Montealegre and Chamon'te, Inc. vs. Spouses De Vera

A writ of execution must strictly conform to every particular of the judgment to be executed, and any execution that exceeds or goes beyond the terms of the original judgment is void. Moreover, corporate officers may be held personally liable for corporate obligations only when the complaint alleges that the officer assented to patently unlawful acts or was guilty of gross negligence or bad faith, and there is proof that the officer acted in bad faith.

The case originated from a complaint for illegal dismissal filed by Jerson Servandil against A. De Vera Corporation before the National Labor Relations Commission. The case was raffled to Labor Arbiter Joel Lustria, who rendered a Decision on November 27, 2003, finding the corporation guilty of illegal dismissal. The corporation appealed to the NLRC, but the appeal was dismissed for failure to post the appeal bond, and the subsequent petition for certiorari before the Court of Appeals was likewise denied. When the case was elevated to the Supreme Court, the petition was denied on April 23, 2007 for failure to show any reversible error.

Jerson Servandil filed a complaint for illegal dismissal against A. De Vera Corporation, which was raffled to Labor Arbiter Joel Lustria. On November 27, 2003, the LA rendered a Decision finding the corporation guilty of illegal dismissal and ordering it to pay Servandil ₱363,293.55 in backwages, ₱53,300.00 in separation pay, and ₱11,890.00 in unpaid salary. The corporation appealed to the NLRC, but the appeal was dismissed for lack of jurisdiction because of the failure to post the appeal bond. The NLRC denied the motion for reconsideration on January 31, 2005, and the CA and the Supreme Court subsequently denied the corporation's petitions.

On March 15, 2005, the NLRC issued an Entry of Judgment declaring its January 31, 2005 Resolution final and executory. Consequently, a Writ of Execution dated May 22, 2007 was issued commanding the sheriff to proceed against the movable and immovable properties of both the corporation and respondent Abraham De Vera. When the writ was returned unsatisfied, Servandil moved for the issuance of an alias writ of execution, which was granted on February 11, 2008. Pursuant to this writ, a parcel of land registered in the name of respondents was levied upon and sold to petitioners at a public auction on May 16, 2008.

As no redemption was made, petitioners filed an omnibus motion seeking the issuance of a final deed of sale, cancellation of title, and issuance of a new title in their names. It was at this time that respondents realized that only the corporation was impleaded as party-respondent in Servandil's complaint for illegal dismissal. Respondents filed a verified counter-manifestation with omnibus motion stating that the property sold at auction belonged to them, not to the judgment debtor corporation, and that they were not impleaded as party-respondents. They also claimed the property was conjugal and that no advantage or benefit accrued to their conjugal partnership.

The LA denied respondents' omnibus motion in an August 25, 2011 Order, directing the sheriff to issue a Final Deed of Conveyance and/or Final Deed of Sale in favor of petitioners. Respondents filed a petition before the NLRC, which issued a TRO and writ of preliminary injunction, but on March 29, 2012, the NLRC denied the petition, affirming the LA's Order. The NLRC noted that respondent Abraham had filed an earlier omnibus motion dated May 19, 2008, which was resolved in an Order dated December 8, 2009 declaring the levy and sale valid, and that this Order had become final and executory. The NLRC rejected respondent Abraham's argument that the corporation is a distinct entity, reasoning that an exceptional circumstance existed because the corporation was no longer existing and unable to satisfy the judgment.

Respondents filed a petition for certiorari before the CA, which granted the petition on January 18, 2013, reversing the NLRC Resolutions, annulling the LA's August 25, 2011 Order, and quashing the writs of execution. The CA ruled that the writs of execution modified and/or amended the final decision dated November 27, 2003, because respondent Abraham was never impleaded as a party-respondent. The CA also ruled that the December 8, 2009 and August 25, 2011 Orders could not validate the void writs of execution. On August 30, 2013, the CA denied petitioners' motion for reconsideration, ruling that it was not undisputed that the corporation had ceased to exist and that the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC was inapplicable because the corporate officers there were impleaded from the very beginning.

• Conformity of Writs to Judgment: Petitioners argued that the CA gravely erred in ruling that the Writ of Execution and the Alias Writ of Execution are void because they do not conform to the dispositive portion of the November 17, 2003 Decision holding the corporation liable for illegal dismissal.
• Personal Liability of Corporate Officer: Petitioners argued that respondent Abraham De Vera can be held liable as a responsible officer of the corporation despite not being a party in the case filed against the corporation.
• Cessation of Corporate Existence: Petitioners argued that the corporation had ceased to exist, and that respondents themselves had not rebutted the same.
• Validity of LA Orders: Petitioners argued that the orders of LA Lustria dated December 8, 2009 and August 25, 2011 are not null and void, as they are not the offshoot of a void writ of execution.
• Procedural Compliance: Petitioners faulted the CA for giving due course to respondents' petition in violation of the NLRC rules of procedure.
• Piercing the Corporate Veil: Petitioners cited A.C. Ransom Labor Union-CCLU vs. NLRC and Restaurante Las Conchas vs. Llego to justify their contention that respondent Abraham may be held liable as the corporation's responsible officer, alleging that the corporation has ceased to operate and there is no other way by which the LA judgment could have been satisfied.

• Lack of Party Impleader: Respondents argued that only the corporation was impleaded as party-respondent in Servandil's complaint for illegal dismissal, and that the property sold at auction does not belong to the judgment debtor corporation but to respondents.
• Conjugal Property: Respondents claimed that the property was conjugal and there was no showing that an advantage or benefit accrued to their conjugal partnership.
• Void Writs of Execution: Respondents argued that the writs of execution and alias writ of execution modified and/or amended the final decision dated November 27, 2003, and that the LA exceeded his authority and acted without jurisdiction in issuing said writs.

• Validity of the Writs of Execution: Whether the CA correctly declared null the writs of execution issued by the LA and the subsequent orders and resolutions of the LA and NLRC implementing said writs of execution against respondents' property.
• Piercing the Corporate Veil: Whether respondent Abraham De Vera may be held personally liable for the corporation's obligation under the doctrine of piercing the veil of corporate fiction.

• Validity of the Writs of Execution: Yes. The CA correctly declared the writs of execution null and void. A writ of execution must strictly conform to every particular of the judgment to be executed, and the writs here exceeded the terms of the final and executory judgment, which held only the corporation liable.
• Piercing the Corporate Veil: No. The piercing of the veil of corporate fiction is unwarranted because the two requisites for holding a corporate officer personally liable are wanting: the complaint failed to allege bad faith or malice on the part of respondent Abraham De Vera, and there was no proof that he acted in bad faith.

• Validity of the Writs of Execution: As a general rule, a writ of execution must strictly conform to every particular of the judgment to be executed. It should not vary the terms of the judgment it seeks to enforce, nor may it go beyond the terms of the judgment sought to be executed; otherwise, if it is in excess of or beyond the original judgment or award, the execution is void. The power of the courts in executing judgments extends only to properties unquestionably belonging to the judgment debtor. Citing Mandaue Dinghow Dimsum House, Co., Inc. vs. National Labor Relations Commission-Fourth Division, the Court ruled that the Order and the Alias Writ of Execution issued by the LA are null and void for lack of jurisdiction and for altering the tenor of the decision. Here, it is undisputed that the final and executory November 27, 2003 LA Decision adjudged the corporation guilty of illegal dismissal and ordered it to pay Servandil separation pay and backwages, without mentioning respondents' liability. Nevertheless, the writs of execution were directed against the movable and immovable properties of both the corporation and respondent Abraham. Clearly, the writs of execution exceeded the terms of the final and executory judgment. Consequently, the CA correctly set aside the levy and sale of the subject property pursuant to said writs, the August 25, 2011 Order directing the issuance of a Final Deed of Sale, and the NLRC Resolutions affirming the same, for being the offshoot of a void execution.

• Piercing the Corporate Veil: The Court examined the factual milieu of A.C. Ransom and the application of the piercing of the veil doctrine. In A.C. Ransom, the Court allowed the piercing of the corporate fiction by making Ransom's officers personally liable because Ransom put up another corporation as a ploy to evade its obligation to its employees. The Court further explained that Carag vs. National Labor Relations Commission clarified that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation, and that the governing law on personal liability of directors or officers is Section 31 of the Corporation Code. The doctrine of piercing the corporate veil applies only in three basic areas: (1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Citing Lozada vs. Mendoza, the Court ruled that to hold a director or officer personally liable for corporate obligation, the following requisites must be present: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith. Here, the two requisites are wanting. Servandil's complaint failed to allege or impute bad faith or malice on the part of respondent Abraham De Vera. There was likewise nothing in the November 27, 2003 LA Decision that would establish that respondent Abraham De Vera acted in bad faith when Servandil was dismissed from the service, nor was there any invocation of bad faith on his part to evade any judgment against the corporation.

• Strict Conformity of Writs of Execution — A writ of execution must strictly conform to every particular of the judgment to be executed. It should not vary the terms of the judgment it seeks to enforce, nor may it go beyond the terms of the judgment sought to be executed; otherwise, if it is in excess of or beyond the original judgment or award, the execution is void. The Court applied this doctrine in declaring the writs of execution void because they directed execution against respondent Abraham De Vera, who was not a party to the judgment holding only the corporation liable.

• Piercing the Veil of Corporate Fiction — The doctrine applies only in three basic areas: (1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. The Court held that the doctrine was unwarranted in this case because the complaint failed to allege bad faith or malice, and there was no proof of bad faith.

• Personal Liability of Corporate Officers — To hold a director or officer personally liable for corporate obligation, the following requisites must be present: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith. The Court found both requisites wanting in this case.

• "As a general rule, a writ of execution must strictly conform to every particular of the judgment to be executed. It should not vary the terms of the judgment it seeks to enforce, nor may it go beyond the terms of the judgment sought to be executed, otherwise, if it is in excess of or beyond the original judgment or award, the execution is void." — This passage states the controlling doctrine on the strict conformity of writs of execution to the judgment, which is the ratio decidendi for declaring the writs void in this case.

• "The Order and the Alias Writ of Execution issued by the LA are null and void for lack of jurisdiction and for altering the tenor of the NLRC decision dated October 24, 2000 which directed Mandaue Dinghow alone to pay the private respondents' separation pay." — This quotation from Mandaue Dinghow Dimsum House, Co., Inc. v. NLRC-Fourth Division is the controlling precedent applied to the facts of this case, where the writs altered the tenor of the judgment by including respondent Abraham De Vera.

• "Thus, We ruled that the doctrine of piercing the corporate veil applies only in three basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation." — This passage defines the canonical formulation of the doctrine of piercing the corporate veil, which the Court applied in rejecting petitioners' claim that respondent Abraham should be held liable.

• "To hold a director or officer personally liable for corporate obligation is the exception and it only occurs when the following requisites are present: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith." — This quotation from Lozada v. Mendoza sets out the two-part test for personal liability of corporate officers, which the Court applied in finding that the requisites were wanting in this case.

• Mandaue Dinghow Dimsum House, Co., Inc. vs. National Labor Relations Commission-Fourth Division, G.R. No. 161134, March 3, 2008, 547 SCRA 402 — Controlling precedent applied to the facts of this case; the Court ruled that the Order and the Alias Writ of Execution issued by the LA are null and void for lack of jurisdiction and for altering the tenor of the decision.

• A.C. Ransom Labor Union-CCLU vs. NLRC, G.R. No. L-69494, June 10, 1986, 142 SCRA 269 — Distinguished by the Court; in that case, the corporate officers were impleaded from the very beginning, and the corporation put up another corporation as a ploy to evade its obligation, unlike in the present case.

• Zaragoza vs. Tan, G.R. No. 225544, December 4, 2017, 847 SCRA 437 — Followed; the Court examined the factual milieu of A.C. Ransom and the application of the piercing of the veil doctrine, clarifying the three basic areas where the doctrine applies.

• Carag vs. National Labor Relations Commission, G.R. No. 147590, April 2, 2007, 520 SCRA 28 — Cited as clarified by Zaragoza vs. Tan; the Court explained that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation.

• Lozada vs. Mendoza, G.R. No. 196134, October 12, 2016, 805 SCRA 673 — Followed; the Court ruled that to hold a director or officer personally liable for corporate obligation, the complaint must allege assent to patently unlawful acts or gross negligence or bad faith, and there must be proof of bad faith.

• Pascual vs. Daquioag, G.R. No. 162063, March 31, 2014, 720 SCRA 230 — Cited for the general rule that a writ of execution must strictly conform to every particular of the judgment to be executed.

• Pantranco Employees Association (PEA-PTGWO) vs. National Labor Relations Commission, G.R. No. 170689, March 17, 2009, 581 SCRA 598 — Cited for the rule that the power of the courts in executing judgments extends only to properties unquestionably belonging to the judgment debtor.

• Restaurante Las Conchas vs. Llego, G.R. No. 119085, September 9, 1999, 314 SCRA 24 — Cited by petitioners to justify their contention that respondent Abraham may be held liable as the corporation's responsible officer; the Court did not rely on this case in its ruling.

• Section 31, Corporation Code — The governing law on personal liability of directors or officers for debts of the corporation. The Court applied this provision in ruling that directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith shall be liable jointly and severally for all damages resulting therefrom. The Court found that the requisites under this provision were not met in this case.

• Article 212(e), Labor Code — Cited as clarified by Carag vs. NLRC; the Court explained that this provision, by itself, does not make a corporate officer personally liable for the debts of the corporation.

Bersamin, C.J. (Chairperson), Del Castillo, Gesmundo, and Carandang, JJ., concurred.