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G.R. No.

194795 June 13, 2012

EVER ELECTRICAL MANUFACTURING, INC., (EEMI) and VICENTE GO, Petitioners, vs. SAMAHANG
MANGGAGAWA NG EVER ELECTRICAL/ NAMAWU LOCAL 224 Represented by Felimon
Panganiban, Respondents.

Facts:

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 headed by Felimon Panganiban.

The controversy started when EEMI closed its business operations on October 11, 2006 resulting in the termination of the
services of its employees. Aggrieved, respondents filed a complaint for illegal dismissal with prayer for payment of 13th
month pay, separation pay, damages, and attorneys fees. Respondents alleged that the closure was made without any
warning, notice or memorandum and in full disregard of the requirements of the Labor Code.

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 China and other Asian countries. Adding
to EEMIs financial woes was the closure of Orient Bank where most of its resources were invested. As a result, EEMI
was not able to meet its loan obligations with UCPB.

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. 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., for and
in behalf of EEMI. On February 2, 2002, a lease agreement was entered into between UCPB and EGO. The said lease
came to a halt when UCPB instituted an unlawful detainer suit against EGO. The MeTC ruled in favor of UCPB and
ordered EGO to vacate the leased premises and pay rentals to UCPB.

On April 25, 2007, the Labor Arbiter (LA) ruled that respondents were not illegally dismissed. It, however, ordered EEMI
and its President, Vicente Go (Go), to pay their employees separation pay and 13th month pay respectively.

Issues:

Whether or not Vicente Go solidarily liable with EEMI.

Held:

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.

In Restaurante Las Conchas case, the court stated that "as a rule, the officers and members of a corporation are not
personally liable for acts done in the performance of their duties." 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.

In Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, 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.

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 recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung, 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. 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 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.

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