MACTAN ROCK INDUSTRIES, INC. AND ANTONIO TOMPAR, PETITIONERS, VS. BENFREI S. GERMO, RESPONDENT.

Mactan Rock Industries versus Germo

The Case

This is a petition for review on certiorari brought by Mactan Rock Industries, Incorporated and its President and Chief Executive Officer, Antonio Tompar, against Benfrei S. Germo. Germo sued the corporation and its officer for a sum of money and damages, claiming unpaid commissions under a Technical Consultancy Agreement by which he served as the company's marketing consultant. The case matters for two reasons a reviewee must hold onto: it is a clean illustration of the separate juridical personality of a corporation and the strict requisites before a corporate officer may be held solidarily liable for corporate obligations, and it applies the rule against changing one's theory on appeal, reinforced by the doctrine of judicial admissions.

Procedural History

Germo first filed a complaint before the National Labor Relations Commission, but it was dismissed for lack of jurisdiction because there was no employer-employee relationship between him and the corporation. He then filed a civil case before the Regional Trial Court of Muntinlupa City, but that case was dismissed without prejudice to refiling because his counsel failed to mark all his documentary evidence at the pre-trial conference. He then filed the present complaint for sum of money and damages before the Regional Trial Court of Muntinlupa City, Branch 276. Because the defendants and their counsel repeatedly failed to appear at the scheduled pre-trial conferences, the trial court declared them in default and allowed Germo to present his evidence ex parte. The trial court ruled in Germo's favor and ordered the corporation and Tompar to pay solidarily his unpaid commissions, moral damages, exemplary damages, and attorney's fees. The corporation and Tompar appealed to the Court of Appeals, which affirmed the trial court in full. They moved for reconsideration, which was denied, and so they elevated the matter to the Supreme Court by petition for review on certiorari.

Facts

On September 21, 2004, Mactan Rock Industries, through its President and Chief Executive Officer Antonio Tompar, entered into a Technical Consultancy Agreement with Benfrei S. Germo. Under that agreement, Germo would act as the corporation's marketing consultant, taking charge of negotiating, perfecting sales, orders, contracts, or services for the corporation. The parties expressly agreed that there would be no employer-employee relationship between them, and that Germo would be paid on a purely commission basis, including a monthly allowance of 5,000 pesos.

On May 2, 2006, while the agreement was in effect, Germo successfully negotiated and closed with International Container Terminal Services, Incorporated a supply contract for 700 cubic meters of purified water per day. The corporation began supplying water to that client in February 2007, and the client paid the corporation its corresponding monthly fees. Despite this, the corporation never paid Germo his commissions, which he computed at 2,225,969.56 pesos as of December 2009, inclusive of interest.

In their Answer, the corporation and Tompar admitted that there was no employer-employee relationship because Germo was hired as a mere consultant, and they admitted the genuineness, authenticity, and due execution of the agreement and the supporting documents. They instead claimed that Germo failed to prove the account materialized through his efforts, and that it came about through another person. On appeal, however, they shifted ground, arguing for the first time that the labor tribunal had jurisdiction and that Germo had no legal personality to sue.

Issues

• Whether or not the Court of Appeals correctly upheld the solidary liability of Mactan Rock Industries and Antonio Tompar to Germo.
• Whether or not the corporation and its officer may raise, for the first time on appeal, the new theories of lack of jurisdiction of the regular courts and lack of legal personality on the part of Germo.
• Whether or not Tompar, as President and Chief Executive Officer, may be held solidarily liable with the corporation for its obligations to Germo.

Applicable Provisions

Section 4 of Rule 129 of the Rules of Court, on judicial admissions, provides:

An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

This governs the corporation and Tompar's admissions in their Answer, which bound them and foreclosed their new theories on appeal.

Section 21 of Rule 3 of the Rules of Court, on the indigent party, provides:

A party may be authorized to litigate his action, claim or defense as an indigent if the court, upon an ex parte application and hearing, is satisfied that the party is one who has no money or property sufficient and available for food, shelter and basic necessities for himself and his family.

This supports the ruling that the appropriate filing fees be treated as a lien on the monetary awards in Germo's favor, since he litigated as an indigent.

Section 19 of Rule 141 of the Rules of Court, on indigent litigants exempt from payment of legal fees, provides:

The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent litigant unless the court otherwise provides.

This is the specific basis for imposing the lien on the judgment in Germo's favor.

Ruling

On the first issue, the Court held that the petition is partly meritorious. The courts below correctly found that Germo entered into a valid and binding consultancy agreement with the corporation, that he was to be paid on a purely commission basis aside from his monthly allowance, that he successfully brokered the supply contract during the effectivity of the agreement and in the performance of his duties, that the corporation refused to pay his rightful commissions despite demands, and that this refusal caused or at least contributed to his financial hardships. The factual findings of the trial court, affirmed by the Court of Appeals, deserve great weight and respect and will not be disturbed absent facts of weight and substance that were overlooked or misinterpreted.

On the second issue, the Court held that the new theories were untenable. They were raised for the first time on appeal, and a party who deliberately adopts a certain theory upon which the case is tried and decided below will not be permitted to change that theory on appeal. More importantly, the statements in their Answer were judicial admissions, legally binding on them, and a party may not unilaterally rescind such admissions even if they place him at a disadvantageous position.

On the third issue, the Court held that the courts below erred in holding Tompar solidarily liable. A corporation is a juridical entity vested with a legal personality separate and distinct from those acting for and in its behalf and from the people comprising it. As a general rule, directors, officers, or employees cannot be held personally liable for the obligations incurred by the corporation, unless it is shown that they are guilty of negligence or bad faith, clearly and convincingly proven. Before a director or officer may be held personally liable, two requisites must concur: the complainant must allege 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 the complainant must clearly and convincingly prove such unlawful acts, negligence, or bad faith. Here, Tompar's assent to patently unlawful acts, or gross negligence or bad faith on his part, was neither alleged in the complaint nor proven at trial. Hence, his solidary liability was deleted.

The Court also adjusted the interest: the unpaid commissions earn twelve percent per annum from judicial demand until June 30, 2013, and six percent per annum from July 1, 2013 until finality of the decision, and all monetary awards earn six percent per annum from finality until fully paid.

Doctrine

A corporation has a legal personality separate and distinct from the persons acting for and in its behalf and from the people comprising it. As a rule, its directors, officers, and employees are not personally liable for corporate obligations. Personal liability attaches only when two requisites concur: first, the complaint alleges 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 second, the complainant clearly and convincingly proves such unlawful acts, negligence, or bad faith. Absent both allegation and proof, the solidary liability of the officer must be deleted.

A party who adopts a theory in the lower court cannot change it on appeal, and admissions made in the pleadings are judicial admissions under Section 4 of Rule 129, binding on the party and relievable only upon a showing of palpable mistake or that no such admission was made.

Finally, an indigent litigant's exemption from fees carries a lien on any favorable judgment under Section 19 of Rule 141, and the interest rules follow prevailing jurisprudence.

Disposition

The petition was partly granted; the Court of Appeals decision was affirmed with modification, deleting Antonio Tompar's solidary liability, leaving Mactan Rock Industries solely liable to Germo for the stated amounts with the adjusted interest, and imposing the filing fees as a lien on the awards.

Remember This

Memorize the two requisites before a corporate officer may be held solidarily liable: allegation in the complaint of assent to patently unlawful acts or gross negligence or bad faith, and clear and convincing proof of the same. Examiners use this case to test the separate juridical personality of corporations, the rule against changing theory on appeal, and the doctrine of judicial admissions.