solidary liability

Lozada vs Magtanggol (G.R. No. 196134, October 12, 2016)

Lozada vs Magtanggol
G.R. No. 196134, October 12, 2016

Facts: On October 13, 1997, the Magtanggol Mendoza was employed as a technician by VSL Service Center, a single proprietorship owned and managed by Valentin Lozada. Sometime in August 2003, the VSL Service Center was incorporated and changed its business name to LB&C Services Corporation. Subsequently, Magtanggol was asked by respondent Lozada to sign a new employment contract. The petitioner did not accede because the respondent company did not consider the number of years of service that he had rendered to VSL Service Center. From then on, the his work schedule was reduced to one to three days a week. In December 2003, He was given his regular working schedule by the company. However, on January 12, 2004, Magtanggol was advised by the respondent company’s Executive Officer, Angeline Aguilar, not to report for work and just wait for a call from the respondent company regarding his work schedule. Due to the continued failure of respondent company to give work schedule to Magtanggol, the latter filed a complaint against the respondent company on January 21, 2004 for illegal dismissal with a prayer for the payment of his 13th month pay, service incentive leave pay, holiday pay and separation pay and with a claim for moral and exemplary damages, and attorney’s fees. The case was docketed as NLRC NCR Case No. 00-01-00968-2004. On February 23, 2005, the Labor Arbiter declared the dismissal of the petitioner from employment as illegal. LB&C Services Corporation appealed, but the NLRC dismissed the appeal for non-perfection thereof due to failure to deposit the required cash or surety bond. Thus, the Labor Arbiter’s decision attained finality on August 4, 2006, and the entry of judgment was issued by the NLRC on August 16, 2006. The respondent moved for the issuance of the writ of execution, which the Labor Arbiter granted on November 21, 2006.

Issue: Whether or not the petitioner may be held liable for the monetary awards granted to the respondent despite the absence of a pronouncement of his being solidarily liable with LB&C Services Corporation.

Held: No. A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the acts of the directors and officers as the corporate agents are not their personal liability but the direct responsibility of the corporation they represent. As a general rule, corporate officers are not held solidarily liable with the corporation for separation pay because the corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.

The records of this case do not warrant the application of the exception. The rule, which requires malice or bad faith on the part of the directors or officers of the corporation, must still prevail. The petitioner might have acted in behalf of LB&C Services Corporation but the corporation’s failure to operate could not be hastily equated to bad faith on his part. Verily, the closure of a business can be caused by a host of reasons, including mismanagement, bankruptcy, lack of demand, negligence, or lack of business foresight. Unless the closure is clearly demonstrated to be deliberate, malicious and in bad faith, the general rule that a corporation has, by law, a personality separate and distinct from that of its owners should hold sway. In view of the dearth of evidence indicating that the petitioner had acted deliberately, maliciously or in bad faith in handling the affairs of LB&C Services Corporation, and such acts had eventually resulted in the closure of its business, he could not be validly held to be jointly and solidarily liable with LB&C Services Corporation.

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SICI vs Cuenca (G.R. No. 173297 March 6, 2013)

Stronghold Insurance Company Inc. vs Cuenca
G.R. No. 173297 March 6, 2013

Facts: On January 19, 1998, Marañon filed a complaint in the RTC against the Cuencas for the collection of a sum of money and damages. His complaint, docketed as Civil Case No. 98-023, included an application for the issuance of a writ of preliminary attachment. On January 26, 1998, the RTC granted the application for the issuance of the writ of preliminary attachment conditioned upon the posting of a bond of P1,000,000.00 executed in favor of the Cuencas. Less than a month later, Marañon amended the complaint to implead Tayactac as a defendant. On February 11, 1998, Marañon posted SICI Bond No. 68427 JCL (4) No. 02370 in the amount of P1,000,000.00 issued by Stronghold Insurance. Two days later, the RTC issued the writ of preliminary attachment. The sheriff served the writ, the summons and a copy of the complaint on the Cuencas on the same day. The service of the writ, summons and copy of the complaint were made on Tayactac on February 16, 1998.

Issue: Whether or not the respondents have the legal standing to sue petitioner for the recovery of the attached properties and damages.

Held: No. To ensure the observance of the mandate of the Constitution, Section 2, Rule 3 of the Rules of Court requires that unless otherwise authorized by law or the Rules of Court every action must be prosecuted or defended in the name of the real party in interest. Under the same rule, a real party in interest is one who stands to be benefited or injured by the judgment in the suit, or one who is entitled to the avails of the suit. Accordingly, a person , to be a real party in interest in whose name an action must be prosecuted, should appear to be the present real owner of the right sought to be enforced, that is, his interest must be a present substantial interest, not a mere expectancy, or a future, contingent, subordinate, or consequential interest.

Where the plaintiff is not the real party in interest, the ground for the motion to dismiss is lack of cause of action. The reason for this is that the courts ought not to pass upon questions not derived from any actual controversy. Truly, a person having no material interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action. Nor does a court acquire jurisdiction over a case where the real party in interest is not present or impleaded.

The purposes of the requirement for the real party in interest prosecuting or defending an action at law are: (a) to prevent the prosecution of actions by persons without any right, title or interest in the case; (b) to require that the actual party entitled to legal relief be the one to prosecute the action; (c) to avoid a multiplicity of suits; and (d) to discourage litigation and keep it within certain bounds, pursuant to sound public policy. Indeed, considering that all civil actions must be based on a cause of action, defined as the act or omission by which a party violates the right of another, the former as the defendant must be allowed to insist upon being opposed by the real party in interest so that he is protected from further suits regarding the same claim. Under this rationale, the requirement benefits the defendant because “the defendant can insist upon a plaintiff who will afford him a setup providing good res judicata protection if the struggle is carried through on the merits to the end.”

The rule on real party in interest ensures, therefore, that the party with the legal right to sue brings the action, and this interest ends when a judgment involving the nominal plaintiff will protect the defendant from a subsequent identical action. Such a rule is intended to bring before the court the party rightfully interested in the litigation so that only real controversies will be presented and the judgment, when entered, will be binding and conclusive and the defendant will be saved from further harassment and vexation at the hands of other claimants to the same demand.

But the real party in interest need not be the person who ultimately will benefit from the successful prosecution of the action. Hence, to aid itself in the proper identification of the real party in interest, the court should first ascertain the nature of the substantive right being asserted, and then must determine whether the party asserting that right is recognized as the real party in interest under the rules of procedure. Truly, that a party stands to gain from the litigation is not necessarily controlling.

Given the separate and distinct legal personality of Arc Cuisine, Inc., the Cuenca’s and Tayactac lacked the legal personality to claim the damages sustained from the levy of the former’s properties. According to Asset Privatization Trust v. Court of Appeals,  even when the foreclosure on the assets of the corporation was wrongful and done in bad faith the stockholders had no standing to recover for themselves moral damages; otherwise, they would be appropriating and distributing part of the corporation’s assets prior to the dissolution of the corporation and the liquidation of its debts and liabilities. Moreover, in Evangelista v. Santos, the Court, resolving whether or not the minority stockholders had the right to bring an action for damages against the principal officers of the corporation for their own benefit.