Ever Electrical v. Samahang Manggagawa (AJG) G. R. No. 194795 June 13, 2005 Mendoza, J.

Petitioners: Ever Electrical Manufacturing, Inc., Vicente Go Respondents: Samahang Manggagawa ng Ever Electrical/ Namawu Local 224 rep. by Felimon Panganiban SUMMARY: EEMI suffered business losses because of the Asian Financial Crises and Orient Bank, an entity which it invested a lot in, closed. As a result, it was not able to pay its loan to UCPB, hence UCPB foreclosed its properties. EEMI wanted to lease these foreclosed properties for it to continue its operations, however, there is this policy of UCPB which prohibits leases to previous debtors. Therefore, they mutually agreed to have an affiliate entity, EGO Electrical Supply, to lease those properties. Then, EEMI continued operations. EEMI (with Go as the president), failed to pay rentals, hence an unlawful detainer judgment was enforced and kicked EEMI out of the property. Hence, workers filed for illegal dismissal and benefits. LA ruled for workers, reversed by NLRC, reversed again by CA, then partially modified by SC. SC said that EEMI is liable to pay separation pay because the ground is not due to business losses but because of the enforcement of a judgment. But the officers are not solidarily liable for payment of such because there was no evidence that bad faith or malice attended the closure of the business. FACTS: Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation engaged in the business of manufacturing electrical parts and supplies. Respondents are members of the workers union. EEMI closed its operations on 2006 resulting in the termination of its employees. Hence, the union filed for th illegal dismissal with prayer for benefits (13 month, separation, damages, attorneys fees). They allege that the closure was without any warning, notice, or memo, in full disregard of the requirements under Labor Code. EEMIs Arguments, losses due to the following factors: o In 1995, it invested 500 million in Orient Bank. o During the Asian Currency crises, various economies in Southeast Asian Region were hurt badly, and EEMI was directly affected and suffered huge losses. o 1996 EEMI 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.

EEMI further suffered from losses because of the entry of cheap goods from China and other Asian countries. o Lastly, the closure of Orient Bank added to its financial woes because it is where most of its resources were invested. It was not able to meet its obligations to UCPB. Issues under UCPB o 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. o 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. Hence they mutually agreed to circumvent this policy. UCPB agreed to lease it to an affiliate corporation, EGO Electrical Supply Co, Inc. (EGO), for and in behalf of EEMI. However, after a while, despite their lease contract, UCPB instituted an unlawful detainer suit against EGO (Note: Malalaman nyo in the ratio na di pala nakapagbayad yung officers ng rent kaya ganito) . The writ was issued, hence EEMIs employees was not able to enter the factory. Labor Arbiters Ruling no illegal dismissal, but ordered to pay benefits. Go is solidarily liable. NLRCs Ruling reversed LA. Cessation was due to serious business losses, no separation pay.

CAs Ruling reinstated LAs decision (awarded benefits). The officers are solidarily liable with the corporation for payment pf such. th o Respondents were entitled to separation pay and 13 month pay because the closure of EEMIs business operation was effected by the enforcement of a writ of execution and not by reason of business losses. o Restaurante Las Conchas v. Lydia Llego - when the employer corporation is no longer existing and unable to satisfy the judgment in favor of the employees, the officers should be held liable for acting on behalf of the corporation.

ISSUES: 1. Whether or not CA erred in finding that the closure was not due to business losses --- NO 2. Whether the CA erred in finding Vicente Go solidarily liable with EEMI - YES HELD: Petition partially granted. Decision of CA modified. RATIO: AUTHORIZED CAUSE ISSUE

Article 283 of the Labor Code identifies closure or cessation of operation of the establishment as an authorized cause for terminating an employee. o It also says that those who are separated from work not due to business insolvency are entitled to separation pay equivalent to one-month pay or to at least one-half month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered one whole year. It is still essential that the alleged losses in the business operations be proven convincingly; otherwise, would be susceptible to abuse by conniving employers, who might be merely feigning business losses or reverses in theirbusiness ventures in order to ease out employees. In this case, EEMI failed to establish that the main reason for its closure was business reverses. As aptly observed by the CA, the cessation of EEMIs business was not directly brought about by serious business losses or financial reverses, but by reason of the enforcement of a judgment against it. Thus, EEMI should be required to pay separation pay to its affected employees.

SOLIDARY LIABILITY ISSUE 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 separate juridical personality. The following reasoning of LA is incorrect: o LA said that Go, as President of the corporation, actively participated in the management of EEMIs corporate obligations. He is the one who represented EEMI in major contracts. o His negligence in not paying the lease rental of the plant in behalf of the lessee EGO Electrical Supply, Inc., prompted the bank to file an unlawful detainer case against the lessee, EGO Electrical Supply Co. o This evasion of an existing obligation, made respondent Go as liable as respondent EEMI, for complainants money awards. LA also cited Las Conchas case. This is not applicable because of the peculiar circumstances of the case. If the rule in that case would be applied, the employees would end up in an empty victory because as the restaurant had been closed for lack of venue, there would be no one to pay its liability as the respondents therein claimed that the restaurant was owned by a different entity, not a party in the case.

Three cases that refused to apply Las Conchas: o Mandaue Dinghow Dimsum House: there was no evidence that the respondent therein, Henry Uytrengsu, acted in bad faith or in excess of his authority. Doctrine of piercing the corporate veil must be exercised with caution in the absence of such. o Malayang Samahan ng Manggagawa sa M. Greenfield vs. Ramos : corporate directors and officers are solidarily liable with the corporation for the termination of employees done with malice or bad faith. o Pantranco Employees Assoc: the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely 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 are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 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. IN THE CASE AT BAR, the records do not warrant an application of the exception. The rule, which requires the presence of malice or bad faith, must still prevail. o In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung, the Court absolved the corporations president from liability in the absence of bad faith or malice. In the present case, Go may have acted in behalf of EEMI but the companys failure to operate cannot be equated to bad faith. Unless it can be shown that the closure was deliberate, malicious and in bad faith, the Court must not piece the corporate veil. 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.