Kho, Sr. v. Magbanua, G.R. No. 237246. July 29, 2019

TOPIC

Doctrine of Piercing of the Veil of Corporate Fiction

DOCTRINE

When the shield of a separate corporate identity is used to commit wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith.

FACTS

Respondents claimed that they were employed by the Corporation in the Tres Pares as cooks, cashiers, or dishwashers. On January 14, 2011, Spouses Kho’s daughter, Sheryl Kho, posted a notice in the company premises that the restaurant would close down on January 19, 2011. Fearing the loss of their jobs, they tried to seek an audience with Kho about the closure, but to no avail. The restaurant closed as scheduled; thus respondents filed the complaint for illegal dismissal with payment of separation pay, salary differentials, nominal damages, differentials on overtime pay, service incentive leave pay, and holiday pay, including damages, as well as attorney’s fees. 

Spouses Kho argued that they had no employer-employee relationship with respondents, as the latter’s employer was the Corporation, and that they cannot be held liable for the acts of the Corporation, the same having been imbued with a personality separate and distinct from its stockholders, directors, and officers.

The LA ruled in favor of respondents, and accordingly, ordered the Corporation and Kho to solidarily pay respondents separation pay, salary and 13th month pay differentials, nominal damages, and attorney’s fees. The NLRC reversed and set aside the LA Decision and dismissed the complaint as against Kho.  

The CA reversed and set aside the NLRC ruling and concluded that Kho acted in bad faith when he assented to the sudden and abrupt closure of the restaurant despite the absence of a board resolution authorizing the closure. As such, he should be held solidarily liable with the Corporation.

ISSUE

Whether or not Kho may be held solidarily liable with the Corporation for the payment of respondents’ money claims

RULING

No. Verily, absent any finding that Kho was a corporate officer of the Corporation who willfully and knowingly assented to patently unlawful acts of the latter, or who is guilty of bad faith or gross negligence in directing its affairs, or is guilty of conflict of interest resulting in damages thereto, he cannot be held personally liable for the corporate liabilities arising from the instant case. |

A corporation is still an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected. It is not in every instance of inability to collect from a corporation that the veil of corporate fiction is pierced, and the responsible officials are made liable. Personal liability attaches only when, as enumerated by the said Section 31 of the Corporation Code, there is a [willful] and knowing assent to patently unlawful acts of the corporation, there is gross negligence or bad faith in directing the affairs of the corporation, or there is a conflict of interest resulting in damages to the corporation. 

The veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate identity is used to commit wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith.

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