The Supreme Court’s decision in Mactan Rock Industries, Inc. v. Germo clarifies when a corporate officer can be held personally liable for a corporation’s contractual debts. The Court ruled that while corporations are distinct legal entities, officers can only be held solidarily liable if they acted with gross negligence or bad faith, which must be explicitly proven. This case highlights the importance of distinguishing between corporate and individual liabilities and provides guidance on the circumstances under which personal liability can be imposed on corporate officers.

Navigating Corporate Contracts: When Does Individual Liability Arise?

This case revolves around a Technical Consultancy Agreement (TCA) between Benfrei S. Germo and Mactan Rock Industries, Inc. (MRII), represented by its President/CEO, Antonio Tompar. Germo successfully negotiated a supply contract for MRII with International Container Terminal Services, Inc. (ICTSI). However, MRII allegedly failed to pay Germo his rightful commissions, leading to a legal battle. The central legal question is whether Tompar, as the corporate officer, should be held solidarily liable with MRII for the unpaid commissions.

The initial complaint filed by Germo sought to hold both MRII and Tompar liable for the unpaid commissions, moral and exemplary damages, and attorney’s fees. MRII and Tompar argued that Germo was merely a consultant and failed to prove his efforts led to the ICTSI account. The Regional Trial Court (RTC) ruled in favor of Germo, holding MRII and Tompar solidarily liable. This decision was affirmed by the Court of Appeals (CA), prompting MRII and Tompar to elevate the case to the Supreme Court.

One of the key issues raised by MRII and Tompar was whether the regular courts had jurisdiction over the case, arguing it was an employment dispute falling under the National Labor Relations Commission (NLRC). However, the Supreme Court found that this argument constituted a new theory raised for the first time on appeal. In their original Answer before the RTC, MRII and Tompar admitted to the lack of an employer-employee relationship and the validity of the TCA. As such, the Court emphasized the principle that a party cannot change their theory on appeal, especially when it contradicts prior judicial admissions.

“As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court, will not be permitted to change theory on appeal. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for the first time at such late stage.”

The Supreme Court underscored the binding nature of judicial admissions. Once a party makes an admission in the course of legal proceedings, they are generally bound by it. Rescinding such admissions unilaterally is not allowed, and the party must bear the consequences. This principle aims to ensure fairness and prevent parties from shifting their positions to gain an unfair advantage.

Regarding the merits of the case, the Supreme Court upheld the lower courts’ findings that Germo had a valid TCA with MRII, was entitled to commissions for securing the ICTSI contract, and was not paid despite demands. However, the Court diverged on the issue of Tompar’s personal liability. The Court reiterated the fundamental principle that a corporation possesses a distinct legal personality, separate from its directors, officers, and employees.

The general rule is that corporate officers are not personally liable for the obligations of the corporation. However, this rule admits of exceptions. Directors, officers, or employees can be held personally liable if they acted with negligence or bad faith, and this must be proven clearly and convincingly. The Supreme Court outlined the requisites for holding a director or officer personally liable:

1. The complaint must allege that the director or officer assented to patently unlawful acts of the corporation, or was guilty of gross negligence or bad faith.
2. The complainant must clearly and convincingly prove such unlawful acts, negligence, or bad faith.

In this case, Germo’s complaint did not allege that Tompar assented to unlawful acts or acted with gross negligence or bad faith. Consequently, the Supreme Court removed Tompar’s solidary liability with MRII.

Moreover, the Court addressed the interest rates applicable to the monetary awards granted to Germo. The unpaid commissions would earn legal interest at 12% per annum from judicial demand (February 28, 2011) until June 30, 2013, and then at 6% per annum from July 1, 2013, until the finality of the decision. All monetary awards would then earn legal interest at 6% per annum from the finality of the ruling until fully paid. This adjustment reflects the prevailing jurisprudence on legal interest rates.

“Pursuant to prevailing jurisprudence, his unpaid commissions shall earn legal interest at the rate of twelve percent (12%) per annum from judicial demand, i.e., the filing of the complaint on February 28, 2011 until June 30, 2013, and thereafter, at the rate of six percent (6%) per annum from July 1, 2013 until the finality of this Decision.”

Finally, the Supreme Court acknowledged Germo’s status as an indigent litigant. Therefore, the appropriate filing fees would be considered a lien on the monetary awards due to him, in accordance with the Rules of Court. This provision ensures that indigent litigants are not unduly burdened by legal fees while also protecting the interests of the court.

FAQs

What was the key issue in this case?	The key issue was whether a corporate officer (Antonio Tompar) could be held solidarily liable with the corporation (MRII) for the corporation’s debt to a consultant (Benfrei Germo).
Under what circumstances can a corporate officer be held personally liable?	A corporate officer can be held personally liable if the complainant alleges and proves that the officer assented to patently unlawful acts of the corporation, or was guilty of gross negligence or bad faith.
What is a judicial admission, and why is it important in this case?	A judicial admission is a statement made by a party during legal proceedings that does not require further proof. In this case, MRII’s admission of the TCA’s validity prevented them from arguing a contrary theory on appeal.
What interest rates apply to the monetary awards in this case?	The unpaid commissions earn 12% interest per annum from judicial demand until June 30, 2013, and 6% thereafter until the decision’s finality. All monetary awards earn 6% interest per annum from the finality of the ruling until fully paid.
What does it mean to litigate as an indigent party?	It means a party has no sufficient money or property for basic necessities and is exempt from paying certain legal fees, which become a lien on any judgment in their favor.
Can a party change their legal theory on appeal?	Generally, no. A party is bound by the theory they presented in the lower court unless factual bases wouldn’t require further evidence from the adverse party.
What was the basis for Germo’s claim for unpaid commissions?	Germo’s claim was based on a Technical Consultancy Agreement (TCA) where he was engaged as a marketing consultant and entitled to commissions for successful contracts, such as the one with ICTSI.
Why was Tompar’s solidary liability removed by the Supreme Court?	Tompar’s solidary liability was removed because Germo’s complaint did not allege or prove that Tompar assented to unlawful acts or acted with gross negligence or bad faith.

In conclusion, the Supreme Court’s decision in this case serves as a crucial reminder of the distinct legal personalities of corporations and their officers. While corporations are liable for their contractual obligations, officers are only personally liable under specific circumstances involving unlawful acts, gross negligence, or bad faith. This ruling provides clarity on the boundaries of corporate and individual liability, offering valuable guidance for businesses and individuals alike.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: MACTAN ROCK INDUSTRIES, INC. VS. BENFREI S. GERMO, G.R. No. 228799, January 10, 2018