Francisco vs. Mallen, Jr.

A corporate director or officer cannot be held personally liable for the monetary awards of an illegally dismissed employee unless the complaint specifically alleges that the officer assented to patently unlawful acts or was guilty of gross negligence or bad faith, and such bad faith is proven clearly and convincingly.

Respondent Numeriano Mallen, Jr. was employed as a waiter at VIPS Coffee Shop and Restaurant, a fine dining restaurant operating at the Harrison Plaza Commercial Complex in Manila. Petitioner Irene Martel Francisco served as the Vice-President of VIPS Coffee Shop and Restaurant. The dispute arose from a series of approved leaves taken by the respondent, culminating in the employer forcing him to take an extended leave without pay and subsequently refusing to reinstate him.

On 5 April 1994, respondent Numeriano Mallen, Jr. was hired as a waiter for VIPS Coffee Shop and Restaurant, a fine dining restaurant which used to operate at the Harrison Plaza Commercial Complex in Manila. Petitioner Irene Martel Francisco was the Vice-President of VIPS Coffee Shop and Restaurant.

In early 1998, Mallen took a series of approved leaves: a sick leave from 30 January to 1 February, a vacation leave on 15 February, and a paternity leave thereafter. On 18 April 1998, Mallen suffered from tonsillitis and applied for a three-day sick leave. Instead of granting the three-day leave, the restaurant management, through a memorandum dated 28 April 1998, awarded him his remaining vacation and sick leave plus two and a half months without pay, directing him to rest from 30 April 1998 to 1 August 1998 and to present a medical certificate upon return.

On 5 May 1998, Mallen filed a complaint before the DOLE-NCR for underpayment of wages and non-payment of holiday pay. Sometime in June 1998, Mallen reported back to work with a medical certificate but was refused work. The DOLE-NCR endorsed the complaint to the NLRC upon determining that constructive dismissal was involved, leading Mallen to file a complaint for illegal dismissal on 23 July 1998. When Mallen attempted to return to work again on 3 August 1998, he was refused once more.

The Labor Arbiter found that Mallen's dismissal was the price for filing the DOLE-NCR complaint and his absences, which was not a just cause, and held that the gesture to reinstate him did not cure the illegality. The Labor Arbiter declared the dismissal illegal, ordering reinstatement, backwages, paternity pay, attorney's fees, moral and exemplary damages, and holding petitioner jointly and severally liable. The NLRC modified this, finding the complaint premature but awarding separation pay due to the restaurant's closure, while deleting the damages and personal liability. The Court of Appeals reinstated the Labor Arbiter's decision, finding constructive dismissal and agreeing with the Labor Arbiter's finding that petitioner acted with malice and bad faith. The Supreme Court took up the issue of the petitioner's personal liability.

• Personal Liability of Corporate Officer: Whether petitioner, as Vice-President of the employer corporation, is personally liable for the monetary awards granted in favor of respondent arising from his alleged illegal termination.

• Personal Liability of Corporate Officer: No. The petitioner cannot be held personally liable for the monetary awards because the twin requisites of alleging and proving bad faith or gross negligence are absent.

• Personal Liability of Corporate Officer: A corporation has a legal personality separate and distinct from its officers and employees, and obligations incurred by the corporation are its sole liabilities. To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts, or was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence, or bad faith. In this case, the respondent failed to allege in his complaint or position paper that the petitioner acted in bad faith. Neither did respondent present clear and convincing evidence of such bad faith, as there was no evidence whatsoever showing the petitioner's participation in the alleged illegal dismissal. Bad faith is never presumed and must be established clearly and convincingly. Thus, the Labor Arbiter's finding that the petitioner acted with malice and bad faith lacked basis.

• Piercing the Veil of Corporate Fiction / Personal Liability of Corporate Officers — A corporation possesses a personality separate and distinct from its officers and stockholders. Obligations incurred by the corporation are its sole liabilities. A director or officer can only be held personally liable for corporate obligations if two requisites concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence, or bad faith. Bad faith is never presumed; it imports a dishonest purpose, a breach of a known duty through some ill motive or interest, and partakes of the nature of fraud. In this case, the Court applied the doctrine by exonerating the petitioner because the employee failed to allege bad faith in the complaint and failed to prove it by clear and convincing evidence.

• "To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant must allege 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) complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith." — This passage establishes the two-tiered test for holding a corporate officer personally liable for corporate debts in labor cases.
• "Bad faith is never presumed. Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty through some ill motive or interest. Bad faith partakes of the nature of fraud." — This defines the standard of bad faith required to pierce the corporate veil, emphasizing that mere bad judgment or negligence is insufficient.

• Santos vs. National Labor Relations Commission, 325 Phil. 145 (1996) — Cited to establish the general rule that a corporation has a legal personality separate and distinct from those acting for and in its behalf, and that corporate obligations are its sole liabilities.
• Carag vs. National Labor Relations Commission, G.R. No. 147590, 2 April 2007, 520 SCRA 28 — Cited to illustrate the application of the twin requisites for personal liability, where a director was not held personally liable due to the lack of allegation and proof of bad faith.
• McLeod vs. NLRC, G.R. No. 146667, 23 January 2007, 512 SCRA 222 — Cited to reiterate that piercing the veil of corporate fiction requires wrongdoing to be established clearly and convincingly, and cannot be presumed.
• Lowe, Inc. vs. Court of Appeals, G.R. Nos. 164813 and 174590, 14 August 2009, 596 SCRA 140 — Cited to affirm that in the absence of malice, bad faith, or a specific provision of law, a corporate officer cannot be made personally liable for corporate liabilities.
• David vs. National Federation of Labor Unions, G.R. Nos. 148263 and 148271-72, 21 April 2009, 586 SCRA 100 — Cited as another instance where an officer was not held liable for corporate obligations due to the lack of showing of bad faith or gross negligence.
• Firestone Tire and Rubber Company of the Philippines vs. Tempongko, 137 Phil. 239 (1969) — Cited in a footnote to support the proposition that the failure of a party to appeal a judgment makes it final and executory as against that party.

• Section 31, Corporation Code — Provides the liability of directors, trustees, or officers, stating that those who willfully and knowingly vote for or assent to patently unlawful acts, or who are guilty of gross negligence or bad faith in directing the affairs of the corporation, shall be liable jointly and severally for all damages resulting therefrom. The Court relied on this provision to establish the twin requisites for holding a corporate officer personally liable.

Presbitero J. Velasco, Jr., Diosdado M. Peralta, Lucas P. Bersamin, and Roberto A. Abad.