G.R. No. 237246 July 24, 2019
Hayden Kho, Sr., Petitioner vs. Dolores G. Magbanua, et al., Respondents

FACTS

Respondents were employees of Holy Face Cell Corporation, operating under the trade name Tres Pares Fast Food. On January 14, 2011, a notice of the restaurant’s closure on January 19, 2011 was posted by petitioner Hayden Kho, Sr.’s daughter. Respondents, fearing job loss, attempted to discuss the closure with Kho but were unsuccessful. They subsequently filed a complaint for illegal dismissal against the Corporation and Kho, alleging he was its President/Manager. The Labor Arbiter ruled in favor of the employees, holding the Corporation and Kho solidarily liable for separation pay and damages, citing the lack of proof for closure due to serious business losses and non-compliance with procedural due process.
The National Labor Relations Commission reversed the Labor Arbiter’s decision regarding Kho’s personal liability. The NLRC found that Kho was not the Corporation’s President per its General Information Sheet and that there was no allegation or proof to justify piercing the corporate veil. The Court of Appeals subsequently reinstated the Labor Arbiter’s ruling, holding Kho solidarily liable. The CA concluded Kho acted in bad faith by assenting to the abrupt closure without a board resolution, thereby making him personally accountable.

ISSUE

Whether the Court of Appeals correctly held petitioner Hayden Kho, Sr. solidarily liable with the Corporation for the payment of respondents’ monetary claims.

RULING

No. The Supreme Court ruled that the Court of Appeals erred in holding Kho solidarily liable. The fundamental principle is that a corporation has a personality separate and distinct from its stockholders, directors, and officers. Personal liability of corporate officers attaches only in exceptional circumstances, such as when they act with malice or bad faith, or when the corporate veil is pierced due to it being used as a cloak for fraud or illegality.
The Court found no evidence to support the CA’s finding of bad faith. The mere failure to comply with procedural due process in effecting a closure or dismissal does not, by itself, constitute an unlawful act warranting personal liability. Bad faith implies a dishonest purpose or breach of a known duty through some ill motive, which was not established. The records did not show that Kho acted with malice or that the corporate fiction was used to defeat public convenience, justify wrong, or perpetrate fraud. The allegation that he managed the corporation and was sought for an audience was insufficient to prove bad faith warranting the piercing of the corporate veil. Consequently, only the corporate entity, Holy Face Cell Corporation, should be held liable for the awarded claims.