SOLIDARY LIABILITY CANNOT ATTACH TO AN OFFICER AND STOCKHOLDER WHO WAS NOT SERVED WITH SUMMONS AND NOT IMPLEADED IN THE CASE WITH THE CORPORATION

Solidary liability against a corporate officer must be rooted on a satisfactory showing of fraud, bad faith or malice, or the presence of any of the justifications for disregarding the corporate fiction.

Reyno C. Dimson vs. Gerry T. Chua
G.R. No. 192318, December 5, 2016

Facts:

Petitioner Reyno C. Dimson (Dimson) won a case of illegal dismissal with money claims against SEASUMCO and MAC. Hence, SEASUMCO and MAC, as well as the members of their board of directors, were ordered to pay jointly and severally the sum of P3,827,470.51.

The LA’s decision became final and executory but the judgment remained unsatisfied. Consequently, Dimson filed an Ex-parte Motion for the issuance of an amended alias writ of execution asking for the inclusion of the board of directors arid corporate officers of SEASUMCO and MAC to hold them liable for satisfaction of the said decision.

LA Ruling:

The LA granted the motion. Hence, an amended alias writ of execution was issued which now included Chua.

NLRC Ruling:

Aggrieved, Chua elevated the matter to the NLRC by filing a Memorandum of Appeal arguing that he was denied due process. The NLRC dismissed the appeal for lack of merit and sustained the findings of the LA.

Chua filed a Motion for Reconsideration, but the NLRC denied his motion. Hence, he filed a petition for certiorari with application for temporary restraining order (TRO)/preliminary injunction before the CA. He maintained that the labor tribunals violated his right to due process when the LA authorized the issuance of the amended alias writ of execution against him for the corporation’s judgment debt, although he has never been a party to the underlying suit.

Meanwhile, upon Dimson’s motion, a Second Alias Writ of Execution was issued. Pursuant to this a Certificate of Sale/ Award was issued to Dimson upon the levy on execution that was made over the shares of stocks belonging to Chua at New Frontier Sugar Corporation (NFSC) totaling 105,344 shares with the total amount of P10,534,400.00.

CA Ruling:

The CA denied Chua’s application for a TRO and set the case for hearing on the propriety of the issuance of a writ of preliminary injunction (WPI).

The CA issued a WPI enjoining the NLRC, its sheriff and any person acting for and its behalf from transferring in the names of Dimson and other private respondents in the NLRC case, Chua’s shares of stocks with NFSC pending resolution of the petition. The CA rendered the assailed judgment, which nullified and set aside the rulings of the NLRC, and made the WPI permanent. The CA held that Chua was indeed denied due process.

The CA emphasized that the LA cannot acquire jurisdiction over the person of Chua without the latter being served with summons, and in the absence of service of summons or a valid waiver thereof, the hearings and judgment rendered by the LA are null and void. The CA emphasized the rule that a corporation is clothed with a personality distinct from that of its officers and Dimson has not shown any ground that would necessitate the piercing of the corporate veil and disregarding SEASUMCO’s corporate fiction.

Upset by the foregoing disquisition, Dimson moved for reconsideration but it was denied by the CA. Hence, the present petition for review on certiorari.

Issue/s:

Whether or not an individual who was not impleaded in a case can be held solidarily liable for the judgment against a corporation of which he was an officer and a stockholder

SC Ruling:

The SC did not find merit in the petition.

Chua’s assertions are not without basis, as can be seen from Sections 32 and 62 of Rule III of the 2005 Revised Rules of Procedure of the NLRC governing the issuance and services of notices and resolutions, including summons, in cases filed before the LAs.

Following the explicit language of the NLRC Rules, notices or summons shall be served on the parties to the case personally. The same rule allows under special circumstances, that service of summons may be effected in accordance with the provisions of the Rules of Court. The service of summons in cases before the LAs shall be served on the parties personally or by registered mail, provided that in special circumstances, service of summons, may be effected in accordance with the pertinent provisions of the Rules of Court.

Supplementary or applied by analogy to these provisions are the provisions and prevailing jurisprudence in Civil Procedure. Where there is then no service of summons on or a voluntary general appearance by the defendant, the court acquires no jurisdiction to pronounce a judgment in the case.

The Labor Code of the Philippines 2018 Edition (Re-numbered and updated)

It is basic that the LA cannot acquire jurisdiction over the person of Chua without the latter being served with summons. However, if there is no valid service of summons, the court can still acquire jurisdiction over the person of the defendant by virtue of the latter’s voluntary appearance.

In this case, since Chua is one of the officers of SEASUMCO, service of summons must be made to him personally or by registered mail. However, as borne by the records, it is evident that no service of summons and notices were served on Chua and he was not impleaded in the labor case. He was hauled to the case after he reacted to the improper execution of his properties and was actually dragged to court by mere motion of Dimson with whom he has no privity of contract and after the decision in the main case had already become final and executory.

More so, Chua did not voluntarily appear before the LA as to submit himself to its jurisdiction. Contrary to Dimson’s position, the validity of a judgment or order of a court or quasi-judicial tribunal which has become final and executory may be attacked when the records show that it lacked jurisdiction to render the judgment.

For a judgment rendered against one in a case where jurisdiction over his person was not acquired is void, and a void judgment maybe assailed or impugned at any time either directly or collaterally by means of a petition filed in the same or separate case, or by resisting such judgment in any action or proceeding wherein it is invoked.

While it is true that the LA and the NLRC are not bound by technical rules of evidence and procedure, such should not be interpreted so as to dispense with the fundamental and essential right of every person to due process of law. Even if administrative tribunals exercising quasi-judicial powers are not strictly bound by procedural requirements, they are still bound by law and equity to observe the fundamental requirements of due process.

Here, the LA pierced the veil of corporate fiction of SEASUMCO and held Chua, in his personal capacity, jointly and severally liable with the corporation for the enforcement of the monetary awards to Dimson. Even assuming that the labor tribunals had jurisdiction over Chua, it was still improper to hold him liable for SEASUMCO’s obligations to its employees.

In the recent case of Jose Emmanuel P. Guillermo vs. Crisanto P. Uson, the Court resolved the twin doctrines of piercing the veil of corporate fiction and personal liability of company officers in labor cases. A corporation is a juridical entity with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Thus, as a general rule, an officer may not be held liable for the corporation’s labor obligations unless he acted with evident malice and/or bad faith in dismissing an employee.

Section 31 of the Corporation Code is the governing law on personal liability of officers for the debts of the corporation. To hold a director or officer personally liable for corporate obligations, two requisites must concur:

(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith; and

(2) there must be proof that the officer acted in bad faith.

Dimson and the private respondents in the NLRC case failed to specifically allege either in their complaint or position paper that Chua, as an officer of SEASUMCO, willfully and knowingly assented to the corporations’ patently unlawful act of closing the corporation, or that Chua had been guilty of gross negligence or bad faith in directing the affairs of the corporation. There was no evidence at all to show Chua’s participation in Dimson’s illegal dismissal. Clearly, the twin requisites of allegation and proof of bad faith, necessary to hold Chua personally liable for the monetary awards to Dimson, are lacking.

Chua is merely one of the officers of SEASUMCO and to single him out and require him to personally answer for the liabilities of SEASUMCO are without basis. In the absence of a finding that he acted with malice or bad faith, it was error for the labor tribunals to hold him responsible.

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.