Polymer Rubber Corporation and Joseph Ang vs. Bayolo Salamuding

A corporate director or officer may be held personally and solidarily liable for corporate labor obligations only when the complaint alleges and the evidence proves that the officer assented to patently unlawful acts or acted with malice or bad faith; absent such allegation and proof, a final judgment against the corporation cannot be extended to the officer. A final and executory judgment may no longer be altered or modified, and an alias writ that varies its tenor is a nullity.

Salamuding, Mariano Gulanan, and Rodolfo Raif were employees of Polymer Rubber Corporation, while Joseph Ang was an incorporator of Polymer. The labor judgment at issue arose from the dismissal of the three employees and originally held Polymer liable for illegal dismissal and monetary awards.

Bayolo Salamuding, Mariano Gulanan, and Rodolfo Raif were employees of Polymer Rubber Corporation. They were dismissed after allegedly committing certain irregularities against Polymer. On July 24, 1990, the three employees filed a complaint against Polymer and Joseph Ang for unfair labor practice, illegal dismissal, non-payment of overtime services, violation of Presidential Decree No. 851, with prayer for reinstatement and payment of back wages, attorney’s fees, moral and exemplary damages.

On November 21, 1990, the Labor Arbiter rendered a decision dismissing the unfair labor practice complaint but ordering Polymer to reinstate the complainants to their former positions with full back wages from the time they were illegally dismissed up to reinstatement; to pay 13th month pay for 1990 in the amounts of ₱3,194 for Gulanan, ₱3,439 for Raif, and ₱3,284 for Salamuding; to pay overtime of ₱1,335 each; to pay additional overtime of ₱6,608.80 each; to pay moral and exemplary damages of ₱10,000 each; and to pay attorney’s fees equivalent to ten percent of the total monetary award. A writ of execution was issued on April 18, 1991. Polymer and Ang appealed to the NLRC.

On April 7, 1992, the NLRC affirmed the Labor Arbiter’s decision with modifications, deleting the award of moral and exemplary damages and service incentive pay and modifying the computation of 13th month pay. Entry of Judgment was made on September 25, 1992, and an alias writ of execution was issued on October 29, 1992 based on the NLRC decision. The case was elevated to the Supreme Court on certiorari. In a Resolution dated September 29, 1993, the Supreme Court affirmed the NLRC disposition with the modification that the award of overtime pay was deleted.

On September 30, 1993, Polymer ceased its operations. Upon a motion dated November 11, 1994, the Labor Arbiter issued a writ of execution on November 16, 1994 based on the Supreme Court resolution. The writ was returned unsatisfied, and another alias writ of execution was issued on June 4, 1997. In the latter part of 2004, Polymer, with all its improvements in the premises, was gutted by fire.

On December 2, 2004, the complainants filed a Motion for Recomputation and Issuance of Fifth Alias Writ of Execution. The Research and Computation Unit of the NLRC computed the total amount of ₱2,962,737.65. Because the petitioners failed to comment or oppose the amount despite notice, the Labor Arbiter approved it. On April 26, 2005, the Labor Arbiter issued the 5th Alias Writ of Execution commanding the sheriff to collect the amount. In implementing this writ, the shares of stocks of Ang at USA Resources Corporation were levied.

On November 10, 2005, the petitioners moved to quash the 5th alias writ of execution and to lift the notice of garnishment. They alleged that Ang should not be held jointly and severally liable with Polymer because only Polymer was held liable in the decisions of the Labor Arbiter, NLRC, and Supreme Court; that the computation of ₱2,962,737.65 was misleading, anomalous, and highly erroneous; and that the decision sought to be enforced by mere motion was already barred by the statute of limitations. In an Order dated December 16, 2005, the Labor Arbiter granted the motion, quashed and recalled the writ, and lifted the notice of levy on Ang’s shares. The Labor Arbiter ruled that the November 21, 1990 Decision did not contain any pronouncement that Ang was also liable, that holding him liable at that stage would vary the tenor of the final judgment, that the computation of backwages must cover only the period during which the company was in actual operation, and that the motion to execute was barred by the statute of limitations. On appeal, the NLRC affirmed the Labor Arbiter’s findings but declared that the complainants did not sleep on their rights and were not barred by the statute of limitations; it dismissed the appeal on the lifting of the notice of levy. The NLRC denied the motion for reconsideration on January 12, 2007. Salamuding then filed a Petition for Certiorari before the Court of Appeals. The Court of Appeals found merit in the petition, and the petitioners filed the instant petition after their motion for reconsideration was denied.

• Finality of Judgment: Petitioners argued that upon finality of the Decision, the same can no longer be altered or modified.
• Personal Liability of Corporate Officer: Petitioners maintained that an officer of the corporation cannot be personally held liable and made to pay the liability of the corporation.
• Computation Beyond Corporate Existence: Petitioners argued that the losing party cannot be held liable to pay the salaries and benefits of the employees beyond the company’s existence.
• Separation Pay: Petitioners argued that the separation pay of employees of a company which has closed its business permanently is only half month salary for every year of service.
• Erroneous Computation and Prescription: In their motion to quash, petitioners alleged that Ang should not be jointly and severally liable because only Polymer was held liable; that the computation of ₱2,962,737.65 was misleading, anomalous, and highly erroneous; and that the decision sought to be enforced by mere motion was already barred by the statute of limitations.

• Personal Liability of Corporate Officer: Whether Joseph Ang may be held jointly and severally liable with Polymer for its labor obligations despite not being named in the dispositive portion of the final judgment and absent allegation and proof of malice or bad faith.
• Finality of Judgment: Whether a final and executory judgment may be altered or modified to include a corporate officer as personally liable.
• Computation of Monetary Award: Whether the monetary award, including separation pay in lieu of reinstatement, may be computed beyond the time Polymer ceased operations.

• Personal Liability of Corporate Officer: No. Joseph Ang cannot be held personally and solidarily liable for Polymer’s labor obligations absent an allegation in the complaint and proof that he assented to patently unlawful acts or acted with malice or bad faith.
• Finality of Judgment: No. A final and executory judgment may no longer be altered or modified, and an alias writ that goes beyond or varies its tenor is a nullity.
• Computation of Monetary Award: The monetary award must be computed only up to September 1993, when Polymer ceased operations, because the employees could not have worked beyond the cessation of business.

• Personal Liability of Corporate Officer: The ruling rested on the rule that a corporation, as a juridical entity, acts only through its directors, officers, and employees, and obligations incurred by them as corporate agents are the direct responsibility of the corporation, not their personal liability. As a rule, directors and officers are only solidarily liable with the corporation for illegal termination of services if they acted with malice or bad faith. Two requisites must concur: (1) it must be alleged 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) there must be proof that the officer acted in bad faith. The CA imputed bad faith because Polymer ceased operations the day after the promulgation of the Supreme Court resolution in 1993, allegedly to evade liability, but the records showed nothing that Ang was responsible for the acts complained of. The Court found it would require a great stretch of imagination to conclude that a corporation would cease operations only to evade payment of monetary awards to three employees. The dispositive portion of the Labor Arbiter’s November 21, 1990 Decision did not mention that Ang was jointly and severally liable with Polymer; Ang was merely one of the incorporators, and to single him out and require him to personally answer for Polymer’s liabilities was without basis. Absent a finding that he acted with malice or bad faith, it was error for the CA to hold him responsible. The Court cited Peñaflor vs. Outdoor Clothing Manufacturing Corporation and Francisco vs. Mallen, Jr. for the rule and requisites, and Aliling vs. Feliciano, which explained that the CA’s reliance on NYK Int’l. Knitwear Corp. Phils. vs. NLRC and A.C. Ransom Labor Union-CCLU vs. NLRC had been reversed by Alba vs. Yupangco.

• Finality of Judgment: The judgment of the Labor Arbiter, as affirmed by the NLRC and later by the Supreme Court, had already long become final and executory. A final and executory judgment can no longer be altered; it may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted by the court rendering it or by the highest Court. Since the alias writ of execution did not conform to, was different from, and thus went beyond or varied the tenor of the judgment which gave it life, it is a nullity. To maintain otherwise would ignore the constitutional provision against depriving a person of property without due process of law. To hold Ang personally liable at that stage was unfair because the final judgment did not include him. The Court relied on Manning International Corp. vs. NLRC and Alba vs. Yupangco, which in turn cited B.E. San Diego, Inc. vs. Alzul and Cabang vs. Basay.

• Computation of Monetary Award: The Court agreed with the Labor Arbiter that the computation of liability for separation pay in lieu of reinstatement in favor of Salamuding must be computed only up to the time Polymer ceased operations in September 1993. The computation must be based on the number of days when Polymer was in actual operation. Polymer cannot be held liable to pay separation pay beyond the closure of business because even if the illegally dismissed employees were reinstated, they could not possibly work beyond the time of the cessation of its operation. The Court cited Durabuilt Recapping Plant & Co. vs. NLRC and J.A.T. General Services vs. NLRC, and Chronicle Securities Corp. vs. NLRC, which ruled that even an employer found guilty of unfair labor practice may not be ordered to pay backwages beyond the date of closure of business where such closure was due to legitimate business reasons and not merely an attempt to defeat the order of reinstatement. The case was remanded to the Labor Arbiter for proper computation.

• Corporate officer liability for labor obligations — A corporation, as a juridical entity, may act only through its directors, officers, and employees. Obligations incurred by them as corporate agents are not their personal liability but the direct responsibility of the corporation they represent. As a rule, directors and officers 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 for corporate obligations, two requisites must concur: (1) it must be alleged 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) there must be proof that the officer acted in bad faith. In this case, the CA’s finding of bad faith based solely on Polymer’s cessation of operations was not supported by the records, and Ang was not named in the dispositive portion of the final judgment; hence, he could not be held personally liable.

• Immutability of final and executory judgments — A final and executory judgment can no longer be altered or modified in any respect, even if the modification is meant to correct a perceived erroneous conclusion of fact or law, whether attempted by the court rendering it or by the highest Court. Execution must conform to the tenor of the judgment, and an alias writ that goes beyond or varies that tenor is a nullity, as otherwise it would violate the constitutional prohibition against deprivation of property without due process of law. The Court applied this doctrine because the final labor judgment did not include Ang as personally liable, and the CA’s order to execute against him varied the judgment.

• Backwages and separation pay upon business closure — The computation of backwages and separation pay in lieu of reinstatement must be limited to the period during which the employer was in actual operation. An employer may not be ordered to pay backwages or separation pay beyond the date of closure of business where the closure was due to legitimate business reasons and not merely an attempt to defeat the order of reinstatement. The Court applied this doctrine because Polymer ceased operations in September 1993, and the illegally dismissed employees could not have worked beyond that cessation.

• "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." — This passage states the general rule on corporate officer liability and the malice or bad faith exception applied in the case.
• "To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) it must be alleged 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) there must be proof that the officer acted in bad faith." — This passage sets out the two-part requisites for piercing the corporate veil to hold a director or officer personally liable.
• "It has been held that a final and executory judgment can no longer be altered. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land." — This passage articulates the immutability of final judgments, which barred the CA from extending the final labor judgment to Ang.
• "It cannot be held liable to pay separation pay beyond such closure of business because even if the illegally dismissed employees would be reinstated, they could not possibly work beyond the time of the cessation of its operation." — This passage defines the cutoff for separation pay and backwages upon legitimate business closure.

• Peñaflor vs. Outdoor Clothing Manufacturing Corporation, G.R. No. 177114, April 13, 2010, 618 SCRA 208, 216 — Cited for the rule that corporate directors and officers are only solidarily liable with the corporation for illegal termination of services if they acted with malice or bad faith.
• Francisco vs. Mallen, Jr., G.R. No. 173169, September 22, 2010, 631 SCRA 118, 123-124 — Cited for the two requisites to hold a director or officer personally liable for corporate obligations.
• Aliling vs. Feliciano, G.R. No. 185829, April 25, 2012, 671 SCRA 186 — Cited and quoted to explain that the CA’s reliance on NYK Int’l. Knitwear Corp. Phils. vs. NLRC and A.C. Ransom Labor Union-CCLU vs. NLRC had been reversed by Alba vs. Yupangco.
• Alba vs. Yupangco, G.R. No. 188233, June 29, 2010, 622 SCRA 503, 509 — Cited for the rule that solidary liability of corporate officers arises only in exceptional circumstances, and for the nullity of an alias writ that varies the tenor of a final judgment.
• Manning International Corp. vs. NLRC, G.R. No. 83018, March 13, 1991, 195 SCRA 155, 161 — Cited for the immutability of final and executory judgments.
• Chronicle Securities Corp. vs. NLRC, 486 Phil. 560 (2004) — Cited for the rule that an employer may not be ordered to pay backwages beyond the date of closure of business where the closure was due to legitimate business reasons and not merely an attempt to defeat reinstatement.
• Durabuilt Recapping Plant & Co. vs. NLRC, 236 Phil. 351, 358 (1987) — Cited for limiting the computation of monetary awards to the period of actual operation.
• J.A.T. General Services vs. NLRC, 465 Phil. 785, 798-799 (2004) — Cited for the rule that liability for backwages and separation pay ceases upon business closure.
• Pizza Inn/Consolidated Foods Corporation vs. NLRC, G.R. No. L-74531, June 28, 1988, 162 SCRA 773, 778 — Cited in Chronicle Securities Corp. vs. NLRC for the closure-of-business limitation on backwages.
• NYK Int’l. Knitwear Corp. Phils. vs. NLRC, 445 Phil. 654 (2003) — Cited by the CA as basis for holding Ang liable, but the Court in Aliling vs. Feliciano noted that such ruling was reversed by Alba vs. Yupangco.
• A.C. Ransom Labor Union-CCLU vs. NLRC, 226 Phil. 199 (1986) — Cited by the CA as basis for holding Ang liable, but the Court in Aliling vs. Feliciano noted that such ruling was reversed by Alba vs. Yupangco.
• B.E. San Diego, Inc. vs. Alzul, G.R. No. 169501, June 8, 2007, 524 SCRA 402, 433 — Cited in Alba vs. Yupangco for the nullity of a writ of execution that varies the tenor of the judgment.
• Cabang vs. Basay, G.R. No. 180587, March 20, 2009, 582 SCRA 172 — Cited in Alba vs. Yupangco for the same rule on execution conforming to the judgment.

• Constitutional due process clause — The Court cited the constitutional provision against depriving a person of property without due process of law in holding that an alias writ of execution that went beyond or varied the tenor of the final judgment is a nullity.
• Presidential Decree No. 851 — Mentioned as one of the claims in the employees’ labor complaint for non-payment or violation; the decision does not apply or interpret it.
• Section 13, Article VIII, 1987 Constitution — Cited in the Chief Justice’s certification that the conclusions in the Decision were reached in consultation before the case was assigned to the writer of the opinion.

Maria Lourdes P. A. Sereno (Chief Justice, Chairperson), Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Martin S. Villarama, Jr.