Category: Corporate Law

Quorum Quagmire: Can Non-Unit Owners Decide a Condo’s Fate?

The Supreme Court ruled that a condominium corporation’s annual general membership meeting was invalid due to the lack of a quorum. The Court clarified that in non-stock corporations, a quorum is determined by the majority of actual members with voting rights, not by including non-unit owners or assigning voting rights based on unsold units. This decision protects the rights of unit owners, ensuring that the corporation’s management reflects the interests of actual residents, not just the developer’s unsold inventory.

Towering Interests: When Does a Developer’s Vote Overshadow Unit Owners?

The case of Mary E. Lim v. Moldex Land, Inc. revolves around a dispute over the validity of an annual general membership meeting of 1322 Roxas Boulevard Condominium Corporation (Condocor). Lim, a unit owner, challenged the meeting’s legitimacy, arguing that it lacked a proper quorum and that non-unit owners, specifically representatives of Moldex Land, Inc. (Moldex), were improperly allowed to vote and be elected as directors. This scenario highlights a common tension in condominium management: balancing the interests of the developer, who may still own unsold units, with those of the individual unit owners who reside in the building.

The core issue was whether Moldex, as the owner of unsold units, could be considered a member of Condocor and, consequently, whether its representatives could participate in the election of the board of directors. The Regional Trial Court (RTC) initially sided with Moldex, asserting that the presence of Moldex’s representatives, representing a majority of the voting rights (including those attached to the unsold units), constituted a valid quorum. This decision effectively allowed Moldex, the developer, to exert significant control over the condominium corporation’s management. Lim disagreed and brought the case to the Supreme Court.

The Supreme Court, in its analysis, delved into the intricacies of corporate law, the Condominium Act (Republic Act No. 4726), and Condocor’s own By-Laws to determine the validity of the meeting and the subsequent election. The Court emphasized the importance of adhering to the statutory and corporate rules governing quorum requirements, membership rights, and the eligibility of individuals to serve as directors or trustees.

A crucial aspect of the Court’s decision centered on the interpretation of “quorum” in the context of non-stock corporations. Section 52 of the Corporation Code of the Philippines states:

Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations.

The Court clarified that for non-stock corporations like Condocor, the quorum should be based on the actual number of members with voting rights, not on the total number of voting rights, which could be skewed by a single member holding a large number of unsold units. The Supreme Court emphasized that Condocor’s By-Laws did not provide for a different rule regarding the determination of a quorum.

The Court also addressed the issue of Moldex’s membership in Condocor. While acknowledging that Moldex, as the registered owner of unsold units, could be considered a member, the Court drew a distinction between membership and the right to hold a position on the board of directors. The Supreme Court emphasized that Section 23 of the Corporation Code dictates that trustees of non-stock corporations must be members thereof.

Section 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

The court noted that this section underscores that only actual members can be elected as trustees. Although Moldex, as a juridical entity, could appoint representatives to exercise its membership rights, those representatives, if they were not unit owners themselves, could not be elected as directors. In essence, the Court affirmed that while a corporation can act through its representatives, the right to be a director is reserved for those who have a direct stake in the corporation as members.

Building on this principle, the Court invalidated the election of the individual respondents, who were representatives of Moldex but not unit owners themselves, as directors and officers of Condocor. The Court further explained that since the position of the President of the corporation must be filled by a director, Jaminola’s election as President was invalid.

This approach contrasts with the RTC’s initial ruling, which prioritized the developer’s voting rights based on unsold units. The Supreme Court’s decision ensures that the condominium corporation’s management reflects the collective will of the actual unit owners, preventing a scenario where the developer’s interests could dominate the corporation’s decision-making processes.

The Supreme Court’s decision in Lim v. Moldex has significant implications for condominium corporations and their members. It clarifies the requirements for quorum in non-stock corporations, reinforces the principle that directors or trustees must be members of the corporation, and limits the extent to which a developer can control the management of a condominium project after selling a portion of the units. The ruling underscores the importance of adhering to both statutory provisions and the corporation’s own By-Laws to ensure fair and democratic governance.

Moving forward, condominium corporations should carefully review their By-Laws and practices to ensure compliance with the principles established in this case. Special attention should be paid to the definition of “quorum,” the eligibility requirements for directors and officers, and the extent to which non-unit owners can participate in corporate governance.

FAQs

What was the key issue in this case?	The central issue was the validity of an annual general membership meeting of a condominium corporation, specifically concerning the quorum requirement and the eligibility of non-unit owners to be elected as directors. The court examined whether a developer’s unsold units should be included when determining if a quorum was present.
How is a quorum determined in a non-stock corporation?	In a non-stock corporation, a quorum is determined by the majority of the actual members with voting rights, not by including non-unit owners or assigning voting rights based on unsold units. This ensures that the decisions reflect the will of those directly participating in the corporation’s activities.
Can a non-unit owner be a director in a condominium corporation?	According to the Corporation Code, trustees of non-stock corporations must be members of the corporation. Therefore, a non-unit owner, even if representing a member like a developer, cannot be elected as a director.
Is a developer considered a member of a condominium corporation?	A developer who owns units in the condominium is considered a member of the condominium corporation, as ownership of a unit entitles one to membership. However, their representatives cannot be elected as directors if they are not unit owners themselves.
What is the significance of the Condominium Act in this case?	The Condominium Act (RA 4726) governs matters involving condominiums, including the creation of a condominium corporation. It states that holders of separate interests (unit owners) shall automatically be members, guiding the Supreme Court’s decision.
What happens if a meeting lacks a proper quorum?	If a meeting lacks a proper quorum, any resolutions or actions taken during that meeting are considered null and void and are not binding on the corporation or its members. This ensures that corporate decisions are made with sufficient participation from the members.
Can a member of a condominium corporation vote by proxy?	Yes, members can vote in person or by proxy, according to the Corporation Code and the by-laws of many condominium corporations. The proxy must be in writing and filed with the corporate secretary before the meeting.
Does Presidential Decree No. 957 apply to condominium corporations?	Presidential Decree No. 957, also known as The Subdivision and Condominium Buyers’ Protective Decree, primarily regulates homeowners associations and does not govern condominium corporations directly. Condominium corporations are primarily regulated by the Condominium Act (RA 4726).

In conclusion, the Lim v. Moldex case serves as a crucial reminder of the importance of adhering to corporate governance principles and statutory requirements in the context of condominium corporations. The Supreme Court’s decision reinforces the rights of unit owners and promotes a more democratic approach to condominium management.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

January 25, 2017

Piercing the Corporate Veil: When Can Company Officers Be Liable for Labor Disputes?

In the case of Jose Emmanuel Guillermo v. Crisanto P. Uson, the Supreme Court addressed whether a company officer can be held personally liable for a labor dispute after the initial judgment against the corporation. The Court ruled that piercing the corporate veil to hold an officer liable is permissible even after judgment becomes final, but only if there is evidence of fraud, bad faith, or malice in using the corporate structure to evade obligations. This decision clarifies the circumstances under which corporate officers can be held accountable for a company’s labor-related debts, ensuring that workers’ rights are protected against corporate maneuvering.

Royal Class Venture: Unveiling the Corporate Veil in an Illegal Dismissal Case

Crisanto P. Uson filed a complaint for illegal dismissal against Royal Class Venture Phils., Inc., his former employer. Despite receiving summons, Royal Class Venture did not participate in the proceedings, resulting in a default judgment in favor of Uson. When Uson attempted to enforce the judgment, he discovered that Royal Class Venture had been dissolved and replaced by another corporation owned by the same family, leading him to seek the personal liability of Jose Emmanuel Guillermo, an officer of the corporation. The legal question at the heart of the case was whether Guillermo could be held personally liable for the corporation’s debt to Uson, despite not being initially named in the suit.

The Supreme Court considered the circumstances under which the corporate veil could be pierced. The Court acknowledged that a corporation has a separate legal personality from its officers and stockholders. However, this separation is not absolute. The Court referred to Section 31 of the Corporation Code, emphasizing that personal liability attaches only when directors or trustees have acted with gross negligence, bad faith, or have engaged in patently unlawful acts.

Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who willfully 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.

Building on this principle, the Supreme Court outlined three specific scenarios where piercing the corporate veil is warranted: to defeat public convenience, address fraud, or in alter ego situations. The Court cited Pantranco Employees Association (PEA-PTGWO), et al. v. NLRC, et al., which held that piercing the corporate veil applies when:

( 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 context of labor disputes, the Court emphasized that not all corporate officers are held liable. Only the “responsible officer” directly involved and acting in bad faith in the illegal dismissal is held solidarily liable. In the absence of a clearly identifiable officer, the president of the corporation is typically considered the responsible officer.

The Court emphasized the critical importance of proving fraud, malice, or bad faith to justify holding a corporate officer personally liable. The Court noted that bad faith implies a dishonest purpose, moral obliquity, or a conscious wrongdoing. The Supreme Court looked at the evidence presented to determine whether Guillermo’s actions demonstrated the required level of bad faith or malicious intent.

The Supreme Court found sufficient evidence to support the finding of bad faith against Guillermo. Guillermo was identified as the responsible officer who dismissed Uson after Uson exposed the company’s practice of undervaluing shares of stock. This uncontroverted allegation indicated that Guillermo acted with malice in dismissing Uson. Furthermore, Guillermo, as President and General Manager, received the summons but refused to participate in the proceedings without justifiable cause. This was seen as a deliberate attempt to evade the judgment, providing further evidence of his bad faith and malicious intent to evade the labor tribunals’ judgments.

Additionally, the Court considered the dissolution of Royal Class Venture and the subsequent incorporation of a new firm at the same address, with Guillermo as a stockholder. This action, as reported in the Sheriff’s Return, suggested an attempt to avoid the company’s obligations to Uson. Guillermo did not dispute the facts presented in the Sheriff’s Return, reinforcing the conclusion that he had acted in bad faith. The Court ultimately concluded that the pattern of behavior indicated a deliberate scheme to avoid obligations to Uson and frustrate the execution of the judgment award, which the Court could not allow.

The Court also addressed Guillermo’s argument that the case was an intra-corporate controversy, emphasizing that the nature of the action is determined by the allegations in the complaint. While Uson was a stockholder and director, his complaint focused on his illegal dismissal as an employee, not on any issues related to his status as a stockholder or director. The Court upheld the appellate court’s finding that the case was a labor dispute, properly within the jurisdiction of the NLRC.

FAQs

What was the key issue in this case?	The key issue was whether a corporate officer could be held personally liable for a labor dispute after the judgment against the corporation had become final.
Under what conditions can a corporate officer be held personally liable?	A corporate officer can be held personally liable if there is evidence of fraud, bad faith, or malice in using the corporate structure to evade obligations.
What is meant by “piercing the corporate veil”?	“Piercing the corporate veil” refers to disregarding the separate legal personality of a corporation to hold its officers or stockholders personally liable for its debts or actions.
What evidence did the Court rely on to find bad faith on the part of Guillermo?	The Court relied on evidence that Guillermo dismissed Uson after Uson exposed the company’s practice of undervaluing shares, his refusal to participate in the proceedings, and the dissolution of Royal Class Venture followed by the incorporation of a new firm.
What is the significance of Section 31 of the Corporation Code?	Section 31 of the Corporation Code specifies the conditions under which directors or trustees can be held liable for the actions of the corporation, including gross negligence or bad faith.
How does the Court determine if a case is an intra-corporate controversy versus a labor dispute?	The Court examines the allegations in the complaint to determine whether the dispute arises from intra-corporate relations or from an employer-employee relationship.
Who is considered the “responsible officer” in labor disputes?	The “responsible officer” is the person directly involved and acting in bad faith in the illegal dismissal or other labor violation; typically, this is the president of the corporation.
What is the effect of Guillermo’s refusal to participate in the initial labor proceedings?	Guillermo’s refusal to participate in the proceedings, despite receiving summons, was considered evidence of his deliberate attempt to evade the judgment, thus indicating bad faith.

The Supreme Court’s decision in Jose Emmanuel Guillermo v. Crisanto P. Uson serves as a reminder that the corporate form cannot be used as a shield to evade legal obligations, especially in labor disputes. Corporate officers who act in bad faith or with malice can be held personally liable to protect the rights of employees. Understanding the conditions under which the corporate veil can be pierced is crucial for both employers and employees in navigating labor-related legal challenges.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

January 16, 2017

Corporate Disloyalty: Criminal Liability Under the Corporation Code

In a pivotal decision, the Supreme Court clarified the scope of criminal liability for corporate directors and officers under the Corporation Code of the Philippines. The Court held that Sections 31 and 34 of the Code, concerning disloyalty and breach of fiduciary duties, do not automatically carry criminal penalties under Section 144. This means that directors and officers found to have acted disloyally or in bad faith will primarily face civil liabilities, such as damages or restitution, unless the law explicitly states otherwise.

Sabotage or Fair Competition? Decoding Corporate Officer Duties and Penalties

The case of James Ient and Maharlika Schulze vs. Tullett Prebon (Philippines), Inc., revolves around allegations that officers and directors of Tullett Prebon conspired with individuals from Tradition Financial Services to orchestrate a mass resignation of Tullett’s brokering staff to join Tradition, a competitor. Tullett Prebon argued that this constituted a violation of Sections 31 and 34 of the Corporation Code, specifically dealing with the fiduciary duties of directors and officers and their prohibition against disloyalty. The central legal question was whether these violations automatically trigger criminal liability under Section 144 of the same code, or whether the consequences are limited to civil remedies.

The Corporation Code, under Section 31, outlines the **liability of directors, trustees, or officers** who act in bad faith or with gross negligence in directing the affairs of a corporation. It also addresses situations where they acquire personal or pecuniary interests conflicting with their duties. Section 34 focuses on the **disloyalty of a director** who seizes a business opportunity that should belong to the corporation, thereby obtaining profits to its prejudice. These sections generally provide for civil liabilities, such as damages and the obligation to account for profits.

On the other hand, Section 144 acts as a general provision, prescribing penalties for violations of the Corporation Code not otherwise specifically penalized. It stipulates fines and imprisonment for such violations. The core debate was whether the term “penalized” in Section 144 should be interpreted as encompassing only criminal penalties, or whether it also includes civil liabilities outlined in Sections 31 and 34.

The Supreme Court, in its analysis, emphasized the importance of statutory construction, especially in penal provisions. It reiterated the principle that penal statutes are to be construed strictly against the state and liberally in favor of the accused. In cases of doubt, the interpretation that is most lenient to the accused should prevail. This principle, known as the **rule of lenity**, guides the interpretation of ambiguous penal statutes.

Moreover, the Court identified textual ambiguity in Section 144. While it does impose criminal penalties, it also allows for the dissolution of a corporation for violations, an administrative rather than a criminal sanction. This duality suggested that “penalized” may not exclusively refer to criminal penalties. The Court drew a distinction between Section 144 of the Corporation Code and Section 45(j) of Republic Act No. 8189 (The Voter’s Registration Act of 1996), which explicitly deems any violation of the Act as an election offense, carrying criminal penalties. The Corporation Code lacks such explicit language, leading the Court to infer that the consequences for violating Sections 31 and 34 were intentionally limited to civil liabilities.

To further clarify the legislative intent, the Court examined the legislative history of the Corporation Code. The discussions surrounding Sections 31 and 34 primarily focused on the civil liabilities of directors and officers, indicating that the drafters did not intend to impose criminal sanctions for violations of these sections. This contrasts with the discussions on Section 74 of the Code, which explicitly imposes both civil and penal liabilities for officers who refuse to allow shareholders access to corporate records.

Building on this principle, the Court recognized the legislative policy behind the Corporation Code, which is to encourage the use of the corporate entity as a vehicle for economic growth. Imposing strict criminal penalties on directors and officers could deter competent individuals from serving in such roles, thereby hindering economic development. The Court also referenced the common law concepts of corporate opportunity and fiduciary duties, which traditionally provide for civil remedies in cases of breach.

Consequently, the Supreme Court ruled that Sections 31 and 34 of the Corporation Code do not give rise to criminal liability under Section 144. The Court reversed the Court of Appeals’ decision and the Secretary of Justice’s resolutions, effectively setting aside the order to file criminal charges against the petitioners. The key takeaway from this ruling is that while directors and officers have a fiduciary duty to act loyally and in good faith, breaches of these duties, without specific statutory language imposing criminal penalties, will primarily result in civil liabilities.

FAQs

What was the key issue in this case?	The main issue was whether violations of Sections 31 and 34 of the Corporation Code automatically carry criminal penalties under Section 144.
What did the Supreme Court rule?	The Supreme Court ruled that Sections 31 and 34 do not automatically trigger criminal liability. Breaches of fiduciary duties will primarily result in civil liabilities.
What are the potential liabilities for violating Sections 31 and 34?	The potential liabilities include damages, accounting for profits, and restitution, all of which are civil in nature.
What is the “rule of lenity”?	The rule of lenity is a principle in statutory construction that requires penal statutes to be interpreted strictly against the state and liberally in favor of the accused.
Why did the Court consider the legislative history of the Corporation Code?	The Court examined the legislative history to determine the intent of the lawmakers regarding whether violations of Sections 31 and 34 should be treated as criminal offenses.
How does this ruling affect corporate directors and officers?	This ruling provides a clearer understanding of the extent of their potential liabilities. It assures them that breaches will primarily result in civil rather than criminal consequences.
Is Section 144 of the Corporation Code now irrelevant?	No, Section 144 still applies to violations of other provisions of the Corporation Code that do not have specific penalties. It ensures that all violations have some form of sanction.
Can a director still face criminal charges for actions related to their corporate role?	Yes, if their actions violate provisions of the Corporation Code or other laws that explicitly impose criminal penalties, like in the case of Section 74.

The Supreme Court’s decision in Ient and Schulze vs. Tullett Prebon provides essential clarification on the liability of corporate directors and officers in the Philippines. By emphasizing the need for explicit language when imposing criminal penalties, the Court ensures a balanced approach that upholds corporate governance standards without unduly deterring competent individuals from serving in leadership roles.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: JAMES IENT AND MAHARLIKA SCHULZE, PETITIONERS, VS. TULLETT PREBON (PHILIPPINES), INC., RESPONDENT., G.R. No. 189158, January 11, 2017

January 11, 2017

Due Process and Corporate Liability: When Can a Corporate Officer Be Held Personally Liable?

In Reyno C. Dimson v. Gerry T. Chua, the Supreme Court addressed the crucial issue of whether a corporate officer can be held personally liable for the debts of a corporation, specifically in labor disputes. The Court ruled that corporate officers cannot be held solidarily liable with the corporation unless it is proven that they acted with evident malice, bad faith, or gross negligence in directing the affairs of the company. This decision underscores the importance of due process and the protection afforded by the corporate veil, ensuring that officers are not unduly penalized for corporate liabilities.

Piercing the Corporate Veil: Can Officers Be Held Accountable for Corporate Debts?

The case originated from a labor dispute where Reyno C. Dimson, representing several complainants, filed a case against South East Asia Sugar Mill Corporation (SEASUMCO) and Mindanao Azucarera Corporation (MAC). The Labor Arbiter (LA) initially ruled in favor of the complainants, ordering SEASUMCO and MAC, along with their board of directors, to pay jointly and severally a sum of P3,827,470.51. However, the judgment remained unsatisfied, leading Dimson to file a motion to include Gerry T. Chua, a corporate officer, in the execution of the judgment. The LA granted this motion, but the Court of Appeals (CA) later nullified the LA’s decision, emphasizing that Chua had not been served summons and was never impleaded as a party to the case.

The Supreme Court upheld the CA’s decision, emphasizing the fundamental right to due process. The Court noted that the Labor Arbiter (LA) cannot acquire jurisdiction over a person without proper service of summons. This principle is enshrined in both the Rules of Court and the 2005 Revised Rules of Procedure of the National Labor Relations Commission (NLRC). As the Court emphasized,

Where there is then no service of summons on or a voluntary general appearance by the defendant, the court acquires no jurisdiction to pronounce a judgment in the case.

In this case, it was undisputed that Chua was never served summons or impleaded in the original labor case. The Court found that Chua’s inclusion in the writ of execution, after the decision had become final, was a violation of his right to due process. The fact that another officer, similarly situated, had their appeal granted by the NLRC further highlighted the inconsistency and unfairness of the decision against Chua.

Building on the principle of due process, the Court also addressed the issue of solidary liability for corporate debts. The general rule is that a corporation has a separate and distinct personality from its officers and stockholders. This is often referred to as the corporate veil. However, this veil can be pierced under certain circumstances, such as when the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.

The Supreme Court has consistently held that corporate officers can be held personally liable for corporate obligations only when they have acted with evident malice, bad faith, or gross negligence. As the Court articulated in Jose Emmanuel P. Guillermo v. Crisanto P. Uson:

The veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be impleaded and held answerable solidarity in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so.

This standard requires a showing of dishonest purpose or moral obliquity, not merely bad judgment or negligence. In the present case, there was no allegation or evidence that Chua acted with malice or bad faith in directing the affairs of SEASUMCO. The complainants failed to demonstrate that Chua willfully assented to unlawful acts of the corporation or was guilty of gross negligence. Absent such proof, the Court held that it was improper to hold Chua personally liable for the corporation’s debts.

The legal framework for determining the personal liability of corporate officers is primarily governed by Section 31 of the Corporation Code. This section stipulates that directors or officers may be held jointly and severally liable for damages if they:

Willfully and knowingly vote for or assent to patently unlawful acts of the corporation.
Are guilty of gross negligence or bad faith in directing the affairs of the corporation.
Acquire any personal or pecuniary interest in conflict with their duty as directors or trustees.

To establish personal liability, it must be alleged in the complaint that the officer assented to patently unlawful acts or was guilty of gross negligence or bad faith. Furthermore, there must be concrete proof of such bad faith. In this case, neither the allegations nor the evidence presented supported a finding of bad faith on Chua’s part.

The Supreme Court’s decision underscores the importance of distinguishing between the separate legal personalities of a corporation and its officers. The corporate veil is a fundamental principle of corporate law, designed to protect officers and stockholders from personal liability for corporate debts. While this veil can be pierced in cases of fraud, bad faith, or malice, the burden of proof rests on the party seeking to hold the officer personally liable. In the absence of such proof, the Court will uphold the protection afforded by the corporate veil.

The implications of this decision are significant for both corporate officers and employees. Corporate officers can take comfort in the fact that they will not be held personally liable for corporate debts unless there is clear evidence of their own wrongdoing. At the same time, employees seeking to recover monetary claims against a corporation must be prepared to present concrete evidence of fraud, bad faith, or malice on the part of the corporate officers they seek to hold personally liable.

In summary, this case reinforces the principle that the corporate veil provides a significant layer of protection for corporate officers. To overcome this protection, it is essential to establish a clear and convincing case of fraud, bad faith, or malice. The Court’s decision in Dimson v. Chua serves as a reminder of the importance of due process and the need for concrete evidence when seeking to hold corporate officers personally liable for corporate obligations.

FAQs

What was the key issue in this case?	The key issue was whether a corporate officer could be held personally liable for the debts of the corporation without being properly served summons or impleaded as a party in the case.
Why was Gerry T. Chua included in the writ of execution?	Gerry T. Chua was included in the writ of execution because the complainants sought to hold him solidarily liable with the corporation for the unpaid judgment.
What is the significance of the corporate veil?	The corporate veil is the legal concept that a corporation has a separate and distinct personality from its officers and stockholders, protecting them from personal liability for corporate debts.
Under what circumstances can the corporate veil be pierced?	The corporate veil can be pierced when the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
What must be proven to hold a corporate officer personally liable?	To hold a corporate officer personally liable, it must be proven that they acted with evident malice, bad faith, or gross negligence in directing the affairs of the corporation.
What is Section 31 of the Corporation Code about?	Section 31 of the Corporation Code outlines the liability of directors, trustees, or officers who willfully assent to unlawful acts, are guilty of gross negligence or bad faith, or acquire conflicting personal interests.
Was there evidence of bad faith on Gerry T. Chua’s part?	No, the Court found no evidence of bad faith, malice, or gross negligence on the part of Gerry T. Chua in directing the affairs of the corporation.
What was the final ruling of the Supreme Court?	The Supreme Court affirmed the Court of Appeals’ decision, holding that Gerry T. Chua could not be held personally liable for the debts of the corporation.

The Supreme Court’s decision in Dimson v. Chua provides important clarity on the circumstances under which corporate officers can be held personally liable for corporate debts. This ruling reinforces the protection afforded by the corporate veil and emphasizes the importance of due process in legal proceedings. This case serves as an important reminder of the balance between protecting employees’ rights and safeguarding the legitimate interests of corporate officers.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

December 5, 2016

Solidary Liability in Labor Disputes: When Parent Companies Guarantee Employee Benefits

The Supreme Court has affirmed that a parent company can be held solidarily liable for the unpaid separation benefits of its subsidiary’s employees. This ruling underscores the principle that corporations cannot evade labor obligations by operating through subsidiaries. It means that employees are protected when companies attempt to shield themselves from responsibilities, ensuring that parent firms are accountable for commitments made regarding employee compensation.

Navigating Labor Obligations: Can LRTA Be Held Liable for METRO’s Employee Benefits?

This case, Light Rail Transit Authority vs. Bienvenido R. Alvarez, et al., revolves around the question of whether the Light Rail Transit Authority (LRTA) can be held responsible for the unpaid severance pay of employees from its subsidiary, Metro Transit Organization, Inc. (METRO). The private respondents, former employees of METRO, sought to recover the remaining 50% of their severance pay after METRO ceased operations. The central legal issue is whether LRTA, as the parent company, can be compelled to fulfill METRO’s obligations to its employees, even in the absence of a direct employer-employee relationship.

The controversy began when METRO and LRTA entered into an agreement for the management and operation of the light rail transit system, with LRTA shouldering METRO’s operating expenses. Subsequently, LRTA acquired METRO, making it a wholly-owned subsidiary. The twist came when METRO announced severance benefits for its employees, but later only paid half of the promised amount due to financial constraints. The employees then sought recourse against LRTA, arguing that as the parent company, it was obligated to cover the outstanding balance. The Labor Arbiter (LA) and the National Labor Relations Commission (NLRC) ruled in favor of the employees, holding LRTA jointly and severally liable.

LRTA, however, contested these rulings, claiming that the labor tribunals lacked jurisdiction over it and that it was not the direct employer of the private respondents. They argued that METRO was a separate and distinct entity, solely responsible for its employees’ obligations. The Court of Appeals (CA), however, sided with the employees, affirming the NLRC’s decision based on the principle of stare decisis, referring to a previous similar case involving LRTA and METRO employees. The CA also highlighted that LRTA had contractually obligated itself to fund METRO’s retirement fund, which included severance benefits.

The Supreme Court upheld the CA’s decision, emphasizing LRTA’s solidary liability. The Court underscored the doctrine of stare decisis, noting that the same issues had been previously litigated and decided against LRTA in a similar case. The Court emphasized that by conducting business through a private corporation (METRO), LRTA subjected itself to the rules governing private corporations, including the Labor Code. Philippine National Bank v. Pabalan states:

x x x By engaging in a particular business thru the instrumentality of a corporation, the government divests itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law governing private corporations.

Furthermore, the Court explained that LRTA had contractually obligated itself to fund METRO’s retirement fund, which included severance benefits for employees. LRTA’s Resolution No. 00-44, which anticipated the cessation of METRO’s operations and the involuntary loss of jobs, demonstrated LRTA’s obligation to update the Metro, Inc. Employee Retirement Fund to cover all retirement benefits. It stated that “the Authority shall reimburse METRO for x x x OPERATING EXPENSES x x x.”

Even without a contractual obligation, the Court asserted that LRTA could be held solidarily liable as an indirect employer under Articles 107 and 109 of the Labor Code. Article 109 of the Labor Code states:

Art. 109. Solidary liability. – The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

This means that LRTA, by contracting METRO to manage and operate the light rail transit system, became an indirect employer and was responsible for METRO’s obligations to its employees. This liability exists regardless of the absence of a direct employer-employee relationship between LRTA and the private respondents. The court further reiterated this interpretation, citing Department Order No. 18-02, which implements Articles 106 to 109 of the Labor Code, highlighting that a principal is solidarily liable if the contract is terminated for reasons not attributable to the contractor. Thus, the court emphasized that this applies similarly to non-renewal, as the employees are involuntarily displaced.

FAQs

What was the key issue in this case?	The central issue was whether LRTA, as the parent company, could be held liable for the unpaid severance pay of METRO’s employees, despite the lack of a direct employer-employee relationship.
What is solidary liability?	Solidary liability means that multiple parties are jointly and individually responsible for a debt or obligation. In this context, it means that LRTA is fully liable for the unpaid severance pay, even though METRO was the direct employer.
*What is the doctrine of stare decisis?*	Stare decisis is a legal principle that courts should follow precedents set in previous similar cases. The Supreme Court applied this doctrine because a similar case involving LRTA and METRO employees had already been decided.
How did LRTA become liable for METRO’s obligations?	LRTA became liable through a combination of factors, including its contractual obligation to fund METRO’s retirement fund and its status as an indirect employer under the Labor Code. The Court emphasized that by conducting business through a private corporation, LRTA subjected itself to the rules governing private corporations.
What is an indirect employer under the Labor Code?	An indirect employer is an entity that contracts with an independent contractor for the performance of work. Under Article 109 of the Labor Code, an indirect employer is solidarily liable with the contractor for violations of the Labor Code.
What was the significance of LRTA’s Resolution No. 00-44?	Resolution No. 00-44 demonstrated LRTA’s obligation to update METRO’s Employee Retirement Fund to fully compensate employees who were involuntarily retired due to the cessation of METRO’s operations. This resolution showed LRTA’s commitment to ensuring that employees received their benefits.
Can a parent company always be held liable for its subsidiary’s obligations?	Not always. However, in this case, the combination of contractual obligations and LRTA’s status as an indirect employer made it liable. Each case depends on its specific facts and the legal relationships between the entities involved.
What practical impact does this ruling have on employees?	This ruling provides employees with greater protection by ensuring that parent companies cannot easily avoid their labor obligations through subsidiaries. It enhances accountability and provides employees with recourse to seek compensation from the parent company.

In conclusion, the Supreme Court’s decision in Light Rail Transit Authority vs. Bienvenido R. Alvarez, et al. reaffirms the principle of solidary liability, ensuring that parent companies cannot evade their labor obligations by operating through subsidiaries. This case serves as a crucial reminder of the responsibilities that come with corporate structures and the protection afforded to employees under the Labor Code.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

November 28, 2016

Piercing the Corporate Veil: Protecting Workers’ Rights in Certification Elections

In Erson Ang Lee v. Samahang Manggagawa, the Supreme Court upheld the right of workers to form a union and engage in collective bargaining, preventing employers from using separate corporate entities to frustrate this right. The Court allowed a certification election to proceed among the employees of three related companies, treating them as a single bargaining unit. This decision ensures that businesses cannot use corporate structures to undermine workers’ rights to organize and collectively bargain, reinforcing the protection afforded to labor under Philippine law.

Lamination Layers: When Shared Resources Obscure Workers’ Rights?

Erson Ang Lee, doing business as “Super Lamination Services,” challenged a Department of Labor and Employment (DOLE) decision allowing a certification election among the rank-and-file employees of Super Lamination, Express Lamination Services, Inc., and Express Coat Enterprises, Inc. Lee argued that these were separate entities, and thus, employees of one could not vote in the certification election of another. The core legal question was whether the doctrine of piercing the corporate veil should apply to treat these ostensibly separate companies as a single employer for purposes of collective bargaining.

The case began with three separate unions—Samahang Manggagawa ng Super Lamination (SMSLS-NAFLU-KMU), Express Lamination Workers’ Union, and Samahan ng mga Manggagawa ng Express Coat Enterprises, Inc.—filing petitions for certification elections in their respective companies. Super Lamination, Express Lamination, and Express Coat, all under the representation of one counsel, opposed the petitions, claiming a lack of employer-employee relationship between the establishments and the union members. They argued that employees listed in one company’s roster were actually employed by another, leading to the denial of all three petitions by DOLE’s National Capital Region (NCR) Med-Arbiters.

The unions appealed to the Office of the DOLE Secretary, which consolidated the appeals. They argued that the companies were unorganized and under the same management’s control and supervision. DOLE sided with the unions, finding that the companies had a common human resource department and rotated their workers, indicating a work-pooling scheme. This, according to DOLE, justified treating the companies as one entity for determining the appropriate bargaining unit in a certification election. DOLE applied the concept of multi-employer bargaining under Department Order 40-03, Series of 2003, and ordered a certification election among the rank-and-file employees of all three companies.

Lee appealed to the Court of Appeals (CA), which affirmed DOLE’s decision, agreeing that the companies were sister companies adopting a work-pooling scheme. The CA held that DOLE correctly applied the concept of multi-employer bargaining. Lee then elevated the case to the Supreme Court, arguing that separate corporations cannot be treated as a single bargaining unit.

The Supreme Court denied the petition and affirmed the CA’s decision. The Court tackled the issue of whether the doctrine of piercing the corporate veil was warranted. While acknowledging that separate corporations generally have distinct juridical personalities, the Court emphasized that this principle is not absolute. The doctrine of piercing the corporate veil allows the courts to disregard this separation when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The Court cited several instances where it had disregarded separate juridical personalities to protect the rights of third parties, particularly laborers.

The Court outlined a settled formulation of the doctrine, stating that “when two business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same.” It emphasized that this formulation has been applied to cases where laborers are disadvantaged due to the separate juridical personalities of their employers, citing examples where corporations were held jointly and severally liable for back wages or found guilty of illegal dismissal.

In this case, the Court found that Super Lamination, Express Lamination, and Express Coat were under the control and management of petitioner Ang Lee. It enumerated several key facts that supported this conclusion: (1) the companies were engaged in the same business; (2) they operated and hired employees through a common human resource department; (3) workers were constantly rotated among the three companies; (4) the common human resource department imposed disciplinary sanctions and directed the daily performance of employees; (5) Super Lamination included employees of the other companies in its payroll and SSS registration; (6) Super Lamination issued and signed identification cards for employees working for the other companies; and (7) all three companies were represented by the same counsel, who presented the same arguments.

The Court also found an attempt to frustrate the workers’ right to collectively bargain. The companies alternately referred to one another as the employer of the union members, resulting in the dismissal of the certification election petitions and confusion among the employees. To safeguard the workers’ right to collective bargaining, the Court held that the corporate veil of Express Lamination and Express Coat must be pierced, and the three companies treated as one for the purpose of holding a certification election.

The Court distinguished this case from Diatagon Labor Federation Local v. Ople and Indophil Textile Mill Worker Union v. Calica, where it had refused to treat separate corporations as a single bargaining unit. In those cases, the corporations were found to be completely independent or were not involved in any act that frustrated the laborers’ rights. The Court emphasized that, in this case, not only were the companies found to be under the control of the petitioner, but there was also a discernible attempt to disregard the workers’ and unions’ right to collective bargaining.

The Court also addressed the argument that the rank-and-file employees of the three companies could not constitute an appropriate bargaining unit due to their different geographical locations. The Court reiterated that the basic test for determining an appropriate bargaining unit is whether the employees have substantial, mutual interests in wages, hours, working conditions, and other subjects of collective bargaining. While geographical location is a factor, it can be disregarded if the communal or mutual interests of the employees are not sacrificed.

In this case, the Court found that the employees had a communal interest based on their constant rotation among the three companies and the performance of the same or similar duties. Their employment status and working conditions were substantially similar, justifying the conclusion that they shared a community of interest. This finding aligns with the policy favoring a single-employer unit, as it strengthens the employees’ bargaining capacity. As the Court correctly observed, the work-pooling scheme should not be used to defeat the workers’ right to collective bargaining, which is essential for promoting harmonious labor-management relations.

FAQs

What was the key issue in this case?	The key issue was whether the doctrine of piercing the corporate veil should be applied to treat three related companies as a single employer for the purpose of a certification election.
What is a certification election?	A certification election is a process where employees vote to determine which union, if any, will represent them in collective bargaining with their employer. This ensures fair representation and negotiation.
What does it mean to “pierce the corporate veil”?	Piercing the corporate veil is a legal doctrine that allows a court to disregard the separate legal personality of a corporation. This is typically done when the corporation is used to commit fraud, injustice, or circumvent the law.
Why did the Supreme Court decide to pierce the corporate veil in this case?	The Court pierced the corporate veil because the three companies were found to be under the control of the same person and were using their separate corporate identities to frustrate the workers’ right to collective bargaining.
What is a bargaining unit?	A bargaining unit is a group of employees who share a community of interest and are represented by a union for collective bargaining purposes. The appropriate bargaining unit is key to ensuring fair representation.
What is multi-employer bargaining?	Multi-employer bargaining involves several employers negotiating collectively with a union that represents their employees. While optional under Department Order No. 40-03, it demonstrates the State’s policy to promote free and responsible collective bargaining.
What factors determine an appropriate bargaining unit?	The main factor is whether the employees share substantial, mutual interests in wages, hours, working conditions, and other subjects of collective bargaining. Geographical location is considered, but is secondary to the communal interests of the employees.
What is the significance of a work-pooling scheme in this case?	The work-pooling scheme, where employees were constantly rotated among the three companies, demonstrated that the companies were not truly separate and that the employees shared a community of interest, strengthening the case for piercing the corporate veil.

The Supreme Court’s decision in Erson Ang Lee v. Samahang Manggagawa reaffirms the importance of protecting workers’ rights to self-organization and collective bargaining. By applying the doctrine of piercing the corporate veil, the Court ensured that employers cannot use separate corporate entities to undermine these rights. This ruling serves as a reminder that labor laws are designed to promote fairness and equity in the workplace, and that the courts will not hesitate to disregard corporate structures when they are used to circumvent these laws.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

November 21, 2016

Due Process in Club Membership: Balancing Rights and Regulations

The Supreme Court has clarified the importance of due process in the suspension of club membership privileges. Even when a member violates club rules, the club must still adhere to its own by-laws regarding notice and hearing before suspending membership. This ruling underscores the contractual nature of club memberships and the need for fair procedures.

Suspended Privileges: When Can a Sports Club Suspend a Member Without a Hearing?

In Catherine Ching, et al. v. Quezon City Sports Club, Inc., et al., the central issue revolved around the suspension of Catherine Ching’s membership privileges at the Quezon City Sports Club, Inc. (QCSC) due to her failure to pay a special assessment. The Chings filed a complaint for damages, alleging that the suspension was implemented without proper notice and hearing, violating their rights. The QCSC, on the other hand, argued that the suspension was justified under their by-laws concerning unpaid accounts. The Supreme Court ultimately addressed the question of whether the club followed the correct procedure in suspending Catherine Ching’s membership, considering the specific nature of the unpaid assessment and the club’s internal regulations.

The Supreme Court’s analysis hinged on interpreting the QCSC’s by-laws, specifically Section 33(a) concerning the billing of members and posting of suspended accounts, and Section 35(a) dealing with suspension and expulsion for violations of by-laws, rules, and resolutions. Section 33(a) allows for the suspension of a member with unpaid bills after notice, while Section 35(a) requires notice and hearing before suspension or expulsion for violating the by-laws or resolutions. The Court emphasized that club by-laws are binding contracts between the club and its members, and strict compliance is necessary.

The Court distinguished between regular dues and ordinary accounts, which fall under Section 33(a), and the special assessment, which stemmed from an extraordinary circumstance – the need to settle a monetary judgment. The special assessment was imposed by the QCSC’s Board of Directors (BOD) through Board Resolution No. 7-2001. Because Catherine Ching’s non-payment was a violation of this specific Board Resolution, the Court determined that Section 35(a) of the by-laws should have been applied.

Sec. 35. (a) For violating these By-Laws or rules and regulations of the Club, or resolution and orders duly promulgated at Board or stockholders’ meeting, or for any other causes and acts of a member which in the opinion of the Board are serious or prejudicial to the Club such as acts or conduct of a member or the immediate members of his family, his guest or visitors, which the Board may deem disorderly or injurious to the interest or hostile to the objects of the Club, the offending member may be suspended, or expelled by a two-thirds (2/33) vote of the Board of Directors upon proper notice and hearing.

The Court found that the QCSC violated Catherine Ching’s right to due process because she did not receive specific notice advising her that she could be suspended for non-payment of the special assessment and was not afforded a hearing before her suspension. The general notice printed on her statements of account was insufficient to meet the requirements of Section 35(a).

However, the Court also acknowledged that Catherine Ching admitted to violating Board Resolution No. 7-2001 by not paying the special assessment. This acknowledgement became crucial in mitigating the damages awarded. The Court also addressed the issue of bad faith, noting that it requires a dishonest purpose or some moral obliquity and conscious doing of wrong, which must be substantiated by evidence. It cited Philippine National Bank v. Heirs of Estanislao Militar, emphasizing that bad faith cannot be presumed but must be established by clear and convincing evidence.

The Court found no evidence of bad faith on the part of the QCSC in implementing Catherine Ching’s suspension or in distributing the memorandum listing suspended members. The actions were deemed to be in the ordinary course of business to implement Board Resolutions Nos. 7-2001 and 3-2002. The Court further discredited the testimony of Roland Dacut, a tennis trainer, regarding alleged instructions to avoid the Chings, ruling it as hearsay evidence lacking probative value. Dacut had no personal knowledge, only relying on what a tennis assistant relayed to him.

In light of these findings, the Court determined that while the QCSC had violated Catherine Ching’s right to due process, there was justifiable ground for her suspension due to her non-payment of the special assessment. Consequently, the Court deemed that the Chings were not entitled to moral or exemplary damages or attorney’s fees, as bad faith was not proven.

Despite the absence of bad faith, the Supreme Court awarded nominal damages to the Chings. According to Article 2221 of the Civil Code, nominal damages are awarded to vindicate or recognize a right that has been violated, not to indemnify for losses suffered. The Court found that the QCSC’s failure to observe due process warranted the award of nominal damages. Only the Quezon City Sports Club, Inc. was held liable for the nominal damages, emphasizing that, absent malice and bad faith, officers of a corporation are not personally liable for the corporation’s liabilities.

The ruling underscores the importance of adhering to due process even when there is a valid reason for disciplinary action. While Catherine Ching did violate the club’s resolution, the club’s failure to follow its own by-laws in implementing the suspension led to the award of nominal damages. This case highlights the contractual nature of club memberships and the necessity of fair procedures in enforcing club rules.

FAQs

What was the key issue in this case?	The key issue was whether the Quezon City Sports Club properly suspended Catherine Ching’s membership privileges for failing to pay a special assessment, considering the club’s by-laws regarding notice and hearing.
Why was Catherine Ching’s membership suspended?	Catherine Ching’s membership was suspended because she did not pay a special assessment of P2,500 imposed by the club to cover monetary judgments from a labor case.
What are nominal damages?	Nominal damages are a small monetary award granted when a legal right has been violated but no actual financial loss has occurred; these damages serve to recognize the violation of the right.
What is the significance of the club’s by-laws in this case?	The club’s by-laws were crucial because they outline the procedures for suspending members, and the Supreme Court determined that the club failed to follow the correct procedure.
Did the Supreme Court find that the club acted in bad faith?	No, the Supreme Court found no evidence of bad faith on the part of the Quezon City Sports Club in implementing Catherine Ching’s suspension.
What is the “Business Judgment Rule” and how does it apply here?	The Business Judgment Rule generally protects corporate decisions from court interference if made in good faith, but it doesn’t excuse failure to comply with due process requirements outlined in by-laws.
What was the role of Roland Dacut’s testimony in the case?	Roland Dacut’s testimony, regarding an alleged order for trainers to avoid playing with the Chings, was considered hearsay and given no probative value by the Court.
What was the basis for awarding nominal damages in this case?	The award of nominal damages was based on the Quezon City Sports Club’s failure to provide proper notice and a hearing before suspending Catherine Ching’s membership, violating her right to due process.

This case serves as a reminder that organizations must respect due process rights when enforcing their rules. While clubs and associations have the right to manage their affairs, they must do so in a manner that is fair and consistent with their own governing documents.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

November 7, 2016

Piercing the Corporate Veil: Establishing Personal Liability for Corporate Debts in Illegal Dismissal Cases

In Lozada v. Mendoza, the Supreme Court ruled that a corporate officer cannot be held personally liable for the monetary awards in an illegal dismissal case absent a clear showing of bad faith or patently unlawful acts. This decision underscores the principle of corporate separateness, protecting officers from personal liability unless specific conditions are met. The ruling reinforces the importance of distinguishing between the actions of a corporation and the personal liabilities of its officers, providing clarity for both employers and employees in labor disputes.

When Can Corporate Officers Be Held Liable for Company Debts?

The case of Valentin S. Lozada v. Magtanggol Mendoza arose from a labor dispute involving Magtanggol Mendoza, who was employed as a technician by VSL Service Center, a sole proprietorship owned by Valentin Lozada. Subsequently, VSL Service Center was incorporated into LB&C Services Corporation, and Mendoza was asked to sign a new employment contract, which he refused, leading to a reduction in his work schedule. After being advised not to report for work and receiving no further communication, Mendoza filed a complaint for illegal dismissal against the company.

The Labor Arbiter ruled in favor of Mendoza, declaring his dismissal illegal and ordering reinstatement with backwages and other benefits. However, LB&C Services Corporation failed to perfect its appeal, and the decision became final. When Mendoza sought a writ of execution, Lozada and LB&C Services Corporation moved to quash it, arguing the absence of an employer-employee relationship and the corporation’s closure due to financial losses.

The Labor Arbiter denied the motion, leading to the garnishment of Lozada’s personal bank account and a notice of levy upon his real property. LB&C Services Corporation then appealed to the National Labor Relations Commission (NLRC), which reversed the Labor Arbiter’s decision, lifting the levy. Mendoza then filed a petition for certiorari with the Court of Appeals (CA), which reinstated the Labor Arbiter’s original decision, holding Lozada personally liable. This CA decision prompted Lozada to appeal to the Supreme Court, questioning his liability for the monetary awards in the absence of a specific pronouncement of solidary liability.

The Supreme Court emphasized the fundamental principle that a corporation possesses a separate and distinct legal personality from its directors, officers, and employees. As such, obligations incurred by corporate agents are the direct responsibility of the corporation, not the individuals acting on its behalf. This doctrine is crucial for maintaining the integrity of corporate law, ensuring that individuals are not unduly held liable for the actions of the corporate entity unless specific conditions are met. This is the concept known as piercing the corporate veil.

As a general rule, corporate officers are not held solidarily liable with the corporation for separation pay because the 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. (Ever Electrical Manufacturing, Inc.(EEMI) v. Samahang Manggagawa ng Ever Electrical/NAMAWU Local, G.R. No. 194795, June 13, 2012)

The Court outlined specific requisites for holding a director or officer personally liable for corporate obligations. First, the complaint must allege that the director or officer assented to patently unlawful acts of the corporation, or was guilty of gross negligence or bad faith. Second, there must be proof that the director or officer acted in bad faith. These requirements ensure that personal liability is not imposed lightly but is reserved for cases where the officer’s conduct warrants such responsibility.

In Mendoza’s case, the Supreme Court found that neither of these requisites were met. Mendoza’s submissions did not ascribe gross negligence or bad faith to Lozada, nor did they allege that Lozada assented to patently unlawful acts of the corporation. The evidence presented did not clearly and convincingly prove that Lozada had acted in bad faith concerning Mendoza’s illegal dismissal. This lack of evidence was crucial in the Court’s decision to absolve Lozada from personal liability.

The Court of Appeals relied on the case of Restaurante Las Conchas v. Llego, which held that officers of a corporation could be held liable when the corporation no longer exists and cannot satisfy judgments in favor of employees. However, the Supreme Court clarified that Restaurante Las Conchas applied an exception to the general rule rather than the rule itself. The Court emphasized that it has since opted not to adhere strictly to Restaurante Las Conchas in subsequent cases, such as Mandaue Dinghow Dimsum House, Co., Inc. v. National Labor Relations Commission-Fourth Division and Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission.

In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to follow Restaurante Las Conchas because there was no showing that the respondent had acted in bad faith or in excess of his authority. The Court reiterated that every corporation is invested by law with a separate and distinct personality and that the doctrine of piercing the veil of corporate fiction must be applied with caution. Similarly, in Pantranco Employees Association, the Court rejected the invocation of Restaurante Las Conchas, emphasizing that corporate officers cannot be made personally liable for corporate liabilities in the absence of malice, bad faith, or a specific provision of law making them liable.

The Supreme Court concluded that the records of Lozada’s case did not warrant the application of the exception. The rule requiring malice or bad faith on the part of the directors or officers of the corporation must still prevail. The Court acknowledged that Lozada might have acted on behalf of LB&C Services Corporation, but the corporation’s failure to operate could not be automatically equated to bad faith on his part. Business closures can result from various factors, including mismanagement, bankruptcy, or lack of demand, and unless proven to be deliberate, malicious, and in bad faith, the separate legal personality of the corporation should be upheld.

The Court also addressed the Court of Appeals’ imputation of bad faith to LB&C Services Corporation for continuing to file an appeal despite ceasing operations. The Supreme Court found it improbable that the corporation deliberately ceased operations solely to evade payment to a single employee like Mendoza. Moreover, the Labor Arbiter had not made any findings about Lozada perpetrating wrongful acts or being personally liable. Therefore, holding Lozada liable after the decision had become final and executory would alter the decision’s tenor in a manner that exceeded its terms.

The Supreme Court further stated that declaring Lozada’s liability as solidary would modify the already final and executory decision, which is impermissible. Final decisions are immutable, and modifications are only allowed for correcting clerical errors or in cases where the judgment is void, none of which applied in this case. Consequently, the Court quashed and lifted the alias writ of execution as a patent nullity, as it did not conform to the judgment that gave it life, thereby violating the constitutional guarantee against depriving any person of property without due process of law.

FAQs

What was the key issue in this case?	The key issue was whether a corporate officer could be held personally liable for the monetary awards in an illegal dismissal case when there was no explicit finding of bad faith or patently unlawful acts on their part.
What is the principle of corporate separateness?	The principle of corporate separateness recognizes that a corporation is a distinct legal entity from its shareholders, directors, and officers. This means the corporation is responsible for its own debts and obligations, separate from the personal liabilities of those individuals.
Under what circumstances can a corporate officer be held personally liable for corporate debts?	A corporate officer can be held personally liable if the complaint alleges that they assented to patently unlawful acts of the corporation, or were guilty of gross negligence or bad faith, and there is proof that they acted in bad faith.
*What did the Court rule regarding the application of Restaurante Las Conchas v. Llego?*	The Court clarified that Restaurante Las Conchas applied an exception to the general rule of corporate separateness and that it has since opted not to adhere strictly to that ruling in subsequent cases, emphasizing the need for evidence of bad faith or malice.
What constitutes bad faith in the context of corporate liability?	Bad faith implies a dishonest purpose, some moral obliquity, a conscious doing of wrong, a breach of a known duty through some motive or interest or ill will, or participation in fraud. Mere negligence or bad judgment is not enough to establish bad faith.
What is the significance of the absence of allegations of bad faith in the complaint?	The absence of allegations of bad faith in the complaint is significant because it fails to satisfy one of the key requisites for holding a corporate officer personally liable. Without such allegations, the court cannot proceed to pierce the corporate veil.
Can a final and executory decision be modified to include personal liability of a corporate officer?	No, a final and executory decision cannot be modified to include personal liability of a corporate officer, as it would alter the tenor of the decision in a manner that exceeds its terms. Once a decision becomes final, it is immutable and can only be modified to correct clerical errors or in cases where the judgment is void.
What is an alias writ of execution, and why was it quashed in this case?	An alias writ of execution is a subsequent writ issued to enforce a judgment when the original writ has expired or been returned unsatisfied. In this case, it was quashed because it sought to enforce personal liability against Lozada, which was not part of the original judgment against the corporation.

This case reaffirms the importance of upholding the principle of corporate separateness and provides clear guidelines for determining when corporate officers can be held personally liable for the debts of their corporations. The ruling underscores that personal liability is not automatic but requires specific allegations and proof of bad faith or unlawful conduct. This ensures a fair balance between protecting employees’ rights and safeguarding the corporate structure.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

October 12, 2016

Piercing the Corporate Veil: When Labor Rights Trump Corporate Fiction in Illegal Dismissal Cases

In a significant labor law ruling, the Supreme Court held that a company cannot hide behind a separate corporation to avoid its responsibilities to employees. The Court emphasized that if a company uses another entity merely as a front to skirt labor laws, it will be considered the direct employer and held liable for illegal dismissal and related claims. This decision protects employees’ rights by preventing companies from using complex corporate structures to evade labor obligations.

Nuvoland’s Web: Did Silvericon Shield Illegal Dismissal?

The case of Edward C. De Castro and Ma. Girlie F. Platon v. Court of Appeals, National Labor Relations Commission, Silvericon, Inc., and/or Nuvoland Phils., Inc., and/or Raul Martinez, Ramon Bienvenida, and the Board of Directors of Nuvoland, G.R. No. 204261, delves into the complexities of labor-only contracting and the piercing of the corporate veil. The petitioners, De Castro and Platon, claimed illegal dismissal against Silvericon and Nuvoland. Silvericon, purportedly an independent contractor, was accused of being a mere agent of Nuvoland, designed to evade labor obligations. The central question was whether Silvericon was genuinely an independent contractor or a labor-only contractor, making Nuvoland the actual employer.

The Labor Code, particularly Article 106, defines labor-only contracting as an arrangement where the entity supplying workers lacks substantial capital or investment and the workers perform activities directly related to the principal business. In such cases, the intermediary is considered an agent of the employer, who is responsible to the workers as if they were directly employed. DOLE Department Order No. 18-02 (D.O. 18-02) further implements this provision, specifying the elements that constitute labor-only contracting. It emphasizes that substantial capital or investment refers to capital stocks, tools, equipment, and work premises used by the contractor. Also, the right to control pertains to the person for whom services are performed determining both the end result and the means to achieve it.

The Supreme Court, in this case, scrutinized whether Silvericon met the criteria of an independent contractor. Several factors led the Court to conclude that Silvericon was, in fact, engaged in labor-only contracting. One critical aspect was Silvericon’s failure to register as an independent contractor with the DOLE. This non-compliance created a legal presumption that Silvericon was indeed a labor-only contractor, a presumption the respondents failed to rebut. As the Court emphasized, the failure to register as an independent contractor creates a presumption of labor-only contracting, which significantly influenced the Court’s perspective.

Section 11. Registration of Contractors or Subcontractors. – Consistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor through appropriate regulations, a registration system to govern contracting arrangements and to be implemented by the Regional Offices is hereby established.

The registration of contractors and subcontractors shall be necessary for purposes of establishing an effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.

The Court also examined Silvericon’s capitalization. D.O. No. 18-A, series of 2011, defines substantial capital as a paid-up capital stock of at least P3,000,000.00 for corporations. Silvericon’s subscribed capital of P1,000,000.00 fell significantly short of this requirement. Considering the nature of Nuvoland’s business—a real estate company marketing condominium projects—the Court found that P1,000,000.00 was woefully inadequate. Nuvoland’s awareness of this inadequacy was evident in its decision to fund Silvericon’s marketing expenses up to P30 million per building.

Furthermore, Silvericon lacked substantial equipment and work premises. Nuvoland designed and constructed the model units used in sales and marketing, indicating that Silvericon had no such investment. This lack of investment further supported the conclusion that Silvericon was not operating as an independent entity. The exclusivity of the relationship between Nuvoland and Silvericon also raised questions. An independent contractor would typically offer its services to the public, yet Silvericon’s services were exclusively for Nuvoland.

The intertwined nature of the two companies was evident in their shared officers and employees. Bienvenida and Martinez held key positions in both Nuvoland and Silvericon. Such overlap, while not conclusive on its own, raised suspicions when viewed alongside other indicators of labor-only contracting. The termination of the Sales and Marketing Agreement (SMA) by Nuvoland, without proper investigation or consultation with Silvericon, suggested that Silvericon was merely an extension of Nuvoland, and a ruse to terminate employees while evading employer responsibilities.

Given these findings, the Court invoked the doctrine of piercing the corporate veil, which allows the separate personalities of corporations to be disregarded when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or evade obligations. As explained in Sarona v. National Labor Relations Commission:

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 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.

By treating Nuvoland and Silvericon as a single entity, the Court prevented Nuvoland from evading its labor obligations. An employer-employee relationship was established between Nuvoland and the dismissed employees, with Silvericon acting merely as an agent. Moreover, the Court found that Nuvoland exercised significant control over the employees. Nuvoland paid the sales commissions, effectively exercising the power to compensate Silvericon personnel. Additionally, the termination letter and the subsequent barring of employees from the workplace reflected Nuvoland’s control over the terms of employment.

Turning to the jurisdictional issue, the Court affirmed the Labor Arbiter’s jurisdiction over the case, citing Article 217 of the Labor Code. The case involved a termination dispute and claims arising from employer-employee relations, placing it squarely within the LA’s purview. Even for De Castro, who held a corporate officer position, the Court determined that the nature of the dispute was rooted in labor laws rather than corporate issues. De Castro’s hiring and the termination of the SMA were deemed a ruse to conceal Nuvoland’s labor-contracting activities, reinforcing the labor-related nature of the case.

The Court clarified that for a dismissal to be valid, it must comply with both procedural and substantive due process, as articulated in Skippers United Pacific, Inc. v. Doza:

For a worker’s dismissal to be considered valid, it must comply with both procedural and substantive due process. The legality of the manner of dismissal constitutes procedural due process, while the legality of the act of dismissal constitutes substantive due process.

In this case, Nuvoland failed to provide just cause for the termination of the petitioners and did not comply with the notice and hearing requirements of procedural due process. However, while Nuvoland was held solidarily liable, the Court absolved the individual officers, Martinez and Bienvenida, from personal liability. The Court stated there was no evidence of malice, ill will, or bad faith on their part, which is required to hold corporate officers personally liable in labor disputes.

FAQs

What was the key issue in this case?	The central issue was whether Silvericon acted as an independent contractor or a labor-only contractor for Nuvoland, determining who was the actual employer of the dismissed employees. The Court examined the details of the business relationship and found Silvericon to be a labor-only contractor.
What is “labor-only contracting” under Philippine law?	Labor-only contracting occurs when a company supplies workers to an employer without substantial capital or investment, and the workers perform tasks directly related to the employer’s core business. In such cases, the supplier is considered an agent of the employer, who is then responsible for the workers as direct employees.
What is “piercing the corporate veil,” and why was it applied here?	Piercing the corporate veil is a doctrine that disregards the separate legal personality of a corporation to hold its owners or officers liable for its actions. It was applied here because the Court found that Nuvoland used Silvericon to evade its labor obligations.
What factors did the Court consider in determining Silvericon was a labor-only contractor?	The Court considered Silvericon’s lack of registration with DOLE, insufficient capitalization for the scale of work, lack of significant equipment or work premises, the exclusivity of its services to Nuvoland, and the shared officers between the two companies. The shared staff and executives pointed that the two companies are not operating independently.
How did the Court determine who the real employer was in this situation?	By applying the control test, the Court found that Nuvoland exercised significant control over the employees’ work, including paying wages and having the power of dismissal. Nuvoland dictating the results of the undertaking, having control over the sales, and deciding the models and designs of the units made them the employer.
Why weren’t the corporate officers held personally liable in this case?	Corporate officers are generally not held personally liable for corporate obligations unless they acted with malice, bad faith, or gross negligence. In this case, the Court found no evidence of such behavior on the part of the officers.
What is the significance of DOLE Department Order No. 18-02 in this case?	DOLE Department Order No. 18-02 provides the implementing rules and regulations for labor-only contracting, defining the criteria and obligations. It reinforced the standards for determining independent contractors and labor-only arrangements.
What is substantive and procedural due process in termination cases?	Substantive due process requires a just or authorized cause for termination under the Labor Code. Procedural due process requires the employer to provide the employee with written notice of the grounds for termination and an opportunity to be heard.
What was the final outcome of the case?	The Supreme Court reversed the Court of Appeals’ decision and reinstated the Labor Arbiter’s ruling that Nuvoland was the employer and liable for illegal dismissal. The case was remanded to the Labor Arbiter for computation of monetary awards.

This case serves as a stark reminder that Philippine courts will not allow companies to use corporate structures to circumvent labor laws and deprive employees of their rights. Companies must ensure genuine independence when contracting out labor, or risk being held directly liable as the employer. If a company has labor-only contracting schemes they should be wary of violating the law, and should seek legal counsel.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Edward C. De Castro and Ma. Girlie F. Platon v. Court of Appeals, National Labor Relations Commission, Silvericon, Inc., and/or Nuvoland Phils., Inc., and/or Raul Martinez, Ramon Bienvenida, and the Board of Directors of Nuvoland, G.R. No. 204261, October 05, 2016

October 5, 2016

Corporate Mergers and Employee Rights: Understanding Job Security in the Philippines

In the Philippines, a corporate merger does not automatically lead to the dismissal of employees from the absorbed company. According to the Supreme Court, employment contracts are assumed by the surviving corporation, ensuring job security for the employees. This decision underscores the constitutional protection of labor rights, preventing companies from using mergers as a pretext for unlawful terminations. Therefore, employees are entitled to continue their employment under the new entity unless there are lawful grounds for termination, such as redundancy or closure of operations, reinforcing the stability of employment in corporate restructuring.

When Corporate Giants Merge: Can Your Employer Terminate You?

The case of Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc. (now Chevron Geothermal Philippines Holdings, Inc.) revolves around the question of whether a corporate merger results in the implied termination of employment for the absorbed company’s employees. The Philippine Geothermal, Inc. Employees Union (Union) argued that when Unocal Corporation merged with Blue Merger Sub, Inc. (a subsidiary of Chevron Texaco Corporation), it effectively terminated the employment of its members working for Unocal Philippines. The Union sought separation benefits under their Collective Bargaining Agreement (CBA), claiming the merger constituted a cessation of operations. Unocal Philippines, however, maintained that the merger did not result in any termination of employment and refused to grant separation benefits. This disagreement led to a legal battle that ultimately reached the Supreme Court.

At the heart of the dispute was the Union’s contention that the merger severed the ties between the employees and their original employer, Unocal Corporation, entitling them to separation pay. The Secretary of Labor initially ruled in favor of the Union, stating that the merger resulted in new contracts and a new employer. However, the Court of Appeals (CA) reversed this decision, asserting that Unocal Philippines was a separate entity from Unocal Corporation and that the merger did not dissolve Unocal Philippines or affect its employees. The CA further noted that the CBA only provided for separation pay in cases of redundancy, retrenchment, installation of labor-saving devices, or closure of operations, none of which occurred here.

The Supreme Court (SC) had to determine whether the CA erred in reversing the Secretary of Labor’s decision. The first issue was whether Unocal Philippines changed its theory of the case on appeal. Before the Secretary of Labor, Unocal Philippines seemed to acknowledge that it was a party to the merger, but before the CA, it argued it was not a party to the merger because it was a subsidiary of Unocal California, and thus had a separate and distinct personality from Unocal Corporation. The SC found that Unocal Philippines did indeed change its theory on appeal, which is generally not allowed. The court emphasized that raising a factual question for the first time on appeal is impermissible, as it deprives the opposing party of the opportunity to present evidence to disprove the new claim.

Building on this principle, the SC then addressed the substantive issue of whether the merger resulted in the termination of the Union’s members’ employment. After finding the CA erred, the SC had to rule based on existing facts and settled law. The Court referenced Section 80 of the Corporation Code, which outlines the effects of a merger. Despite not explicitly addressing the fate of employees, the SC cited the case of Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank, which held that the surviving corporation automatically assumes the employment contracts of the absorbed corporation. This ruling is grounded in both the Corporation Code and the constitutional policies protecting labor rights. The court stated:

Taking a second look on this point, we have come to agree with Justice Brion’s view that it is more in keeping with the dictates of social justice and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan.

The rationale behind this is that the surviving corporation inherits all rights, privileges, properties, and liabilities of the absorbed corporation. This includes the obligations under existing employment contracts. Therefore, the employment contracts are not terminated unless there is a legal basis for doing so. The SC emphasized that this interpretation aligns with the constitutional mandate to afford full protection to labor and promote their welfare. In line with this view, it’s vital to respect constitutional rights when dealing with employment-related disputes.

Further reinforcing its decision, the SC pointed to the constitutional provisions on labor rights, specifically Article II, Section 18, and Article XIII, Section 3. These provisions mandate the State to protect the rights of workers and ensure their security of tenure. The Court reasoned that interpreting a merger as an automatic termination of employment would violate these constitutional safeguards. Moreover, such an interpretation would undermine the public interest inherent in employment contracts.

However, despite its ruling on the legal effect of a merger, the SC ultimately sided with Unocal Philippines, denying the Union’s claim for separation benefits. The Court emphasized that separation benefits are not automatically granted in cases of mergers. Rather, they are typically awarded when employees lose their jobs due to redundancy, retrenchment, the installation of labor-saving devices, or the closure and cessation of operations. In this particular instance, none of these conditions were met. The court explained the specific circumstances that warrant separation pay:

In the event of closure, cessation of operations, retrenchment, redundancy or installation of labor saving devices, the COMPANY will pay just and fair compensation for those who will be separated from the COMPANY.

The SC noted that the Union members continued their employment with Unocal Philippines after the merger, with their tenure, salaries, and benefits remaining intact. The Union even entered into a new CBA with Unocal Philippines post-merger, which further indicated that there was no termination of employment. Therefore, because the employees’ job positions were never actually in jeopardy, and their day-to-day was uninterrupted, the requirements for separation pay were not met, making this ruling a necessary action.

While the SC acknowledged the policy of ruling in favor of labor, it also recognized the rights of management and the need for fair play. The Court reiterated that it cannot unduly trample upon the rights of employers in the guise of social justice. Accordingly, the Supreme Court affirmed the Court of Appeals’ decision, denying the Union’s petition for review. This ruling underscores the importance of balancing the protection of labor rights with the legitimate business interests of companies undergoing corporate restructuring.

FAQs

What was the key issue in this case?	The primary issue was whether the merger of Unocal Corporation with Blue Merger and Chevron resulted in the implied termination of employment for the employees of Unocal Philippines, entitling them to separation benefits.
Does a corporate merger automatically terminate employment in the Philippines?	No, a corporate merger does not automatically terminate employment. The surviving corporation assumes the employment contracts of the absorbed corporation, ensuring job security for the employees unless there are legal grounds for termination.
What happens to employment contracts during a merger?	Employment contracts are automatically assumed by the surviving corporation in a merger. This means that the employees of the absorbed corporation become part of the manpower complement of the surviving corporation with their existing terms and conditions of employment.
Under what circumstances are employees entitled to separation pay in a merger?	Employees are typically entitled to separation pay if the merger results in redundancy, retrenchment, installation of labor-saving devices, or closure and cessation of operations. However, if the employees continue their employment with the surviving corporation without any loss of tenure or benefits, they are generally not entitled to separation pay.
What did the Secretary of Labor initially rule in this case?	The Secretary of Labor initially ruled in favor of the Union, stating that the merger resulted in new contracts and a new employer, implying a termination of employment. Therefore, the Secretary of Labor initially awarded the Union separation pay under the Collective Bargaining Agreement.
How did the Court of Appeals rule on the Secretary of Labor’s decision?	The Court of Appeals reversed the Secretary of Labor’s decision, asserting that Unocal Philippines was a separate entity from Unocal Corporation and that the merger did not dissolve Unocal Philippines or affect its employees.
What was the Supreme Court’s final decision?	The Supreme Court affirmed the Court of Appeals’ decision, denying the Union’s petition for review. The Court held that the merger did not result in the implied termination of employment and that the employees were not entitled to separation benefits since they continued their employment with Unocal Philippines.
Can an employer terminate employees during a merger?	An employer can terminate employees during a merger, but only for just or authorized causes as provided by the Labor Code. These causes include serious misconduct, willful disobedience, gross and habitual neglect of duties, fraud or breach of trust, redundancy, retrenchment, or closure of operations.
What is the significance of Section 80 of the Corporation Code in this context?	Section 80 of the Corporation Code outlines the effects of a merger or consolidation, including the transfer of all rights, privileges, properties, and liabilities of the absorbed corporation to the surviving corporation. This provision is the basis for the ruling that employment contracts are also assumed by the surviving corporation.

In conclusion, the Philippine Supreme Court’s decision in Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc. clarifies that a corporate merger does not automatically terminate employment, ensuring greater job security for employees in the Philippines. This ruling reinforces the constitutional protection of labor rights and emphasizes the need to balance these rights with the legitimate business interests of companies undergoing corporate restructuring.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION vs. UNOCAL PHILIPPINES, INC., G.R. No. 190187, September 28, 2016

September 28, 2016