G.R. No. 210032, 25 April 2017

FACTS:

Petitioners Lee seeks to reverse the ruling of the CA which held they liable with the Petitioner corporation for the payment of back wages to the respondents. They posit that they were not a part of the labor case as since they were not impleaded in the same, hence they cannot be held liable with the company.

Respondent contends that due to the company cessation of operations without notice, that they be allowed to pursue the Petitioners to obtain their relief. They further assert that Petitioners represented themselves to the Respondent as owners of the company, that they were the ones who managed the same.

ISSUE:

May the petitioners be held liable with the company?

RULING:

They may be held liable.

In considering the foregoing events, the Court is not unmindful of the basic tenet that a corporation has a separate and distinct personality from its stockholders, and from other corporations it may be connected with. However, such personality may be disregarded, or the veil of corporate fiction may be pierced attaching personal liability against responsible person if the corporation’s personality “is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws

By responsible person, we refer to an individual or entity responsible for, and who acted in bad faith in committing illegal dismissal or in violation of the Labor Code; or one who actively participated in the management of the corporation.

Here, the veil of corporate fiction must be pierced and accordingly, petitioners should be held personally liable for judgment awards because the peculiarity of the situation shows that they controlled DMI; they actively participated in its operation such that DMI existed not as a separate entity but only as business conduit of petitioners.

Petitioners denied having any participation in the management and operation of DMI; however, they were aware of and disclosed the circumstances surrounding respondents’ employment, and propounded arguments refuting that respondents were illegally dismissed. To note, petitioners revealed the annual compensation of respondents and their length of service; they also set up the defense that respondents were merely project employees, and were not terminated but that DMI’s contract with its client was discontinued resulting in the absence of hauling projects for respondents.

Second, the declarations made by spouses Smith further bolster that petitioners and no other controlled DMI. After the incorporation they assigned and transferred all their purported participation in the company to the Respondents Spouses Cesar and Yolanda Lee, who acted as managers and are the real owners of the corporation.

Spouses Smith categorically identified petitioners as the owners and managers of DMI. In their Motion to Quash, however, petitioners neither denied the allegation of spouses Smith nor adduced evidence to establish that they were not the owners and managers of DMI. They simply insisted that they could not be held personally liable because of the immutability of the final and executory NLRC Decision, and of the separate and distinct personality of DMI.

Third, piercing the veil of corporate fiction is allowed, and responsible persons may be impleaded, and be held solidarily liable even after final judgment and on execution, provided that such persons deliberately used the corporate vehicle to unjustly evade the judgment obligation, or resorted to fraud, bad faith, or malice in evading their obligation.

While it is true that one’s control does not by itself result in the disregard of corporate fiction; however, considering the irregularity in the incorporation of DMI, then there is sufficient basis to hold that such corporation was used for an illegal purpose, including evasion of legal duties to its employees, and as such, the piercing of the corporate veil is warranted. Clearly, petitioners should be held liable for the judgment awards as they resorted to such scheme to countermand labor laws by causing the incorporation of DMI but without any indication that they were part thereof.

*Case digest by Roger Angielo V. Atenta, JD-IV, Andres Bonifacio College, SY 2019-2020