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Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation engaged in the business of
manufacturing electrical parts and supplies. On the other hand, the respondents are members of Samahang
Manggagawa ng Ever Electrical/NAMAWU Local 224 (respondents) headed by Felimon Panganiban.
The controversy started when EEMI closed its business operations on October 11, 2006 resulting in the
termination of the services of its employees.
Aggrieved, respondents filed a complaint for illegal dismissal. Respondents alleged that the closure was
made without any warning, notice or memorandum and in full disregard of the requirements of the Labor Code.
In its defense, EEMI explained that it had closed the business due to various factors. In 1995, it invested in
Orient Commercial Banking Corporation (Orient Bank) the sum of P500,000,000.00 and during the Asian Currency
crises, various economies in the South East Asian Region were hurt badly. EEMI was one of those who suffered
huge losses. In November 1996, it obtained a loan in the amount of P121,400,000.00 from United Coconut Planters
Bank (UCPB). As security for the loan, EEMIs land and its improvements, including the factory, were mortgaged
to UCPB.
EEMIs business suffered further losses due to the continued entry of cheaper goods from China and other
Asian countries. Adding to EEMIs financial woes was the closure of Orient Bank where most of its resources were
invested. As a result, EEMI was not able to meet its loan obligations with UCPB.
In an attempt to save the company, EEMI entered into a dacion en pago arrangement with UCPB which, in
effect, transferred ownership of the companys property to UCPB. Originally, EEMI wanted to lease the premises to
continue its business operation but under UCPBs policy, a previous debtor who failed to settle its loan obligation
was not eligible to lease its acquired assets. Thus, UCPB agreed to lease it to an affiliate corporation, EGO Electrical
Supply Co, Inc. (EGO), for and in behalf of EEMI. On February 2, 2002, a lease agreement was entered into
between UCPB and EGO.[4] The said lease came to a halt when UCPB instituted an unlawful detainer suit against
On August 11, 2006, the MeTC ruled in favor of UCPB and ordered EGO to vacate the leased premises and
pay rentals to UCPB in the amount ofP21,473,843.65.[5] On September 19, 2006, a writ of execution was issued.

Consequently, on October 11, 2006, the Sheriff implemented the writ by closing the premises and, as a result,

EEMIs employees were prevented from entering the factory.

On April 25, 2007, the Labor Arbiter (LA) ruled that respondents were not illegally dismissed. It, however,
ordered EEMI and its President, Vicente Go (Go), to pay their employees separation pay and 13 th month pay

Whether or not Go should be held solidarily liable with EEMI.
As a general rule, corporate officers should not be held solidarily liable with the corporation for separation
pay for it is settled that a 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.[17]

The LA was of the view that Go, as President of the corporation, actively participated in the management of
EEMIs corporate obligations, and, accordingly, rendered judgment ordering EEMI and Go in solidum to pay the
complainants[18] their due. He explained that [r]espondent Gos negligence in not paying the lease rental of the
plant in behalf of the lessee EGO Electrical Supply, Inc., where EEMI was operating and reimburse expenses of
UCPB for real estate taxes and the like, prompted the bank to file an unlawful detainer case against the lessee, EGO
Electrical Supply Co. This evasion of an existing obligation, made respondent Go as liable as respondent EEMI, for
complainants money awards.[19] Added the LA, being the President and the one actively representing respondent
EEMI, in major contracts i.e. Real Estate Mortgage, loans, dacion en pago, respondent Go has to be liable in the
In the present case, Go may have acted in behalf of EEMI but the companys failure to operate cannot be
equated to bad faith. Cessation of business operation is brought about by various causes like mismanagement, lack
of demand, negligence, or lack of business foresight. Unless it can be shown that the closure was deliberate,
malicious and in bad faith, the Court must apply the general rule that a corporation has, by law, a personality
separate and distinct from that of its owners. As there is no evidence that Go, as EEMIs President, acted maliciously
or in bad faith in handling their business affairs and in eventually implementing the closure of its business, he cannot
be held jointly and solidarily liable with EEMI.

CUENCO, Petitioner,
Petitioner leased from respondents the Talisay Tourist Sports Complex for the operation of a cockpit. The lease was
for a period of two (2) years, but was subsequently renewed for a period of four (4) years. Compliant with the lease
contract, petitioner gave respondents a deposit equivalent to six (6) months rental, amounting to Five Hundred
Thousand Pesos (P500,000.00), to answer for whatever damages may be caused to the premises during the period of
the lease.
Upon expiration of the lease contract on May 8, 1998, a public bidding was conducted. The contract was awarded to
a new lessee. Thus, petitioner demanded the return of the amount deposited. However, petitioners four (4) demand
letters remained unheeded. Thus, petitioner filed a complaint for sum of money, damages and attorneys fees before
the Regional Trial Court (RTC) of Cebu City.
The trial court ruled in favor of petitioner and directed the respondents to return the full amount of the deposit plus
interest of three percent (3%) per month from August 18, 1998 until full payment thereof. On appeal, the Court of
Appeals (CA) reversed the decision of the trial court. Hence, petitioner filed a petition for review on
certiorari4before this Court.
Court of Appeals is hereby REVERSED AND SET ASIDE. The Decision of the RTC in Civil Case No. CEB-22847
is hereby REINSTATED with the following modifications:
(1) Talisay Tourist Sports Complex, Inc. is solely liable to return the amount of the deposit after deducting
the amount of the two-months arrears in rentals; and
(2) The rate of legal interest to be paid is SIX PERCENT (6%) on the amount due computed from October
21, 1998, and TWELVE PERCENT (12%) interest, thereon upon finality of this decision until full payment
Unsatisfied, both parties moved for reconsideration. Petitioner moves for partial reconsideration as he denies that he
overstayed for two months in the leased premises. On the other hand, respondents aver that the expenses they
incurred for the repair of the cockpit amounting to Twenty-four Thousand Nine Hundred Pesos ( P24,900.00) should
be deducted from the amount of deposit that will be returned to petitioner.
It was ruled that concerning the solidary liability of respondents, it held that respondent Matias Aznar is not
solidarily liable with respondent company. His function as the President of the company does not make him
personally liable for the obligation of the latter. A corporation, being a juridical entity, may act only through its
directors, officers and employees. Obligations incurred by them while acting as corporate agents, are not their
personal liability but the direct accountability of the corporation they represent.


On March 16, 1987, Domingo signed an Employment Contract with Maschinen & Technik, Inc. (MATEC) as
a consultant, with a compensation package of Php8,000.00/month salary and an allowance of Php400.00/month.
MATEC is a subsidiary of Siemens Philippines. [4] Thereafter, Domingo was given additional work by MATEC, in
which he was paid DM1,800.00/month on top of his original salary..[7]
On January 28, 1992, Electronic Telephone System Industries, Inc. (ETSI) availed of Domingos services as
assistant manager. ETSI, like MATEC is a subsidiary of Siemens Philippines. [8] The Contract of Employment[9] of
Domingo with ETSI provides that the latter shall have the right to assign the said contract in favor of Siemens
Philippines, which is a corporation to be incorporated under the laws of the Philippines.[10]

On March 16, 1992, while still an assistant manager of ETSI, Domingo was hired as a consultant by Siemens
Germany in the field of text and data networks for a period of twelve (12) months.
On March 31, 1992, Siemens Germany sent a letter to ETSI guaranteeing the consultancy agreement between
Siemens Germany and Domingo.
Domingos consultancy contract expired in September 1994. [16] Complacent that the consultancy agreement would
be renewed in accordance with the guarantee letter, Domingo continued to render service as a consultant despite the
absence of a formal notice of renewal.
The incentive scheme was, in effect, a replacement of his consultancy contract with Siemens Germany. Under
the scheme, Domingo would receive a sales compensation package of 20% of his peso salary, or a maximum of
about Php70,000.00 per annum, whereas under the consultancy agreement, he was receiving a fixed salary of
Php370,000.00 (DM20,000.00) per annum. Feeling humiliated by the diminution of his salary, Domingo was forced
to resign. On February 27, 1995, Domingo tendered his Resignation Letter[21] to Siemens Philippines,

On July 6, 1995, Domingo filed a complaint for illegal dismissal and prayed for the payment of salaries,
13th month pay, backwages, damages, separation pay and attorneys fees. [22] Domingo alleged that he was forced to
resign because of the act of Siemens Philippines of not renewing the consultancy agreement. [23] Siemens Philippines
countered that Domingos resignation was voluntary and that they were not privy to the consultancy agreement
between Domingo and Siemens Germany.[24]

The Issue
The crucial issue in this case is whether there was constructive dismissal that would entitle Domingo to his
monetary claims.
The Ruling of the Court

On Illegal Dismissal
We believe, and so hold, that Domingo was constructively dismissed from employment.

First, based on the findings of facts of the LA, NLRC and CA MATEC, ETSI, Siemens Philippines and
Siemens Germany are related companies, the first three being subsidiaries of the parent company, and the fourth,
Siemens Germany, having an investment in Siemens Philippines. Short of piercing the veil of corporate fiction, we
note the intimate corporate relationship of Siemens Germany and Siemens Philippines, including the practice of the
two companies of integrating their workforce.
II. On Domingos Monetary Claims
As stated above, Domingos work as a consultant for Siemens Germany was a privilege or benefit, if not
actually granted, at least acquiesced in by Siemens Philippines. However, this does not mean that the latter
corporation also assumes the responsibility of compensating Domingo for his work as a consultant, even if, by
stepping into the shoes of ETSI, it effectively sealed the guarantee of Siemens Germany for the renewal of
Domingos consultancy contract. In other words, what Siemens Philippines granted to Domingo was only the
privilege to work in another corporation, but it did not undertake to compensate him for such work.
Before a corporation can be held accountable for the corporate liabilities of another, the veil of corporate
fiction must first be pierced. Thus, before Siemens Philippines can be held answerable for the obligations of
Siemens Germany to its employees, it must be sufficiently established that the two companies are actually a single
corporate entity, such that the liability of one is the liability of the other. On this aspect, Domingo has failed to
present the proof necessary to pierce the corporate veil between the two companies.

The SC is not in accord with the Decision of the LA finding Behrens, the President and Chief Executive
Officer of Siemens Philippines, solidarily liable with the company. A corporation, being a juridical entity, may act

only through its directors, officers and employees. Obligations incurred by them, while acting as corporate agents,
are not their personal liability but the direct accountability of the corporation they represent. As a rule, they are only
solidarily liable with the corporation for the termination of employees if they acted with malice or bad faith. [38] In
the case at bar, malice or bad faith on the part of Behrens in the constructive dismissal of Domingo was not
sufficiently proven to justify a ruling holding him solidarily liable with Siemens Philippines.


On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained
a P1,000,000.00[4] loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a
total obligation of P1,240,000.00 to be paid within six (6) months,
To secure the payment of the loan, Pantaleon issued a promissory note and six (6) postdated checks
corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity, [9] and as
duly authorized by the Board of Directors of PRISMA.[10] The petitioners failed to completely pay the loan within
the stipulated six (6)-month period.

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that
the petitioners still had an outstanding balance ofP1,364,151.00 as of January 4, 1997, to which it applied a 4%
monthly interest.[12] Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to
enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court
appearance and costs of suit.[13]


The RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the
piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the
respondent the amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.[16]

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the
separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a
wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially 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 so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.[46] 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. [47]

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act
on the part of PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer,
he made himself accountable in the promissory note in his personal capacity and as authorized by the Board
Resolution of PRISMA.[48] With this statement of personal liability and in the absence of any representation on the
part of PRISMA that the obligation is all its own because of its separate corporate identity, we see no occasion to
consider piercing the corporate veil as material to the case.

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice-President for Operations and
Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation
had a contract with the Philippine Army to supply the latter with survival bolos.

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro
Corporation, applied with respondent Bank of the Philippine Islands (respondent bank) for two commercial letters
of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing
Incorporated[3] (Tanchaoco Incorporated) and Maresco Rubber and Retreading Corporation [4] (Maresco
Corporation). Respondent bank granted petitioners application and issued Letter of Credit
Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of
respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his
personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose
Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if
sold, or to return the goods, if not sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt
corresponding to Letter of Credit No. 2-00914-5 (forP294,000). Petitioners bound themselves to sell the goods
covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not
sold, on or before 8 December 1981.
Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts;

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts
incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation
they represent.[12] As an exception, directors or officers are personally liable for the corporations debts only if they
so contractually agree or stipulate.[13]

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation.
Thus, under petitioner Petronila Tupazs signature are the words Vice-PresTreasurer and under petitioner Jose
Tupazs signature are the words Vice-PresOperations. By so signing that trust receipt, petitioners did not bind
themselves personally liable for El Oro Corporations obligation

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for
El Oro Corporations obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed
alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El
Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for
El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila
Tupaz is not liable under such trust receipt.
1. Lynvil Fishing Enterprises, Inc. (Lynvil) is a company engaged in deep-sea fishing, operating along the
shores of Palawan and other outlying islands of the Philippines. [4] It is operated and managed by Rosendo S. de
2. On 1 August 1998, Lynvil received a report from Romanito Clarido, one of its employees, that on 31
July 1998, he witnessed that while on board the company vessel Analyn VIII, Lynvil employees, namely: Andres G.
Ariola (Ariola), the captain; Jessie D. Alcovendas (Alcovendas), Chief Mate; Jimmy B. Calinao (Calinao), Chief
Engineer; Ismael G. Nubla (Nubla), cook; Elorde Baez (Baez), oiler; and Leopoldo D. Sebullen
(Sebullen), bodegero, conspired with one another and stole eight (8) tubs of pampano and tangigue fish and
delivered them to another vessel, to the prejudice of Lynvil.[5]

3. The said employees were engaged on a per trip basis or por viaje which terminates at the end of each
trip. Ariola, Alcovendas and Calinao were managerial field personnel while the rest of the crew were field
4. By reason of the report and after initial investigation, Lynvils General Manager Rosendo S. De Borja
(De Borja) summoned respondents to explain within five (5) days why they should not be dismissed from
service. However, except for Alcovendas and Baez,[7] the respondents refused to sign the receipt of the notice.
5. Failing to explain as required, respondents employment was terminated.
6. Lynvil, through De Borja, filed a criminal complaint against the dismissed employees for violation of
P.D. 532, or the Anti-Piracy and Anti-Highway Robbery Law of 1974 before the Office of the City Prosecutor of
Malabon City.[8]
7. On 12 November 1998, First Assistant City Prosecutor Rosauro Silverio found probable cause for the
indictment of the dismissed employees for the crime of qualified theft[9] under the Revised Penal Code.
On the other hand, the story of the defense is:
1. The private respondents were crew members of Lynvils vessel named Analyn VIII. [10]

On 31 July 1998, they arrived at the Navotas Fishport on board Analyn VIII loaded with

1,241 baeras of different kinds of fishes. These baeras were delivered to a consignee named SAS and Royale.[11]
The following day, the private respondents reported back to Lynvil office to inquire about their new job
assignment but were told to wait for further advice. They were not allowed to board any vessel.[12]
3. On 5 August 1998, only Alcovendas and Baez received a memorandum from De Borja ordering them to
explain the incident that happened on 31 July 1998. Upon being informed about this, Ariola, Calinao, Nubla and
Sebullen went to the Lynvil office. However, they were told that their employments were already terminated. [13]
Aggrieved, the employees filed with the Arbitration Branch of the National Labor Relations CommissionNational Capital Region on 25 August 1998 a complaint for illegal dismissal with claims for backwages, salary
differential reinstatement, service incentive leave, holiday pay and its premium and 13 th month pay from 1996
to1998. They also claimed for moral, exemplary damages and attorneys fees for their dismissal with bad faith. [14]
They added that the unwarranted accusation of theft stemmed from their oral demand of increase of salaries
three months earlier and their request that they should not be required to sign a blank payroll and vouchers. [15]

On 5 June 2002, Labor Arbiter Ramon Valentin C. Reyes found merit in complainants charge of illegal
dismissal.[16] The dispositive portion reads:

The Labor Arbiter found that there was no evidence showing that the private respondents received the
41 baeras of pampano as alleged by De Borja in his reply-affidavit; and that no proof was presented that the
8 baeras of pampano [and tangigue] were missing at the place of destination.[18]
The Labor Arbiter disregarded the Resolution of Assistant City Prosecutor Rosauro Silverio on the theft
case. He reasoned out that the Labor Office is governed by different rules for the determination of the validity of the
dismissal of employees.[19]
The Labor Arbiter also ruled that the contractual provision that the employment terminates upon the end of
each trip does not make the respondents dismissal legal. He pointed out that respondents and Lynvil did not
negotiate on equal terms because of the moral dominance of the employer.[20]
The Labor Arbiter found that the procedural due process was not complied with and that the mere notice given
to the private respondents fell short of the requirement of ample opportunity to present the employees side. [21]
On appeal before the National Labor Relations Commission, petitioners asserted that private respondents were
only contractual employees; that they were not illegally dismissed but were accorded procedural due process and
that De Borja did not commit bad faith in dismissing the employees so as to warrant his joint liability with Lynvil. [22]
On 31 March 2004, the NLRC reversed and set aside the Decision of the Labor Arbiter. The dispositive
portion reads:

The Court of Appeals found merit in the petition and reinstated the Decision of the Labor Arbiter except as
to the award of attorneys fees. The appellate court held that the allegation of theft did not warrant the dismissal of
the employees since there was no evidence to prove the actual quantities of the missing kinds of fish loaded to
Analyn VIII.
In illegal dismissal cases, the employer bears the burden of proving that the termination was for a valid or
authorized cause.[34]
Breach of trust is present in this case.
We cannot close our eyes to the positive and clear narration of facts of the three witnesses to the
commission of qualified theft.

Whether De Borja is jointly and severally liable with Lynvil

As to the last issue, this Court has ruled that in labor cases, the corporate directors and officers are
solidarily liable with the corporation for the termination of employment of employees done with malice or in bad
faith.[46] Indeed, moral damages are recoverable when the dismissal of an employee is attended by bad faith or fraud
or constitutes an act oppressive to labor, or is done in a manner contrary to good morals, good customs or public
It has also been discussed in MAM Realty Development Corporation v. NLRC[47] that:
x x x A corporation being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent. True, solidary liabilities may at times be
incurred but only when exceptional circumstances warrant such as, generally, in the following
1. When directors and trustees or, in appropriate cases, the officers of a corporation:
(b) act in bad faith or with gross negligence in directing the corporate affairs;
x x x [48]
The term "bad faith" contemplates a "state of mind affirmatively operating with furtive design or with some
motive of self-interest or will or for ulterior purpose."[49]
We agree with the ruling of both the NLRC and the Court of Appeals when they pronounced that there was no
evidence on record that indicates commission of bad faith on the part of De Borja.

He is the general manager of

Lynvil, the one tasked with the supervision by the employees and the operation of the business. However, there is no
proof that he imposed on the respondents the por viaje provision for purpose of effecting their summary dismissal.
. The Court hereby rules that the employees were dismissed for just cause by Lynvil Fishing Enterprises, Inc. and
Rosendo S. De Borja
Petitioner Blue Sky Trading Company, Inc. (Blue Sky) is a duly registered domestic corporation engaged in
the importation and sale of medical supplies and equipment. Petitioner Jose G. Tantiansu, Jr. (Jose) is Blue Sky's
vice president for operations while petitioner Linda G. Tantiansu (Linda) is its assistant corporate secretary. The
respondents Arlene P. Blas (Arlene) and Joseph D. Silvano (Joseph) were regular employees of Blue Sky and they

respectively held the positions of stock clerk and warehouse helper before they were dismissed from service on
February 5, 2005.

On January 29, 2005, Lorna N. Manalastas (Lorna), Blue Sky's warehouse supervisor, wrote Jose a
memorandum[6] informing the latter that six pairs of intensifying screens were missing. Lorna likewise stated that
when a certain Boy conducted an inventory on October 2004, the screens were still completely accounted for.

On January 31, 2005, Helario Adonis, Jr. (Helario), warehouse personnel, was summoned by Linda, Jose's
wife Alice Tantiansu, and human resources department head Jean B. De La Paz (Jean). Helario was asked to admit
his participation in the theft of the missing screens. While he was offered to be paid a separation pay if he would
confess complicity with the alleged theft, he pleaded utter innocence.

On February 1, 2005, Jean notified Helario of his termination from service on the ground of his failure to
properly account for and maintain a balance of the company's stock inventories, hence, resulting in Blue Sky's loss
of trust and confidence in him. [7] The day after, Blue Sky promptly filed with the Department of Labor and
Employment (DOLE) an establishment termination report [8] indicating therein Helario's dismissal from service for

On February 3, 2005, Jean issued notices to explain/preventive suspension [9] to Arlene, Joseph, delivery
personnel Jayde Tano-an (Jayde) and maintenance personnel/driver Wilfredo Fasonilao (Wilfredo). The notices
informed them that they were being accused of gross dishonesty in connection with their alleged participation in and
conspiracy with other employees in committing theft against company property, specifically relative to the loss of
the six intensifying screens. They were placed under preventive suspension pending investigation and were thus
required to file their written explanations within 48 hours from receipt of the notices.

On February 4, 2005, Arlene submitted to Jean a handwritten memorandum denying knowledge or complicity
with the theft of the intensifying screens. In part, the memorandum reads:

On February 5, 2005, Jean issued to Arlene, Joseph, Jayde and Wilfredo notices of dismissal for
cause[13] stating therein that evidence that they had conspired with each other to commit theft against company
property was too glaring to ignore. Blue Sky had lost its trust and confidence on them and as an act of selfpreservation, their termination from service was in order.

On February 7, 2005, Blue Sky filed with the DOLE an establishment termination report stating therein the
dismissal of Arlene, Joseph, Jayde and Wilfredo.[14]

On February 8, 2005, Arlene, Joseph, Helario, Jayde and Wilfredo filed with the National Labor Relations
Commission (NLRC) a complaint for illegal dismissal and suspension, underpayment of overtime pay, and nonpayment of emergency cost of living allowance (ECOLA), with prayers for reinstatement and payment of full
backwages. The complaint was docketed as NLRC NCR Case No. 00-02-01351-05.

Meanwhile, an entrapment operation was conducted by the police during which Jayde and Helario were
caught allegedly attempting to sell to an operative an ultrasound probe worth around P400,000.00 belonging to Blue
Sky. On April 22, 2005, Quezon City Inquest Prosecutor Arleen Tagaban issued a resolution [15]recommending the
filing in court of criminal charges against Jayde and Helario.

The Rulings of the NLRC

On November 29, 2007, the NLRC ordered the reinstatement of Arlene and Joseph and the payment to them
of full backwages and ten percent attorney's fees.

Jose and Linda cannot be held solidarily liable for the

dismissal of Arlene and Joseph in the absence of proof that
they acted with malice and bad faith.

As a general rule, a corporate officer cannot be held liable for acts done in his official capacity because a
corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.

In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the

termination was done with malice or bad faith. [43] We find that the aforementioned circumstance did not obtain in the
case of Jose and Linda relative to Arlene and Joseph's dismissal from service.




Respondent Innodata Philippines, Inc./Innodata Corporation (INNODATA) was a domestic corporation

engaged in the data encoding and data conversion business. It employed encoders, indexers, formatters,
programmers, quality/quantity staff, and others, to maintain its business and accomplish the job orders of its
clients. Respondent Leo Rabang was its Human Resources and Development (HRAD) Manager, while respondent
Jane Navarette was its Project Manager. INNODATA had since ceased operations due to business losses in June

Petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita Arbilera were employed as formatters by
INNODATA. The parties executed an employment contract denominated as a Contract of Employment for a Fixed
Period, stipulating that the contract shall be for a period of one year,[3]
During their employment as formatters, petitioners were assigned to handle jobs for various clients of
INNODATA, among which were CAS, Retro, Meridian, Adobe, Netlib, PSM, and Earthweb. Once they finished the
job for one client, they were immediately assigned to do a new job for another client.
On 16 February 2000, the HRAD Manager of INNODATA wrote petitioners informing them of their
last day of work.

On 22 May 2000, petitioners filed a Complaint [6] for illegal dismissal and damages against
respondents. Petitioners claimed that they should be considered regular employees since their positions as

formatters were necessary and desirable to the usual business of INNODATA as an encoding, conversion and data
processing company.
Petitioners argued that they could not be considered project employees considering that their employment
was not coterminous with any project or undertaking, the termination of which was predetermined.

Respondents asserted that petitioners were not illegally dismissed, for their employment was terminated
due to the expiration of their terms of employment. Petitioners contracts of employment with INNODATA were for
a limited period only, commencing on 6 September 1999 and ending on 16 February 2000.[10] Respondents further
argued that petitioners were estopped from asserting a position contrary to the contracts which they had knowingly,
voluntarily, and willfully agreed to or entered into. There being no illegal dismissal, respondents likewise
maintained that petitioners were not entitled to reinstatement and backwages.


Labor Arbiter[11] issued its Decision[12] finding petitioners complaint for illegal dismissal and damages
meritorious. The Labor Arbiter held that as formatters, petitioners occupied jobs that were necessary, desirable, and
indispensable to the data processing and encoding business of INNODATA. By the very nature of their work as
formatters, petitioners should be considered regular employees of INNODATA, who were entitled to security of
Respondent INNODATA appealed the Labor Arbiters Decision to the NLRC. The NLRC, in its Decision
dated 14 December 2001, reversed the Labor Arbiters Decision dated 17 October 2000, and absolved INNODATA
of the charge of illegal dismissal.

The NLRC found that petitioners were not regular employees, but were fixed-term employees as stipulated
in their respective contracts of employment.


In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as formatters. The
primary business of INNODATA is data encoding, and the formatting of the data entered into the computers is an
essential part of the process of data encoding. Formatting organizes the data encoded, making it easier to understand
for the clients and/or the intended end users thereof. Undeniably, the work performed by petitioners was necessary
or desirable in the business or trade of INNODATA.

While this Court has recognized the validity of fixed-term employment contracts, it has consistently held
that this is the exception rather than the general rule. More importantly, a fixed-term employment is valid only under
certain circumstances.
In all, respondents insistence that it can legally dismiss petitioners on the ground that their term of
employment has expired is untenable. To reiterate, petitioners, being regular employees of INNODATA, are entitled
to security of tenure.

By virtue of the foregoing, an illegally dismissed employee is entitled to reinstatement without loss of
seniority rights and other privileges, with full back wages computed from the time of dismissal up to the time of
actual reinstatement.

Considering that reinstatement is no longer possible on the ground that INNODATA had ceased its
operations in June 2002 due to business losses, the proper award is separation pay equivalent to one month pay[31] for
every year of service, to be computed from the commencement of their employment up to the closure of

Finally, unless they have exceeded their authority, corporate officers are, as a general rule, not
personally liable for their official acts, because a corporation, by legal fiction, has a personality separate and
distinct from its officers, stockholders and members. Although as an exception, corporate directors and
officers are solidarily held liable with the corporation, where terminations of employment are done with
malice or in bad faith,[33] in the absence of evidence that they acted with malice or bad faith herein, the Court
exempts the individual respondents, Leo Rabang and Jane Navarette, from any personal liability for the
illegal dismissal of petitioners.

The three consolidated cases stemmed from the complaint for Declaration of Nullity of Share Issue,
Receivership and Dissolution filed on August 14, 2000 before the Regional Trial Court (RTC) of Cebu City
by David Lu, et al. against Paterno Lu Ym, Sr. and sons (Lu Ym father and sons) and LLDC.
By Decision of March 1, 2004, Branch 12 of the RTC ruled in favor of David et al. by annulling the issuance
of the shares of stock subscribed and paid by Lu Ym father and sons at less than par value, and ordering the
dissolution and asset liquidation of LLDC. The appeal of the trial courts Decision remains pending with the
appellate court in CA-G.R. CV No. 81163.
The property of the corporation is not the personal property of the stockholders or vice versa.
A basic concept in corporate property, if it exist at all, is indirect, contingent, remote, conjectural, consequential, and
collateral. A shares of stocks, although representing proportionate or aliquot interest in the properties of the
corporation, does not vest its holder with any legal right or title to any of the properties, such holders interest in the
properties being equitable or beneficial in the nature. A shareholder is in no legal sense the owner of corporate
properties, which are owned by the corporation as a distinct legal person.

A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union Aquamarine
Corporation (Golden), Prospero Gois and herein respondent Susan Mercaida Gois before the Regional Arbitration
Branch No. VIII of the National Labor Relations Commission.
Labor Arbiter Philip B. Montaces rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered


Finding illegality in the dismissal of complainant Virgilio Delima from his employment;


Ordering respondent Golden Union Aquamarine Corporation to pay complainant.

Golden failed to appeal the aforesaid decision; hence, it became final and executory. A writ of execution
was issued and an Isuzu Jeep with plate number PGE-531 was attached.

Thereafter, respondent Gois filed an Affidavit of Third Party Claim claiming that the attachment of the vehicle
was irregular because said vehicle was registered in her name and not Goldens; and that she was not a party to the
illegal dismissal case filed by Delima against Golden. [4]

In an Order[5] dated December 29, 2005, the Labor Arbiter denied respondents third-party claim on grounds
that respondent was named in the complaint as one of the respondents; that summons were served upon her and
Prospero Gois; that both verified Goldens Position Paper and alleged therein that they are the respondents; and that
respondent is one of the incorporators/officers of the corporation.

Gois filed an appeal before the NLRC. At the same time, she filed a motion before the Labor Arbiter to
release the motor vehicle after substituting the same with a cash bond in the amount of P115,561.05.

On December 21, 2006, the appellate court rendered a Decision in favor of respondent, which reads in part:

In the decision dated April 29, 2005 rendered by Labor Arbiter Montaces, the dispositive
portion confined itself in directing Golden Union Aquamarine Corporation only, no more and no
less, to pay private respondent the award stated therein, but did not mention that the liability is
joint and solidary with petitioner Susan Gois although the complaint filed by the private
respondent included petitioner as among the respondents therein.

It bears stress also that corporate officers cannot be held liable for damages on account of
the employees dismissal because the employer corporation has a personality separate and distinct
from its officers who merely acted as its agents. They are only solidarily liable with the
corporation for the termination of employment of employees if the same was done with malice or
in bad faith. In the case at bench, it was not clearly shown and established that the termination of
private respondent from employment was tainted with evident malice and bad faith.
A corporation has a personality distinct and separate from its individual stockholders or members and from
that of its officers who manage and run its affairs. The rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities. Thus, property belonging to a corporation
cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the
assets and business of the former.[16]
Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner the
sum of P115,561.05 and the same was not joint and solidary obligation with Gois, then the latter could not be held
personally liable since Golden has a separate and distinct personality of its own. It remains undisputed that the
subject vehicle was owned by Gois, hence it should not be attached to answer for the liabilities of the
corporation. Unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable
for their official acts, because a corporation, by legal fiction, has a personality separate and distinct from its officers,
stockholders and members. No evidence was presented to show that the termination of the petitioner was done with
malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the corporation.
Golden must reimburse respondent Gois the amount of P115,561.05. To rule otherwise would result in
unjust enrichment of Golden. The corporation has benefited from the payment made by Gois because it was
relieved from its obligation to pay to petitioner the judgment debt.