Naguiat vs. NLRC

The president of a close family corporation who actively manages the business is solidarily liable with the corporation for the non-payment of separation pay, which constitutes a corporate tort under Section 100 of the Corporation Code, even in the absence of bad faith or malice.

Clark Field Taxi, Inc. (CFTI) operated taxi services within Clark Air Base under a concessionaire's contract with the Army Air Force Exchange Services (AAFES). Sergio F. Naguiat served as CFTI's president, while Antolin T. Naguiat was its vice-president. The Naguiats also owned Sergio F. Naguiat Enterprises, Inc., a separate family corporation engaged in trading. CFTI employed taxi drivers who paid daily boundary fees. Following the phase-out of US military bases and the dissolution of AAFES, CFTI terminated the drivers' services on November 26, 1991.

• Employment Arrangement: CFTI employed individual respondents as taxicab drivers under a boundary system. Drivers paid daily boundary fees (US$26.50 or US$27.00) and shouldered maintenance and gasoline expenses. They earned not less than US$15.00 daily and made cash deposits to the company withdrawable every fifteen days.
• Closure and Initial Agreement: Due to the phase-out of US military bases, AAFES was dissolved, and CFTI ceased operations on November 26, 1991. CFTI and the AAFES Taxi Drivers Association agreed on separation pay of P500.00 per year of service, which most drivers accepted.
• Complaint for Separation Pay: Individual respondents refused the P500.00 offer, disaffiliated from the union, joined the National Organization of Workingmen (NOWM), and filed a complaint claiming separation pay based on their monthly earnings of US$240.00. They alleged they were regular employees of Naguiat Enterprises, claiming the latter managed and supervised their employment.
• Petitioners' Defense: Petitioners claimed the closure was due to financial losses from the Mt. Pinatubo eruption and the expiration of the RP-US military bases agreement. They argued Naguiat Enterprises was a separate entity and that corporate officers could not be held personally liable for corporate debts.

• Petitioners argued that the NLRC committed grave abuse of discretion by unilaterally increasing the separation pay based on self-serving allegations of US$240.00 monthly earnings.
• Petitioners contended that NOWM lacked the personality to represent the individual respondents, who should be bound by the agreement with their original union.
• Petitioners asserted that Naguiat Enterprises is a separate and distinct juridical entity that cannot be held solidarily liable for CFTI's obligations.
• Petitioners maintained that Sergio F. Naguiat and Antolin T. Naguiat, as mere officers and stockholders, cannot be held personally accountable for corporate debts.
• Petitioners claimed that the individual Naguiats were denied due process because they were not impleaded as parties to the complaint below.

• Respondents countered that petitioners failed to refute the taxi drivers' claim of an average monthly earning of US$240.00.
• Respondents argued that they disaffiliated from the AAFES Taxi Drivers Association because its president unconscionably compromised their separation pay.
• Respondents asserted that Naguiat Enterprises, as their indirect employer, is solidarily liable under the Labor Code for the non-payment of separation pay.
• The Solicitor General supported respondents, adding that the separate personalities of the corporations and their officers should be disregarded as they were used to perpetrate injustice.

• Procedural Issues:
  • Whether the National Organization of Workingmen (NOWM) had the legal personality to represent the individual respondents.
  • Whether Sergio F. Naguiat and Antolin T. Naguiat were denied due process when held solidarily liable despite not being impleaded in the complaint.
• Substantive Issues:
  • Whether the NLRC committed grave abuse of discretion in increasing the amount of separation pay to US$120.00 per year of service.
  • Whether Sergio F. Naguiat Enterprises, Inc. is solidarily liable as an indirect employer for the obligations of CFTI.
  • Whether corporate officers Sergio F. Naguiat and Antolin T. Naguiat are solidarily liable with CFTI for the payment of separation pay.

• Procedural:
  • The Court ruled that petitioners were estopped from questioning NOWM's personality to represent the respondents, having failed to raise the issue before the labor arbiter or the NLRC. In any event, the taxi drivers themselves were parties to the case.
  • The Court held that there was no denial of due process. Citing A.C. Ransom, corporate officers may be held solidarily liable even if not parties to the original complaint. Furthermore, Sergio and Antolin Naguiat voluntarily submitted to the labor arbiter's jurisdiction by filing a position paper in their individual capacities.
• Substantive:
  • The Court found no grave abuse of discretion in the NLRC's computation of separation pay. Petitioners failed to refute the respondents' claim of US$240.00 monthly earnings before the labor arbiter, rendering such factual findings binding. The Court also affirmed that CFTI's closure was not due to serious business losses, entitling the employees to separation pay under Article 283 of the Labor Code.
  • The Court held that Naguiat Enterprises was not an indirect employer or labor-only contractor. The evidence showed that the drivers were employees of CFTI, and Naguiat Enterprises was a separate trading corporation not involved in the taxi business. The respondents confused Sergio F. Naguiat's individual actions as CFTI president with the separate corporate entity of Naguiat Enterprises.
  • The Court held Sergio F. Naguiat solidarily liable with CFTI. Applying the A.C. Ransom doctrine, the president of a corporation is deemed the employer under Article 212(c) of the Labor Code. Furthermore, under Section 100(5) of the Corporation Code, stockholders actively engaged in the management of a close corporation are personally liable for corporate torts. The non-payment of separation pay mandated by Article 283 of the Labor Code constitutes a corporate tort—a breach of a legal duty.
  • The Court absolved Antolin T. Naguiat, holding that there was no evidence proving he actively managed or operated the business as general manager, a prerequisite for personal liability under Section 100(5) of the Corporation Code.

• Corporate Tort Doctrine under Section 100 of the Corporation Code — Stockholders who are actively engaged in the management or operation of a close corporation are personally liable for corporate torts. A corporate tort consists of the violation of a right given or the omission of a duty imposed by law. The failure to pay separation pay mandated by the Labor Code constitutes such a tort, rendering the actively managing stockholder personally liable even without proof of bad faith or malice.
• A.C. Ransom Doctrine — The president of an employer corporation, as the person acting in the interest of the employer, falls within the definition of "employer" under Article 212(c) of the Labor Code and may be held jointly and severally liable for the obligations of the corporation to its dismissed employees.

• "Essentially, 'tort' consists in the violation of a right given or the omission of a duty imposed by law. Simply stated, tort is a breach of a legal duty."
• "Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses... CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business should be held personally liable."

• A.C. Ransom Labor Union-CCLU vs. NLRC, 142 SCRA 269 (1986) — Followed. The Court applied this precedent to hold the corporation president solidarily liable as the "employer" under the Labor Code, even if not originally impleaded, to prevent the corporation from evading payment of backwages or separation pay.
• MAM Realty Development vs. NLRC, 244 SCRA 797 (1995) — Followed. The Court cited this case to support the rule that a director, trustee, or officer may be held solidarily liable with a corporation when made personally liable by specific provision of law, such as Section 100 of the Corporation Code.

• Article 283, Labor Code — Mandates the payment of separation pay equivalent to one month pay or at least one-half month pay for every year of service in cases of closures or cessation of operations not due to serious business losses or financial reverses. The Court applied this to hold CFTI liable for separation pay because its closure was due to the phase-out of the military base, not financial losses.
• Article 212(c), Labor Code — Defines "employer" as including any person acting in the interest of an employer, directly or indirectly. The Court applied this to deem the corporation president as the employer for purposes of solidary liability.
• Section 100(5), Corporation Code — Provides that stockholders actively engaged in the management or operation of a close corporation shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. The Court applied this provision to hold Sergio F. Naguiat personally liable for the corporate tort of non-payment of separation pay.

Narvasa, C.J., Davide, Jr., Melo, and Francisco, JJ.