Santos vs. NLRC

A corporate officer cannot be held personally and solidarily liable for the corporation's monetary obligations to an employee absent bad faith, malice, or any of the exceptional instances warranting the piercing of the corporate veil; Article 289 of the Labor Code applies only to penalties under the Code. In quasi-judicial labor proceedings, jurisdiction over the person may be acquired through voluntary appearance, including appearance by counsel and submission of pleadings, and substantial compliance with service rules suffices.

Mana Mining and Development Corporation operated mining operations in Gatbo, Bacon, Sorsogon. Melvin D. Millena was its project accountant; Benjamin A. Santos was its President and Rodillano A. Velasquez its Executive Vice-President. The dispute implicated the Labor Code's provisions on termination and the liability of corporate officers, as well as the Rules of Court on service of summons and voluntary appearance in quasi-judicial proceedings.

Mana Mining and Development Corporation ("MMDC") hired Melvin D. Millena on 01 October 1985 as project accountant for its mining operations in Gatbo, Bacon, Sorsogon. Benjamin A. Santos was MMDC's President, Rodillano A. Velasquez its Executive Vice-President, and Gil Abaño its corporate treasurer.

On 12 August 1986, Millena sent Abaño a memorandum calling attention to the company's failure to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue on account of delayed payments of accrued salaries to the company's laborers and employees. In a letter dated 08 September 1986, Abaño advised Millena that the rainy season had set in and the peace and order condition in Sorsogon had deteriorated; that the board had decided it would be useless to continue operations while always in the "hole"; that first fund receipts would be used to pay all debts; that production would stop until the dry season and until the insurgency problem cleared; that only necessary maintenance and repair work would be undertaken and overhead kept to a minimum; and that until full-scale operations resumed, no project accountant would be needed because there would be little paperwork at the site. Abaño added that the company appreciated Millena's work and would not hesitate to take him back when work at Gatbo resumed, but that it would be unfair to keep him in the payroll and deprive him of the opportunity to earn more during the company's crisis.

Millena expressed shock over the termination of his employment. He complained that he would not have resigned from the Sycip, Gorres & Velayo accounting firm, where he was already a senior staff auditor, had it not been for the assurance of a continuous job by MMDC's Engr. Rodillano E. Velasquez. He requested reimbursement of the advances he had made for the company and payment of his accrued salaries and claims, but the claim was not heeded.

On 20 October 1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay, and incentive leave pay against MMDC and its two top officials, petitioner Benjamin A. Santos (President) and Rodillano A. Velasquez (Executive Vice-President). In his complaint-affidavit or position paper submitted on 27 October 1986, Millena alleged, among other things, that his dismissal was merely an offshoot of his 12 August 1986 letter to Abaño about the company's inability to pay its workers and to remit withholding taxes to the Bureau of Internal Revenue. A copy of the notice and summons was served on the respondents on 29 October 1986.

At the initial hearing on 14 November 1986 before the Labor Arbiter, only Millena appeared; Atty. Romeo Perez, representing the respondents, requested by telegram that the hearing be reset to 01 December 1986. The request was granted, but Millena was allowed to present his evidence ex parte at that initial hearing. The 01 December 1986 hearing was reset to 19 December 1986. On 05 December 1986, Atty. Perez asked for fifteen days within which to submit the respondents' position paper. On 19 December 1986, he sent another telegram seeking a further postponement and a period until 15 January 1987 to submit the position paper. On 15 January 1987, Atty. Perez advised the NLRC that the position paper had been transmitted by mail and that he was submitting the case for resolution without further hearing; the position paper was received on 19 January 1987. Millena filed his rejoinder on 26 February 1987.

The Labor Arbiter found no valid cause for terminating Millena's employment, and the NLRC affirmed. The termination was undisputed to have been due collectively to the need for further mitigation of losses, the onset of the rainy season, the insurgency problem in Sorsogon, and the lack of funds to support the mining operation in Gatbo. It was not shown that petitioner Santos had a direct hand in the dismissal or that he acted with bad faith or malice.

• Jurisdiction over Person: Petitioner maintained that public respondents did not validly acquire jurisdiction over his person, whether by personal service of summons or by substituted service under Rule 19 of the Rules of Court, and that he never received any notice, summons, or even a copy of the complaint.
• Authority of Counsel: Petitioner asserted that he did not authorize Atty. Romeo B. Perez to represent him in the case.
• Personal Liability: Petitioner argued that public respondents gravely abused their discretion in finding him solidarily liable with MMDC even in the absence of bad faith and malice on his part.

• Illegal Dismissal: Private respondent Millena alleged in his complaint-affidavit that his dismissal was merely an offshoot of his 12 August 1986 letter to Abaño regarding the company's inability to pay its workers and to remit withholding taxes to the Bureau of Internal Revenue.
• Monetary Claims: Millena sought unpaid salaries, 13th month pay, overtime pay, separation pay, and incentive leave pay.

• Jurisdiction over Petitioner's Person: Whether the Labor Arbiter and NLRC validly acquired jurisdiction over petitioner Benjamin A. Santos despite his claim that he never received notice, summons, or a copy of the complaint.
• Authority of Counsel: Whether Atty. Perez's representation of petitioner may be deemed authorized despite the absence of written proof.
• Personal Liability of Corporate Officer: Whether petitioner Santos, as President of MMDC, may be held personally and solidarily liable with the corporation for private respondent's monetary claims absent bad faith or malice and under Article 289 of the Labor Code.

• Jurisdiction over Petitioner's Person: Yes. In quasi-judicial proceedings, service of summons is liberally construed and substantial compliance suffices; jurisdiction over the person may be acquired by voluntary appearance, including appearance by counsel and submission of pleadings.
• Authority of Counsel: Yes. The authority to employ an attorney need not be proved in writing and may be inferred from circumstantial evidence; Atty. Perez's timely requests and active participation, plus his status as an officer of the court, support the presumption that he was authorized.
• Personal Liability of Corporate Officer: No. A corporation has a separate legal personality; obligations incurred through its officers are its sole liabilities. Personal liability attaches only under exceptional instances, none of which are present; Article 289 applies only to penalties under the Labor Code; no bad faith, malice, or direct hand in the dismissal was shown.

• Jurisdiction over Petitioner's Person: The Court rejected petitioner's contention. The fact that Atty. Perez was able to timely ask for deferment of the initial hearing on 14 November 1986, coupled with his subsequent active participation in the proceedings, disproved the supposed want of service of legal process. Although modes of service of summons are strictly followed to acquire jurisdiction over the person of a defendant, such procedural modes are liberally construed in quasi-judicial proceedings, substantial compliance being adequate. Jurisdiction over the person in civil cases is acquired not only by service of summons but also by voluntary appearance in court and submission to its authority. Appearance by a legal advocate is voluntary submission to a court's jurisdiction; it may be made not only by actual physical appearance but also by submission of pleadings in compliance with the order of the court or tribunal. Petitioner was not just an ordinary official of MMDC; he was its President.

• Authority of Counsel: To say that petitioner did not authorize Atty. Perez to represent him unduly taxes credulity. Like the Solicitor General, the Court considered it unlikely that Atty. Perez would have been so irresponsible as to represent petitioner if he were not, in fact, authorized. Atty. Perez is an officer of the court and must be presumed to have acted with due propriety. The employment of a counsel or the authority to employ an attorney need not be proved in writing; such fact could be inferred from circumstantial evidence.

• Personal Liability of Corporate Officer: The Court found merit in petitioner's plea. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. Being a mere fiction of law, peculiar situations or valid grounds can warrant, albeit sparingly, disregard of its independent being and lifting of the corporate veil. This may arise when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. In Tramat Mercantile, Inc. vs. Court of Appeals, the Court collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can lawfully attach to a corporate director, trustee, or officer: (1) when he assents to a patently unlawful act of the corporation, or for bad faith or gross negligence in directing its affairs, or for conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; (2) when he consents to the issuance of watered stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) when he agrees to hold himself personally and solidarily liable with the corporation; or (4) when he is made, by a specific provision of law, to personally answer for his corporate action. Petitioner's case is way off these exceptional instances. It was not even shown that petitioner had a direct hand in the dismissal of private respondent enough to attribute to him a patently unlawful act while acting for the corporation. Neither can Article 289 of the Labor Code be applied since it specifically refers only to the imposition of penalties under the Code. The termination was undisputed to have been due collectively to the need for further mitigation of losses, the onset of the rainy season, the insurgency problem in Sorsogon, and the lack of funds to further support the mining operation in Gatbo. The Court reviewed A.C. Ransom Labor Union-CCLU vs. NLRC and Chua vs. NLRC, where corporate officers were held personally accountable, but found that those cases involved facts and circumstances that could rightly sanction personal liability. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the posthaste disposition of its leviable assets evidently to evade its just and due obligations; piercing the veil was appropriate. Chua likewise involved another family corporation, with a conflict between two brothers occupying the highest ranking positions, and incontrovertible facts pointing to extreme personal animosity that evidently resulted in bad faith in easing out one brother by the other. The basic rule remains that in Sunio vs. National Labor Relations Commission, a corporate officer impleaded in his capacity as General Manager should not be personally answerable for back salaries absent evidence that he acted maliciously or in bad faith; his act was within the scope of his authority and was a corporate act. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock is not of itself sufficient ground for disregarding separate corporate personality. Although the Court appeared to have deviated somewhat in Gudez vs. NLRC, its recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC made clear that the Sunio doctrine still prevails. Thus, the portion holding petitioner personally liable was set aside.

• Separate Juridical Personality of Corporations — A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. The Court applied this rule to hold that MMDC's monetary obligations to Millena could not automatically be enforced against petitioner Santos personally.
• Piercing the Veil of Corporate Fiction — Being a mere fiction of law, the corporate veil may be disregarded sparingly when peculiar situations or valid grounds exist, such as when the corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. The Court found no such ground in petitioner's case.
• Exceptional Instances of Personal Civil Liability of Corporate Officers (Tramat Mercantile) — Without necessarily piercing the veil, personal civil liability may attach to a corporate director, trustee, or officer when: (1) he assents to a patently unlawful act of the corporation, or for bad faith or gross negligence in directing its affairs, or for conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made, by a specific provision of law, to personally answer for his corporate action. The Court held that petitioner's case was way off these exceptional instances.
• Jurisdiction over the Person in Quasi-Judicial Proceedings; Voluntary Appearance — Although modes of service of summons are strictly followed in ordinary courts, such procedural modes are liberally construed in quasi-judicial proceedings, and substantial compliance is adequate. Jurisdiction over the person in civil cases may be acquired not only by service of summons but also by voluntary appearance in court and submission to its authority; appearance by a legal advocate is such voluntary submission and may be made by actual physical appearance or by submission of pleadings in compliance with the order of the court or tribunal. The Court applied this to uphold jurisdiction over petitioner.
• Authority to Employ Counsel Need Not Be in Writing — The employment of a counsel or the authority to employ an attorney need not be proved in writing; such fact may be inferred from circumstantial evidence. The Court applied this to reject petitioner's claim that Atty. Perez was not authorized to represent him.
• Article 289 of the Labor Code Limited to Penalties — Article 289 of the Labor Code, which imposes liability on the guilty officer or officers when an offense is committed by a corporation, trust, firm, partnership, association, or other entity, specifically refers only to the imposition of penalties under the Code. It cannot be used to hold a corporate officer personally liable for an employee's monetary claims. The Court applied this to reject the NLRC's reliance on Article 289.
• Sunio Doctrine on Personal Liability of Corporate Officers — A corporate officer impleaded in his capacity as General Manager should not be personally answerable for the payment of back salaries absent evidence that he acted maliciously or in bad faith; his act, within the scope of his authority, is a corporate act. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock is not of itself sufficient ground for disregarding the separate corporate personality. The Court held that this doctrine still prevails over Gudez and applied it to set aside petitioner's personal liability.

• "A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities." — States the foundational rule on corporate personality that the Court used to reject personal liability.
• "The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has had a direct hand in the dismissal of private respondent enough to attribute to him (petitioner) a patently unlawful act while acting for the corporation. Neither can Article 289 of the Labor Code be applied since this law specifically refers only to the imposition of penalties under the Code." — Applies the exceptional-instances test and limits Article 289 to penalties.
• "Although as a rule, modes of service of summons are strictly followed in order that the court may acquire jurisdiction over the person of a defendant, such procedural modes, however, are liberally construed in quasi-judicial proceedings, substantial compliance with the same being considered adequate." — States the rule on service in quasi-judicial proceedings that upheld jurisdiction over petitioner.
• "There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act." — Quoted from Sunio vs. National Labor Relations Commission; encapsulates the basic rule that a corporate officer's authorized act is corporate, not personal.

• Construction & Development Corporation of the Philippines vs. Leogardo, Jr., 125 SCRA 863 — Cited by the Labor Arbiter in ruling that a partial closure of an establishment due to losses was a retrenchment measure that rendered the employer liable for unpaid salaries and other monetary claims.
• A.C. Ransom Labor Union-CCLU vs. NLRC, 142 SCRA 269 — Cited by the NLRC to hold a responsible corporate officer personally liable for nonpayment of backwages; the Supreme Court distinguished it because it involved a family corporation whose leviable assets were disposed posthaste to evade obligations, making the piercing of the corporate veil appropriate.
• Gudez vs. NLRC, 183 SCRA 644 — Cited by the NLRC; the Court noted an apparent deviation in that case but clarified that the Sunio doctrine still prevails.
• Tramat Mercantile, Inc. vs. Court of Appeals, 238 SCRA 14 — The Court relied on this case for the settled instances when personal civil liability may attach to a corporate director, trustee, or officer without necessarily piercing the corporate veil.
• Chua vs. NLRC, 182 SCRA 353 — Cited as an exceptional case where a vice-president was held personally liable; distinguished as involving a family corporation, a conflict between brothers, and bad faith.
• Sunio vs. National Labor Relations Commission, 127 SCRA 390 — The Court adopted this as the basic rule: a corporate officer is not personally liable for back salaries absent malice or bad faith; his authorized act is a corporate act.
• Mam Realty Development Corporation and Manuel Centeno vs. NLRC, 244 SCRA 797 — The Court cited this recent pronouncement to confirm that the Sunio doctrine still prevails.
• Munar vs. Court of Appeals, 238 SCRA 372 — Cited for the rule that jurisdiction over the person of the defendant in civil cases is acquired not only by service of summons but also by voluntary appearance.
• Eden vs. Ministry of Labor and Employment, 182 SCRA 840 — Cited for the liberal construction of procedural modes of service in quasi-judicial proceedings.
• Villegas vs. Legaspi, 113 SCRA 39 — Cited for the definition of "appearance" by a legal advocate as voluntary submission to a court's jurisdiction.
• Tan Lua vs. O'Brien, 55 Phil. 53 — Cited for the rule that the authority to employ an attorney need not be proved in writing.
• Paramount Insurance Corp. vs. Japzon, 211 SCRA 879 — Cited to support the Court's view that it was unlikely Atty. Perez would represent petitioner without authorization.

• Article 282, Labor Code — Cited by the NLRC in affirming the Labor Arbiter; the reasons relied upon for Millena's dismissal—rainy season, deteriorating peace and order, and little paperwork—were not causes mentioned under Article 282, and Millena, as a regular employee, was shielded by the tenurial clause.
• Article 289, Labor Code — Cited by the NLRC to hold petitioner personally liable, but the Supreme Court held that it specifically refers only to the imposition of penalties under the Code and cannot justify personal liability for monetary claims.
• Section 2, Rule 13, Rules of Court — Cited by the NLRC in ruling that the Regional Arbitration office had not been remiss in the legal processes for acquiring jurisdiction over the case and the persons of the respondents.
• Section 13, Rule 14, Rules of Court — Cited by the NLRC in ruling that service upon a private domestic corporation may be made on its president, manager, secretary, cashier, agent, or any of its directors, and that the office had complied with the rules.
• Rule 65, Rules of Court — The procedural basis of petitioner's petition for certiorari before the Supreme Court.
• Rule 19, Rules of Court — Invoked by petitioner in arguing that substituted service of summons was not validly made upon him.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.