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Carag V NLRC

This document summarizes a Supreme Court of the Philippines case regarding whether the chairman of the board of Mariveles Apparel Corporation (MAC), Antonio Carag, can be held personally liable for MAC's debts to its employees. The NLRC arbitrator held MAC and Carag liable for unpaid separation pay to MAC employees after MAC ceased operations. However, the Supreme Court held that under Section 31 of the Corporation Code, a director cannot be held personally liable for a corporation's debts unless bad faith or gross negligence is clearly shown. As the complainants did not allege or present evidence that Carag acted in bad faith or was grossly negligent, he could not be held personally liable.

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320 views1 page

Carag V NLRC

This document summarizes a Supreme Court of the Philippines case regarding whether the chairman of the board of Mariveles Apparel Corporation (MAC), Antonio Carag, can be held personally liable for MAC's debts to its employees. The NLRC arbitrator held MAC and Carag liable for unpaid separation pay to MAC employees after MAC ceased operations. However, the Supreme Court held that under Section 31 of the Corporation Code, a director cannot be held personally liable for a corporation's debts unless bad faith or gross negligence is clearly shown. As the complainants did not allege or present evidence that Carag acted in bad faith or was grossly negligent, he could not be held personally liable.

Uploaded by

Alainah Chua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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G.R. No.

147590             April 2, 2007

ANTONIO C. CARAG, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ISABEL G. PANGANIBAN-ORTIGUERRA, as Executive Labor
Arbiter, NAFLU, and MARIVELES APPAREL CORPORATION LABOR UNION, Respondents.

FACTS:

This is a complaint for illegal dismissal brought about by the illegal closure and cessation of business filed by
National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) for and in
behalf of all rank and file employees against respondents Mariveles Apparel Corporation, Antonio Carag and
Armando David [who are] its owners, Chairman of the Board and President, respectively.

The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr. Armando David, owners
and responsible officer[s] of respondent company to assure the satisfaction of the judgment, should a decision
favorable to them be rendered.

NLRC Arbiter Ortiguerra held that Mariveles Apparel Corporation (MAC), MAC's Chairman of the Board
Antonio Carag (Carag), and MAC's President Armando David (David) (collectively, respondents) are guilty of illegal
closure and are solidarily liable for the separation pay of MAC's rank and file employees. The NLRC denied the
motion to reduce bond filed by MAC and Carag.

ISSUE:

When is a director personally liable for the debts of the corporation?

HELD:

The respondent is not liable.

The rule is that a director is not personally liable for the debts of the corporation, which has a separate legal
personality of its own. Section 31 of the Corporation Code lays down the exceptions to the rule, as follows:

Liability of directors, trustees or officers. - Directors or trustees who wilfully 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.

To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction,
the bad faith or wrongdoing of the director must be established clearly and convincingly. Bad faith is never presumed.
Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means
breach of a known duty through some ill motive or interest. Bad faith partakes of the nature of fraud.

The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful
act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur
conflict of interest, resulting in damages to the corporation, its stockholders or other persons.31 (Boldfacing in the
original; boldfacing with underscoring supplied)

Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or assented to any
patently unlawful act of MAC. Complainants did not present any evidence showing that Carag wilfully and knowingly
voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra make any finding to this
effect in her Decision.

Complainants did not also allege that Carag is guilty of gross negligence or bad faith in directing the affairs
of MAC. Complainants did not present any evidence showing that Carag is guilty of gross negligence or bad faith in
directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision.

Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold Carag personally liable
for the separation pay owed by MAC to complainants based alone on Article 212(e) of the Labor Code. Article 212(e)
does not state that corporate officers are personally liable for the unpaid salaries or separation pay of employees of
the corporation. The liability of corporate officers for corporate debts remains governed by Section 31 of the
Corporation Code.

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