July 24, 2019

G.R. No. 237246

HAYDEN KHO, SR., Petitioner

ONGOTAN, FRANCISCO J. DUQUE, MERLE  G. RIVERA; DOLORES A. PULIDO, PAULINO R.

BALANGATAN, JR., ANAFEL L. ESCROPOLO, PERCIVAL A. DEINLA,   JERRY C. ZABALA, ****

ROGELIO C. ONGONION, JR., HELEN B. DELA CRUZ, CENON JARDIN, and ROVILLA L.
CATALAN,  , Respondents
*****

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  are the Decision  dated July 19, 2017 and the
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Resolution  dated January 4, 2018 of the Court of Appeals (CA) in CA-G.R. SP No. 141821, which
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reversed and set aside the Decision  dated May 7, 2015 and the Resolution  dated June 16, 2015 of
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the National Labor Relations Commission (NLRC) in NLRC LAC No. 04- 001356-12(4), and
accordingly, reinstated the Decision  dated November 9, 2011 of the Labor Arbiter (LA) holding
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respondent Hayden Kho, Sr. (Kho) solidarily liable to pay respondents Dolores G. Magbanua,
Marilyn S. Mercado, Archimedes B. Calub, MariaE. Ongotan, Francisco J. Duque, Merle G. Rivera,
Dolores A. Pulido, Paulino R. Balangatan, Jr., Anafel L. Escropolo, Percival A. Deinla, Jerry C.
Zabala, Rogelio C. Ongonion, Jr., Helen B. Dela Cruz, Cenon Jardin, and Rovilla L. Catalan
(respondents) separation pay, nominal damages, and attorney's fees, among others.

The Facts

A complaint  for illegal dismissal was filed by respondents before the LA against Holy Face Cell
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Corporation (Corporation), Tres Pares Fast Food (Tres Pares), and the Corporation's stockholders,
including its alleged President/Manager, Kho, and the latter's wife, Irene S. Kho (Irene; collectively
Spouses Kho ).  Respondents claimed that they were employed by the Corporation in the Tres Pares
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as cooks, cashiers, or dishwashers.  They posited that on January 14, 2011, Spouses Kho's
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daughter, Sheryl Kho, posted a notice in the company premises that the restaurant would close
down on January 19, 2011.   Fearing the loss of their jobs, they tried to seek an audience with Kho
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about the closure, but to no avail.   The restaurant closed as scheduled; thus respondents filed the
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complaint for illegal dismissal with payment of separation pay, salary differentials, nominal damages,
differentials on overtime pay, service incentive leave pay, and holiday pay, including damages, as
well as attorney's fees.  12

For their part, Spouses Kho argued that they had no employer-employee relationship with
respondents, as the latter's employer was the Corporation, and that they cannot be held liable for the
acts of the Corporation, the same having been imbued with a personality separate and distinct from
its stockholders, directors, and officers.  13

The LA Ruling

In a Decision   dated November 9, 2011, the LA ruled in favor of respondents, and accordingly,
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ordered the Corporation and Kho to solidarily pay respondents separation pay, salary and 13th
month pay differentials, nominal damages, and attorney's fees in the aggregate amount of
₱3,254,466.60.  15

The LA found that not only did the Corporation fail to prove that it closed down its business due to
financial distress as it did not offer financial documents to corroborate its claim, it also failed to
comply with the notice requirement prior to such closure as laid down under Article 298 (formerly
Article 283)  of the Labor Code. As such, respondents are entitled to the aforementioned awards.
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On this note and citing various jurisprudence,   the LA ruled that Kho - whom respondents alleged to
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be the President of the Corporation at the time of the closure and which allegation was not denied by
Kho  - should be held solidarily liable for respondents' claims. 
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Aggrieved, Kho appealed before the NLRC, particularly contesting the finding that he should be held
solidarily liable with the Corporation. 20

The NLRC Ruling

In a Decision  dated May 7, 2015, the NLRC reversed and set aside the LA Decision and dismissed
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the complaint as against Kho.  It ruled that Kho cannot be held solidarily liable with the Corporation,
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absent any allegation and proof from respondents that he committed any act that would justify
piercing the veil of corporate fiction.   It stressed that mere failure to comply with the procedural due
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process does not constitute an unlawful act that would render Kho personally liable. Lastly, and
contrary to the finding of the LA, it pointed out that per the Corporation's latest General Information
Sheet (GIS), Kho was not the Corporation's President at the time of the closure, but a certain
"Domingo M. Ifurung." 24

Aggrieved, respondents moved for reconsideration,  which was denied in a Resolution   dated June
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16, 2015; hence, they filed a petition for certiorari  before the CA. 27

The CA Ruling

In a Decision  dated July 19, 2017, the CA reversed and set aside the NLRC ruling, and accordingly,
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held the Corporation and Kho solidarily liable for the payment of respondents' separation pay
equivalent to one (1) month pay for every year of service, as well as nominal damages of
₱50,000.00 each and attorney's fees.  29

On the merits, the CA agreed with the LA in awarding separation pay and nominal damages to
respondents following Article 298 (formerly Article 283) of the Labor Code, as amended, and
jurisprudence.  As regards Kho's liability, the CA noted that Kho effectively admitted that: (i) he
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managed the Corporation; (ii) his daughter posted the notice of closure; and (iii) respondents sought
an audience with him to discuss the closure.   Based on these observations, the CA, citing Marc II
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Marketing, Inc. v. Jason,   concluded that Kho acted in bad faith when he assented to the sudden
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and abrupt closure of the restaurant despite the absence of a board resolution authorizing the
closure. As such, he should be held solidarily liable with the Corporation.  33

Dissatisfied, Kho moved for reconsideration   but was denied in a Resolution  dated January 4,
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2018; hence, this petition.

The Issue Before the Court

The Court's Ruling

The petition is meritorious.

Preliminarily, the Court stresses the distinct approach in reviewing a CA's ruling in a labor case. In a
Rule 45 review, the Court examines the correctness of the CA Decision in contrast with the review of
jurisdictional errors under Rule 65. Furthermore, Rule 45 limits the review to questions of law. In
ruling for legal correctness, the Court views the CA Decision in the same context that the petition
for certiorari was presented to the CA. Hence, the Court has to examine the CA Decision from the
prism of whether the CA correctly determined the presence or absence of grave abuse of discretion
in the NLRC Decision. 36

Case law states that grave abuse of discretion connotes a capricious and whimsical exercise of
judgment, done in a despotic manner by reason of passion or personal hostility, the character of
which being so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined by or to act at all in contemplation of law. 37

In labor cases, grave abuse of discretion may be ascribed to the NLRC when its findings and
conclusions are not supported by substantial evidence, which refers to that amount of relevant
evidence that a reasonable mind might accept as adequate to justify a conclusion. Thus, if the
NLRC's ruling has basis in the evidence and the applicable law and jurisprudence, then no grave
abuse of discretion exists and the CA should so declare, and accordingly, dismiss the petition.  38

Guided by the foregoing considerations, the Court finds that the CA erred in ascribing grave abuse
of discretion on the part of the NLRC, as the tribunal correctly found that Kho should not be held
solidarily liable with the Corporation, considering that his claims are in accord with the evidence on
record, as well as settled legal principles of labor law.

It is settled that a corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it.  As a juridical entity,
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a corporation may act only through its directors, officers, and employees. As such, obligations
incurred by the corporation, acting through its directors, officers, and employees, are its sole
liabilities,   and these persons should not be held jointly and solidarily liable with the
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corporation.  However, being a mere fiction of law, this corporate veil can be pierced when such
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corporate fiction is used: (a) to defeat public convenience or as a vehicle for the evasion of an
existing obligation; (b) to justify wrong, protect or perpetuate fraud, defend crime, or as a shield to
confuse legitimate issues;  or (c) as a mere alter ego or business conduit of a person, or is so
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organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit, or adjunct of another corporation. 43

Fundamental in the realm of labor law that corporate directors, trustees, or officers can be held
solidarily liable with the corporation when they assent to a patently unlawful act of the corporation, or
when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict
of interest resulting in damages to the corporation, its stockholders, or other persons.   However, it
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bears emphasis that a finding of personal liability against a director, trustee, or a corporate officer
requires the concurrence of these two (2) requisites, namely: (a) a clear allegation in the complaint
of gross negligence, bad faith or malice, fraud, or any of the enumerated exceptional instances; and
(b) clear and convincing proof of said grounds relied upon in the complaint  sufficient to overcome
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the burden of proof borne by the complainant. 46

In this case, the evidence on record do not support the findings of both the LA and the CA that Kho
was the Corporation's President at the time of its closure, and that he assented to a patently unlawful
act, thereby exposing him to solidary liability with the Corporation. A plain reading of the
Corporation's GIS for the years 2007  and 2008  show that Kho was not the Corporation's President
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as he was merely its Treasurer, while the GIS for the year 2009  indicates that he is no longer a
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corporate officer of the Corporation. More importantly, aside from respondents' bare allegations,
there is a dearth of evidence on record that would indicate that Kho was a corporate officer at the
time the restaurant, where respondents worked, closed down.

On this score, even assuming arguendo that Kho was a corporate officer, nowhere in the complaint
nor in the respondents' submissions before the labor tribunals did they allege that Kho committed
bad faith, fraud, negligence, or any of the aforementioned exceptions to warrant his personal liability.
The fact that it was Kho's daughter who posted the closure notice and with whom respondents
requested for an audience with Kho to tackle the issue of closure - which notice was not even
presented in evidence - is no proof that he orchestrated the closure or assented to the same, let
alone in bad faith.   Relatedly, bad faith cannot be ascribed on any of the Corporation's officers by
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the mere fact that the Corporation failed to comply with the notice requirement before closing down
the restaurant. Case law instructs that "[n]either does bad faith arise automatically just because a
corporation fails to comply with the notice requirement of labor laws on company closure or
dismissal of employees. The failure to give notice is not an unlawful act because the law does not
define such failure as unlawful. Such failure to give notice is a violation of procedural due process
but does not amount to an unlawful or criminal act. Such procedural defect is called illegal dismissal
because it fails to comply with mandatory procedural requirements, but it is not illegal in the sense
that it constitutes an unlawful or criminal act."
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Verily, absent any finding that Kho was a corporate officer of the Corporation who willfully and
knowingly assented to patently unlawful acts of the latter, or who is guilty of bad faith or gross
negligence in directing its affairs, or is guilty of conflict of interest resulting in damages thereto, he
cannot be held personally liable for the corporate liabilities arising from the instant case. In Guillermo
v. Uson,  the Court held:
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In the earlier labor cases of Claparols v. Court of Industrial Relations [460 Phil. 624 (1975] and A. C.
Ransom Labor Union-CCLU v. NLRC [226 Phil. 199 (1986)], persons who were not originally
impleaded in the case were, even during execution, held to be solidarily liable with the employer
corporation for the latter's unpaid obligations to complainant-employees. These included a newly-
formed corporation which was considered a mere conduit or alter ego of the originally impleaded
corporation, and/or the officers or stockholders of the latter corporation. Liability attached, especially
to the responsible officers, even after final judgment and during execution, when there was a failure
to collect from the employer corporation the judgment debt awarded to its workers. In Naguiat v.
NLRC [336 Phil. 545 (1997)], the president of the corporation was found, for the first time on appeal,
to be solidarily liable to the dismissed employees. Then, in Reynoso v. [CA] [339 Phil. 38 (2000)], the
veil of corporate fiction was pierced at the stage of execution, against a corporation not previously
impleaded, when it was established that such corporation had dominant control of the original party
corporation, which was a smaller company, in such a manner that the latter's closure was done by
the former in order to defraud its creditors, including a former worker.

The rulings of this Court in A. C Ransom, Naguiat, and Reynoso, however, have since been
tempered, at least in the aspects of the lifting of the corporate veil and the assignment of personal
liability to directors, trustees[,] and officers in labor cases. The subsequent cases of McLeod v.
NLRC, Spouses Santos v. NLRC and Carag v. NLRC, have all established, save for certain
exceptions, the primacy of Section 31 of the Corporation Code in the matter of assigning such
liability for a corporation's debts, including judgment obligations in labor cases. According to these
cases, a corporation is still an artificial being invested by law with a personality separate and
distinct from that of its stockholders and from that of other corporations to which it may be
connected. It is not in every instance of inability to collect from a corporation that the veil of
corporate fiction is pierced, and the responsible officials are made liable. Personal liability
attaches only when, as enumerated by the said Section 31 of the Corporation Code, there is a
[willful) and knowing assent to patently unlawful acts of the corporation, there is gross
negligence or bad faith in directing the affairs of the corporation, or there is a conflict of
interest resulting in damages to the corporation. x x x.

It also bears emphasis that in cases where personal liability attaches, not even all officers are made
accountable. Rather, only the "responsible officer," i.e., the person directly responsible for and who
"acted in bad faith" in committing the illegal dismissal or any act violative of the Labor Code, is held
solidarily liable, in cases wherein the corporate veil is pierced. In other instances, such as cases of
so-called corporate tort of a close corporation, it is the person "actively engaged" in the management
of the corporation who is held liable. In the absence of a clearly identifiable officer(s) directly
responsible for the legal infraction, the Court considers the president of the corporation as such
officer.

The common thread running among the aforementioned cases, however, is that the veil of corporate
fiction can be pierced, and responsible corporate directors and officers or even a separate but
related corporation, may be impleaded and held answerable solidarily in a labor case, even after
final judgment and on execution, so long as it is established that such persons have
deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have
resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate
identity is used to commit wrongdoing and opprobriously elude responsibility, the courts and the
legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny
the usual protections to the offending party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad judgment
or negligence but 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.   (Emphases and underscoring supplied)
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In sum, the CA erred in ascribing grave abuse of discretion on the part of the NLRC and in ruling that
Kho should be held solidarily liable with the corporate liabilities of the Corporation. Hence, the NLRC
ruling must be reinstated.

WHEREFORE, the petition is GRANTED. The Decision dated July 19, 2017 and the Resolution
dated January 4, 2018 of the Court of Appeals in CA-G.R. SP No. 141821 are
hereby REVERSED and SET ASIDE. Accordingly, the Decision dated May 7, 2015 and the
Resolution dated June 16, 2015 of the National Labor Relations Commission in NLRC LAC No. 04-
001356-12(4) are REINSTATED.

SO ORDERED.

Carpio, Senior Associate Justice, (Chairperson), Caguioa, J. Reyes, Jr., and Lazaro-Javier,