POLYMER RUBBER CORPORATION AND JOSEPH ANG, PETITIONERS, VS. BAYOLO SALAMUDING, RESPONDENT.

Polymer Rubber Corporation versus Salamuding

The Case

This is a labor case that reached the Supreme Court on a petition for review after the Court of Appeals ordered the revival of execution proceedings against both a corporation and its officer. The respondent, Bayolo Salamuding, was one of three dismissed employees of Polymer Rubber Corporation who obtained a final judgment for back wages and other money claims. When the corporation ceased operations and later burned down, Salamuding pursued the corporation's officer, Joseph Ang, personally, and the Court of Appeals agreed that Ang could be held solidarily liable. The Supreme Court disagreed. The case matters because it draws a bright line between the corporation and its officers, and because it reminds every bar candidate that a final and executory judgment may not be varied by the writ that enforces it.

Procedural History

The case began before a Labor Arbiter, who rendered judgment on November twenty one, nineteen ninety, finding the dismissal illegal and ordering reinstatement with full back wages, thirteenth month pay, overtime pay, moral and exemplary damages, and attorney's fees. The corporation and Ang appealed to the National Labor Relations Commission, which affirmed the Labor Arbiter with modifications, deleting the moral and exemplary damages and the service incentive pay and recomputing the thirteenth month pay. That decision became final and executory, and an entry of judgment was made in September nineteen ninety two. On petition for certiorari, the Supreme Court affirmed the Commission's disposition in a resolution in September nineteen ninety three, with the further modification that the award of overtime pay was deleted.

Execution proved difficult. A writ issued in November nineteen ninety four was returned unsatisfied, and an alias writ followed in June nineteen ninety seven. In late two thousand four the corporation's premises were gutted by fire. Salamuding then moved for recomputation and for a fifth alias writ, and the Labor Arbiter approved the recomputed amount of two million nine hundred sixty two thousand seven hundred thirty seven pesos and sixty five centavos. Shares of stock of Ang in another corporation were levied. The petitioners moved to quash, and the Labor Arbiter granted the motion, quashing the writ, recalling it, and lifting the notice of levy, holding that the judgment never pronounced Ang liable, that back wages must cover only the period of actual operation, and that execution was barred by the statute of limitations. The National Labor Relations Commission affirmed, but declared that the complainants had not slept on their rights and were not barred by limitations. Salamuding went to the Court of Appeals on certiorari, and that court annulled the Commission insofar as it directed the recall and quashal of the writ and the lifting of the levy, nullified the Labor Arbiter's order, and remanded for execution against both the corporation and Ang. Hence this petition for review before the Supreme Court.

Facts

Salamuding, together with Mariano Gulanan and Rodolfo Raif, were employees of Polymer Rubber Corporation. They were dismissed after allegedly committing irregularities against the company, and in July nineteen ninety they filed a complaint for unfair labor practice, illegal dismissal, non payment of overtime, and violation of the thirteenth month pay law, with a prayer for reinstatement and back wages. The Labor Arbiter ruled in their favor on the illegal dismissal, and the award was later trimmed by the National Labor Relations Commission and again by the Supreme Court, which deleted the overtime pay.

On September thirty, nineteen ninety three, the day after the Supreme Court promulgated its resolution, Polymer ceased its operations. Execution efforts dragged on for years without satisfaction. In the latter part of two thousand four the corporation's premises and improvements were destroyed by fire. Salamuding then sought a recomputation and a fifth alias writ, which the Labor Arbiter granted in April two thousand five in the amount of two million nine hundred sixty two thousand seven hundred thirty seven pesos and sixty five centavos, and the sheriff levied on Ang's shares of stock in USA Resources Corporation.

Ang and the corporation moved to quash. They argued that Ang was never held solidarily liable, that the computation was erroneous, and that execution was time barred. The Labor Arbiter and the National Labor Relations Commission sided with them, but the Court of Appeals reversed on the theory that Ang, as a director and the highest ranking officer of Polymer, was himself an employer and could be held solidarily liable, citing the doctrine that a responsible officer may answer for the corporation's obligations to its workers.

Issues

• Whether or not a final and executory judgment may still be altered or modified to hold a corporate officer personally liable when the judgment itself made no such pronouncement.
• Whether or not an officer of a corporation may be held personally and solidarily liable for the corporation's labor obligations absent any allegation and proof of malice or bad faith.
• Whether or not the corporation may be held liable for salaries and benefits of the employees beyond the time the corporation ceased operations.
• Whether or not separation pay in lieu of reinstatement is limited to one half month salary for every year of service.

Applicable Provisions

Section 31 of the Corporation Code, on the liability of directors, trustees, and officers, provides:

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 in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

This is the statutory root of the rule that personal liability of an officer requires a showing of unlawful assent, gross negligence, or bad faith, which the Court found absent as to Ang.

Article 36 of the Family Code is not involved here; the controlling statutory anchor is the rule on solidary liability, which the Court restated through the doctrine that solidary liability arises only when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires. The Court also applied the settled rule that a final and executory judgment can no longer be altered, and that an alias writ which varies the tenor of the judgment is a nullity.

Ruling

On the first issue, the Court held that the judgment of the Labor Arbiter, affirmed by the National Labor Relations Commission and by the Supreme Court, had long become final and executory and could no longer be altered in any respect, even to correct a perceived error of fact or law. Since the alias writ of execution did not conform to and went beyond the tenor of the judgment, it was a nullity, and to hold otherwise would violate the constitutional guarantee against deprivation of property without due process of law.

On the second issue, the Court held that a corporation acts only through its directors, officers, and employees, and that obligations incurred by them as corporate agents are not their personal liability but the direct responsibility of the corporation. To hold a director or officer personally liable, two requisites must concur: first, 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 second, there must be proof that the officer acted in bad faith. The Court found nothing in the records showing that Ang was responsible for the acts complained of, and it rejected as a stretch of imagination the inference that the corporation ceased operations merely to evade the monetary awards. Ang was merely one of the incorporators, and to single him out without a finding of malice or bad faith was error.

On the third issue, the Court agreed with the Labor Arbiter that the computation of separation pay in lieu of reinstatement must be based only on the period when Polymer was in actual operation, up to its closure in September nineteen ninety three. The corporation cannot be held liable beyond the closure, because even if the dismissed employees were reinstated they could not possibly work beyond the cessation of operations.

On the fourth issue, the Court did not adopt the petitioners' proposed one half month per year of service formula; it instead remanded the records to the Labor Arbiter for proper computation of the award in accordance with the decision.

Doctrine

A corporation is a juridical entity that acts 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. They are solidarily liable with the corporation for the illegal termination of services of employees only if they acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur: the complaint must allege that the director or officer assented to patently unlawful acts of the corporation or was guilty of gross negligence or bad faith, and there must be proof that the officer acted in bad faith. Solidary liability arises only when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires.

A final and executory judgment can no longer be altered or modified in any respect, even to correct a perceived error of fact or law, whether by the court that rendered it or by the highest court of the land. An alias writ of execution that does not conform to, is different from, and goes beyond or varies the tenor of the judgment is a nullity, for to maintain otherwise would deprive a person of property without due process of law.

Separation pay in lieu of reinstatement is computed only up to the time the employer ceased operations, based on the number of days the business was in actual operation, because reinstated employees could not possibly work beyond the closure.

Disposition

The petition was granted; the Court of Appeals decision and resolution were set aside, the National Labor Relations Commission decision was reinstated, and the records were remanded to the Labor Arbiter for proper computation of the award in accordance with the decision. Ang won; Salamuding's levy on Ang's shares was lifted.

Remember This

Memorize the two requisites for personal liability of a corporate officer: allegation in the complaint of assent to patently unlawful acts or gross negligence or bad faith, and proof of bad faith. Examiners use this case to test the limits of piercing the corporate veil in labor cases and the rule that a final and executory judgment cannot be varied by the writ that enforces it.