GR 172885; (October, 2009) (Digest)
G.R. No. 172885 ; October 9, 2009
MANUEL LUIS S. SANCHEZ, Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Represented by the Department of Education, Culture and Sports, Respondent.
FACTS
The University of Life Foundation, Inc. (ULFI), a private corporation, managed the government-owned University of Life Complex under a series of agreements. After a successful ejectment suit filed by the Department of Education, Culture and Sports (DECS), ULFI was ordered to vacate the Complex and pay accrued rentals amounting to over ₱22 million. ULFI failed to satisfy this monetary judgment. Consequently, the DECS filed a collection suit against ULFI’s key officers, Henri Kahn and petitioner Manuel Luis S. Sanchez, who served as Managing Director and Finance Director, respectively. The complaint alleged that they operated ULFI as their own, collected rentals, but failed to remit these to the DECS as mandated, and did not properly account for the corporate funds.
The Regional Trial Court held Kahn and Sanchez jointly and severally liable for the unpaid rentals, exemplary damages, and attorney’s fees. Sanchez appealed, arguing he could not be held personally liable for a corporate obligation absent grounds to pierce the corporate veil. He also contended the action was barred by res judicata since the judgment was against ULFI, and claimed ULFI had no net income from operations to remit. The Court of Appeals affirmed the trial court’s decision, prompting this petition.
ISSUE
Whether petitioner Manuel Luis S. Sanchez, as a corporate officer, may be held personally liable for the unpaid corporate obligations of ULFI to the DECS.
RULING
Yes. The Supreme Court affirmed the lower courts’ decisions, holding Sanchez personally liable under Section 31 of the Corporation Code. The legal logic is that corporate officers who assent to a patently unlawful act, or who are guilty of gross negligence or bad faith in directing corporate affairs, may be held personally accountable for corporate liabilities. The Court found that Sanchez, as Finance Director, was directly responsible for the custody and disposition of corporate funds. The evidence established that he and Kahn collected rentals from the Complex but willfully failed to remit them to the DECS as expressly required by their Management Agreement. This constituted gross negligence and bad faith.
The defense of res judicata fails because the present case is a distinct cause of action for collection based on the officers’ personal tortious acts, separate from the prior ejectment case which established ULFI’s corporate liability. The claim that ULFI had no net income was irrelevant; the obligation to remit was based on gross collections, not net profit, and Sanchez’s failure to account for the funds or place them in a corporate account demonstrated a disregard of corporate separateness for personal ends, justifying personal liability without a need to formally pierce the corporate veil. His actions directly caused damage to the DECS.