present case, Go may have acted in behalf of EEMI but the
companys failure to operate cannot be equated to bad faith. Cessation of
business operation is brought about by various causes like mismanagement, lack
of demand, negligence, or lack of business foresight. Unless it can be shown
that the closure was deliberate, malicious and in bad faith, the Court must
apply the general rule that a corporation has, by law, a personality separate
and distinct from that of its owners. As
there is no evidence that Go, as EEMIs President, acted maliciously or in bad
faith in handling their business affairs and in eventually implementing the
closure of its business, he cannot be held jointly and solidarily liable with
EEMI.
WHEREFORE, the petition is PARTIALLY
GRANTED. The August 31, 2010
Decision of the Court of Appeals is AFFIRMED with MODIFICATION that
Vicente Go is not solidarily liable with Ever Electrical Manufacturing, Inc.
SO ORDERED.
JOSE CATRAL
Associate
Justice
WE CONCUR:
DIOSDADO M. PERALTA
Associate Justice
Acting Chairperson
ROBERTO A. ABAD MARTIN
S. VILLARAMA, JR.
Associate Justice Associate Justice
ESTELA M.
PERLAS-BERNABE
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
DIOSDADO M. PERALTA
Associate Justice
Acting
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution and the Division Chairpersons Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
ANTONIO
T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. No. 296,
The Judiciary Act of 1948, as amended)
*
Per Special Order No. 1228 dated
** Designated Acting Member in lieu of Associate
Justice Presbitero J. Velasco, Jr., per Special Order No. 1229 dated
[1] Rollo, pp.
9-40.
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12] 372 Phil. 697, 707 (1999).
[13] Rollo, p. 365. Citing Restaurante Las Conchas v.
[14] Rollo, p. 368.
[15]
[16] J.A.T. General Services v. National Labor Relations Commission, 465 Phil. 785, 795 (2004).
[17] Sunio v. National Labor Relations Commission,
212 Phil. 355, 362-363 (1984).
[18] Rollo, pp. 242-261.
[19]
[20]
[21] Supra note 12.
[22] Supra note 13.
[23] Supra note 12.
[24] Records reveal that the Restaurant Services Corporation was not a party
respondent in the complaint filed before the Labor Arbiter. The complaint was
filed only against the Restaurante Las Conchas and the spouses David Gonzales
and Elizabeth Anne Gonzales as owner, manager and president. The Restaurant
Services Corporation was mentioned for the first time in the Motion to Dismiss
filed by petitioners David Gonzales and Elizabeth Anne Gonzales who did not
even bother to adduce any evidence to show that the Restaurant Services
Corporation was really the owner of the Restaurante Las Conchas. On the other hand,
if indeed, the Restaurant Services Corporation was the owner of the Restaurante
Las Conchas and the employer of private respondents, it should have filed a
motion to intervene 15 in the case. The records, however,
show that no such motion to intervene was ever filed by the said corporation.
The only conclusion that can be derived is that the Restaurant Services
Corporation, if it still exists, has no legal interest in the controversy.
Notably, the corporation was only included in the decision of the Labor Arbiter
and the NLRC as respondent because of the mere allegation of petitioners David
Gonzales and Elizabeth Gonzales, albeit without proof, that it is the owner of
the Restaurante Las Conchas. Thus, petitioners David Gonzales and Elizabeth
Anne Gonzales cannot rightfully claim that it is the corporation which should
be made liable for the claims of private respondents.
Assuming
that indeed, the Restaurant Services Corporation was the owner of the
Restaurante Las Conchas and the employer of private respondents, this will not
absolve petitioners David Gonzales and Elizabeth Anne Gonzales from their
liability as corporate officers. Although as a rule, the officers and members
of a corporation are not personally liable for 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 officers should be held liable for acting on behalf
of the corporation. Here, the corporation does not appear to exist anymore.
[25] G.R. No. 161134,
[26] G.R. Nos. 170689 and
170705,
[27] Mandaue Dinghow Dimsum House, Inc. v. NLRC, 4th Division, G.R. No. 161134, March 3, 2008, 547 SCRA 402, 414.
[28] 409 Phil. 75, 83 (2001).
[29] Pantranco Employees Association (PEA-PTGWO) v. NLRC, G.R. Nos. 170689 & 170705, March 17, 2009, 581 SCRA 598, 614, 616.
[30] G.R.
No. 185122,
[31] Petron
Corporation v. NLRC, G. R. No. 154532, October 27, 2006, 505 SCRA 596, 614.
[32] Elcee
Farms v. NLRC, G.R. No. 126428,