G.R. No. 154464 - Cruz vs. Mijares

Case Summary (G.R. No. 154464)

Relevant Dates and Procedural History

Complaint for illegal dismissal filed on January 20, 2011.
Labor Arbiter (LA) Decision dated November 9, 2011 held Kho solidarily liable with the Corporation.
National Labor Relations Commission (NLRC) reversed LA’s decision on May 7, 2015, dismissing petitioners’ claims against Kho.
Court of Appeals (CA) reversed NLRC on July 19, 2017, reinstating LA’s decision.
Final resolution by the Supreme Court on July 29, 2019.

Applicable Law: Labor Code and Corporation Code

The case primarily involves Article 298 (formerly Article 283) of the Labor Code of the Philippines, which governs termination due to closure of an establishment, mandating prior written notice and the payment of separation pay. Also relevant is Section 31 of the Corporation Code (Batas Pambansa Blg. 68), which limits personal liability of corporate officers and stockholders but allows piercing the corporate veil under exceptional circumstances such as fraud, bad faith, or wilful misconduct.

Factual Background and Claims

Respondents alleged they were employed by the Corporation, operating the Tres Pares Fast Food restaurant, performing typical employee functions. They claimed that on January 14, 2011, a notice was posted by petitioner’s daughter declaring the closure of the restaurant effective January 19, 2011, leading to their termination without prior notice or payment of separation pay. Respondents sought separation pay, salary differentials, damages, and attorney’s fees on grounds of illegal dismissal. Spouses Kho denied any employer-employee relationship with respondents, asserting the Corporation’s independent juridical personality shielded them from personal liability.

Labor Arbiter’s Findings and Ruling

The LA ruled in favor of respondents, ordering the Corporation and Kho to pay separation pay, salary and 13th month pay differentials, nominal damages, and attorney’s fees totaling over ₱3 million. The LA found that the Corporation failed to prove financial reasons for closure or to comply with procedural notice requirements under Article 298 of the Labor Code. Furthermore, the LA held Kho solidarily liable, reasoning that he was the Corporation’s President at the time and assented to the unlawful closure.

NLRC’s Decision and Rationale

The NLRC reversed the LA, dismissing claims against Kho. It emphasized the lack of allegations or proof of any unlawful act committed by Kho that would justify piercing the corporate veil or holding him personally liable. The NLRC noted that the Corporation’s General Information Sheet (GIS) identified “Domingo M. Ifurung,” not Kho, as President at the time of closure. Mere procedural lapses such as failure to give closure notice did not make Kho personally liable.

CA’s Reversal of NLRC

The CA reinstated the LA decision and held Kho solidarily liable with the Corporation. The court relied on Kho’s admissions that he managed the Corporation, that the closure notice was posted by his daughter, and that respondents sought a meeting with him regarding the closure, inferring Kho’s bad faith in the sudden closure without board resolution. The CA cited Marc II Marketing, Inc. v. Joson to support the piercing of the corporate veil and personal liability of Kho.

Supreme Court’s Issue for Resolution

The Supreme Court was tasked with determining whether the CA correctly found grave abuse of discretion on the part of the NLRC and properly held Kho solidarily liable alongside the Corporation for respondents’ claims.

Supreme Court’s Standard of Review

Under Rule 45 of the Rules of Court, the Supreme Court limits review to questions of law and examines whether the CA properly found grave abuse of discretion—a capricious and despotic exercise of judgment—by the NLRC. Grave abuse is established when findings lack substantial evidence or run contrary to the applicable law.

Supreme Court’s Analysis on Corporate Personality and Liability

The Court reaffirmed the well-settled principle that a corporation is a juridical entity, legally separate and distinct from its officers and stockholders. Obligations incurred by the corporation are its sole liabilities, and personal liability on officers or stockholders attaches only under exceptional circumstances, such as:
(a) use of the corporate form to evade obligations, perpetrate fraud, or defeat public convenience;
(b) acts characterized by bad faith, gross negligence, fraud, or conflict of interest; or
(c) when the corporation is a mere alter ego or instrumentality of another person or entity.

Requirements for Imposing Personal Liability on Corporate Officers

For a director, officer, or stockholder to be held solidarily liable in a labor case, two essential requisites must concur:
(a) clear allegations in the complaint of bad faith, gross negligence, fraud, or the like; and
(b) clear and convincing evidence proving such grounds to overcome the complainant’s burden of proof.

Application of the Law to the Present Case

The Supreme Court found no substantial evidence supporting the conclusion that Kho was the Corporation’s President at the time of closure. The Corporation’s GIS in 2007 and 2008 listed Kho as Treasurer, and the 2009 GIS showed no corporate office held by him. Respondents failed to produce evidence proving Kho’s status as a corporate officer at closure or that he committed unlawful acts with bad faith. The posting of the closure notice by

Case Syllabus (G.R. No. 154464)

Case Background and Parties Involved

The case arose from a petition for review on certiorari assailing the Court of Appeals’ decision and resolution reinstating the Labor Arbiter’s Decision which held Hayden Kho, Sr. (Kho) solidarily liable with Holy Face Cell Corporation for illegal dismissal claims filed by the respondents.
Respondents were employees working as cooks, cashiers, or dishwashers in Tres Pares Fast Food, which was operated by Holy Face Cell Corporation.
The complaint for illegal dismissal was filed due to a sudden closure of the restaurant, allegedly ordered by the corporate officers including Kho, who was allegedly the President/Manager.
Respondents claimed illegal dismissal entitling them to separation pay and other damages.
Spouses Kho contested liability, arguing that the corporation is a separate juridical entity and no employer-employee relationship existed between Kho and respondents.

Facts Leading to the Case

On January 14, 2011, a notice of closure was posted by Sheryl Kho, daughter of Spouses Kho, stating the restaurant would close on January 19, 2011.
Respondents sought to talk to Kho regarding the closure but were unsuccessful.
The restaurant closed as scheduled, prompting respondents to file for illegal dismissal claiming separation pay, salary differentials, nominal damages, and attorney's fees.
Spouses Kho denied personal liability, asserting the Corporation’s separate personality and absence of any act justifying piercing the corporate veil.

Labor Arbiter's Decision

The Labor Arbiter ruled in favor of respondents, ordering Holy Face Cell Corporation and petitioner Kho to pay separation pay, salary and 13th month pay differentials, nominal damages, and attorney’s fees aggregating P3,254,466.60.
The Labor Arbiter found the Corporation failed to prove closure due to financial distress or comply with the procedural notice requirements under Article 298 of the Labor Code.
Kho was held solidarity liable as President of the Corporation at the time of closure, an allegation not denied by him.

National Labor Relations Commission (NLRC) Ruling

The NLRC reversed the Labor Arbiter’s decision, dismissing the complaint against Kho.
It emphasized the Corporate personality of the Corporation, ruling Kho cannot be held personally liable absent any proof or allegation of him committing wrongful acts justifying piercing the corporate veil.
The NLRC found that per the Corporation's General Information Sheet (GIS), Kho was not the Corporation's President at the time of closure but was Domingo M. Ifurung.
It distinguished noncompliance with procedural notice as insufficient ground for Kho’s personal liability.

Court of Appeals (CA) Decision and Rationale

The CA reversed the NLRC, reinstating the Labor Arbiter’s decision holding Kho and the Corporation solidarily liable.
It ruled respondents entitled to separation pay and nominal damages following Article 298 of the Labor Code and prevailing jurisprudence.
Found Kho effectively admitted management role, receipt of closure notice, and his