In the case of Polymer Rubber Corporation and Joseph Ang v. Bayolo Salamuding, the Supreme Court addressed whether a corporate officer can be held personally liable for the debts of the corporation in a labor dispute. The Court ruled that for a corporate officer to be held jointly and severally liable with the corporation, it must be proven that the officer acted with malice or bad faith. Absent such proof, the officer cannot be held responsible for the corporation’s liabilities, reinforcing the principle that a corporation is a separate legal entity from its officers and stockholders.

Corporate Shutdown or Evasion? Examining the Liability of a Company Director

The case arose from a labor dispute involving Bayolo Salamuding and other employees who were terminated by Polymer Rubber Corporation. They filed a complaint for illegal dismissal and other labor violations against Polymer and its director, Joseph Ang. The Labor Arbiter initially ruled in favor of the employees, ordering Polymer to reinstate them and pay back wages, 13th-month pay, overtime, damages, and attorney’s fees. This decision was later modified by the National Labor Relations Commission (NLRC) and eventually reached the Supreme Court. A key event occurred when Polymer ceased its operations shortly after the Supreme Court’s resolution, leading to questions about whether the company was trying to evade its liabilities.

The central legal question was whether Joseph Ang, as a director of Polymer, could be held personally liable for the monetary awards granted to the employees. The Court of Appeals (CA) had sided with the employees, stating that Ang, as a high-ranking officer, should be held jointly and severally liable. However, the Supreme Court reversed this decision, emphasizing the general rule that a corporation’s obligations are not the personal responsibility of its directors or officers. The Court reiterated that corporate officers could only be held solidarily liable if they acted with malice or bad faith, a condition not sufficiently proven in this case.

Building on this principle, the Supreme Court highlighted that a corporation is a juridical entity that acts through its directors, officers, and employees. Obligations incurred by these individuals in their roles as corporate agents are the direct responsibilities of the corporation, not their personal liabilities. This separation of identity is a cornerstone of corporate law, allowing businesses to operate with limited liability, encouraging investment and economic activity. However, this protection is not absolute, as the concept of piercing the corporate veil allows courts to disregard the separate legal personality of the corporation under certain circumstances.

The doctrine of piercing the corporate veil comes into play when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. However, it is an extraordinary remedy that is applied with caution. In the context of labor disputes, the Court has generally been reluctant to hold corporate officers personally liable unless there is clear evidence of bad faith or malice. This is to prevent discouraging individuals from serving as directors or officers of corporations, a vital role in the business world. As the Court noted in Peñaflor v. Outdoor Clothing Manufacturing Corporation:

“A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their personal liability but the direct responsibility of the corporation they represent. As a rule, they are only solidarily liable with the corporation for the illegal termination of services of employees if they acted with malice or bad faith.”

To hold a director or officer personally liable, two requisites must concur: first, 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; and second, there must be proof that the officer acted in bad faith. The burden of proof rests on the party seeking to hold the officer liable. In this case, the CA’s assertion that Polymer ceased operations to evade liability was deemed insufficient to establish bad faith on Ang’s part.

Furthermore, the Supreme Court emphasized the importance of the finality of judgments. Once a decision becomes final and executory, it can no longer be altered or modified, even if the modification is meant to correct an erroneous conclusion of fact or law. In this case, the original Labor Arbiter decision did not explicitly state that Ang was jointly and severally liable with Polymer. Therefore, the CA’s attempt to hold him personally liable at a later stage was seen as an impermissible alteration of a final judgment. The Court cited Aliling v. Feliciano to support its position:

“There is solidary liability when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires. In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of employees done with malice or in bad faith.”

The Court also addressed the issue of separation pay, ruling that the liability for such payment should only be computed up to the time Polymer ceased operations in September 1993. The rationale behind this is that the employees could not have continued working for the company beyond its closure, regardless of whether they had been illegally dismissed. The computation must be based on the actual period during which the company was in operation. As explained in Chronicle Securities Corp. v. NLRC, an employer found guilty of unfair labor practice may not be ordered to pay back wages beyond the date of closure of business, especially if the closure was due to legitimate business reasons.

Ultimately, the Supreme Court granted the petition, setting aside the CA’s decision and reinstating the NLRC’s decision. The case was remanded to the Labor Arbiter for proper computation of the monetary award, limited to the period when Polymer was in actual operation, and clarifying that Joseph Ang could not be held personally liable absent evidence of malice or bad faith. This ruling underscores the importance of adhering to established principles of corporate law and respecting the finality of judgments, while also ensuring that employees receive the compensation they are rightfully entitled to, within the bounds of the law.

FAQs

What was the key issue in this case?	The key issue was whether a corporate officer could be held personally liable for the debts of the corporation in a labor dispute, specifically in the absence of malice or bad faith.
Under what circumstances can a corporate officer be held liable?	A corporate officer can be held liable if it is proven that they acted with malice, bad faith, or gross negligence in directing the corporate affairs, especially when such actions lead to illegal termination of employees.
What is the significance of the “piercing the corporate veil” doctrine?	The piercing the corporate veil doctrine allows courts to disregard the separate legal personality of a corporation, holding individuals liable for corporate debts when the corporate form is used to commit fraud or injustice.
How does the finality of judgment affect this case?	The finality of the initial Labor Arbiter decision, which did not explicitly hold Joseph Ang personally liable, prevented later attempts to impose personal liability on him, as it would alter a final judgment.
What is the limitation on the payment of separation pay in this case?	The liability for separation pay is limited to the period during which the company was in actual operation, meaning that employees are not entitled to separation pay beyond the date of the company’s closure.
What evidence is needed to prove bad faith on the part of a corporate officer?	Clear and convincing evidence is needed to prove that the officer acted with malicious intent or gross negligence, such as intentionally violating labor laws or deliberately evading corporate responsibilities.
Why did the Court overturn the Court of Appeals’ decision?	The Court overturned the CA decision because it found that there was insufficient evidence to prove that Joseph Ang acted with malice or bad faith, and because the CA’s ruling would have altered a final and executory judgment.
What is the role of the Labor Arbiter in this case?	The Labor Arbiter is responsible for initially hearing the labor dispute, issuing decisions, and implementing orders, including the computation and execution of monetary awards.

In conclusion, the Supreme Court’s decision in this case reinforces the principle that corporate officers are generally not personally liable for the debts of the corporation unless they acted with malice or bad faith. This ruling provides clarity on the circumstances under which the corporate veil can be pierced in labor disputes, balancing the protection of corporate officers with the rights of employees to receive just compensation.

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: POLYMER RUBBER CORPORATION AND JOSEPH ANG VS. BAYOLO SALAMUDING, G.R. No. 185160, July 24, 2013