In Armando David v. National Federation of Labor Union and Mariveles Apparel Corporation, the Supreme Court ruled that a corporate officer, Armando David, could not be held solidarily liable for the debts of Mariveles Apparel Corporation (MAC) because he was denied due process. David was impleaded in the labor case and held liable without prior notice or an opportunity to present his defense. This decision underscores the fundamental right of individuals to be heard before being held liable for corporate obligations, ensuring fairness and preventing potential abuse in labor disputes.

The Unheard Executive: Can Corporate Officers Be Liable Without Due Process?

The case arose from a labor dispute where the National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) sued MAC for illegal closure. Armando David, who served as MAC’s President, was impleaded in the case and held solidarily liable along with MAC and its Chairman of the Board, Antonio Carag. However, David argued that he was not afforded due process because he was impleaded and held liable without prior notice, summons, or an opportunity to present his defense. He claimed he only learned of the decision against him by chance and was not even aware that MAC had filed an appeal on his behalf.

The Labor Arbiter, in her decision, granted the motion to implead Carag and David, holding them jointly and severally liable with MAC. This decision was based on the belief that impleading the officers would guarantee the payment of any judgment award in favor of the employees, citing instances where corporate officers might be held liable for dismissing employees in bad faith or violating labor standard laws. However, David argued that he was denied due process and that his solidary liability was improper, given that he did not willfully and knowingly assent to any unlawful acts of the corporation.

The Court of Appeals affirmed the Labor Arbiter’s decision, stating that David could not evade liability by simply alleging that he had not affirmed or adopted the position paper filed by MAC. The appellate court reasoned that David’s resignation took place after MAC’s closure, implying that he willingly assented to the unlawful closure without notice to the employees. This decision was ultimately challenged before the Supreme Court, where David raised the issues of due process and the propriety of his solidary liability.

The Supreme Court focused on two primary issues: whether David had been afforded due process, and whether it was proper to hold him solidarily liable for MAC’s obligations. The Court emphasized that the proceedings before the Labor Arbiter had deprived David of due process. The records showed that NAFLU and MACLU had moved to implead David only in their position paper, and David had not received any summons or notice of the proceedings against him. This lack of notice and opportunity to be heard violated David’s fundamental right to due process.

The Court cited Sections 2, 3, 4, 5(b), and 11(c) of Rule V of the New Rules of Procedure of the NLRC, which outline the requirements for summoning parties to a conference, submitting position papers, and determining the necessity of a hearing. Since David was not summoned or given an opportunity to participate in the proceedings, the Labor Arbiter and the NLRC lacked jurisdiction over him. Consequently, any liability imposed on David for the monetary award in favor of MACLU and NAFLU was deemed void.

Even assuming the NLRC and the Labor Arbiter had jurisdiction, the Court ruled it was improper to hold David liable for MAC’s obligations. The Labor Arbiter invoked Article 212(e) of the Labor Code, which defines “employer” to include any person acting in the interest of an employer. However, the Court clarified that this provision, by itself, does not make a corporate officer personally liable for the debts of the corporation. Section 31 of the Corporation Code is the governing law on personal liability, stating that directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts, or who are guilty of gross negligence or bad faith, shall be liable jointly and severally for all damages resulting therefrom.

In David’s case, there was no evidence to show that he had willingly and knowingly voted for or assented to patently unlawful acts, or that he was guilty of gross negligence or bad faith. Therefore, the Court concluded that holding David liable for MAC’s debts was improper, reinforcing the principle that corporate officers are generally not personally liable for corporate obligations unless they have acted with gross negligence, bad faith, or have willfully assented to unlawful acts.

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 afforded due process, specifically notice and an opportunity to be heard.
Why was Armando David initially held liable?	Armando David was initially held solidarily liable along with Mariveles Apparel Corporation (MAC) and its Chairman of the Board, Antonio Carag, due to his position as President of MAC at the time of the illegal closure.
What does due process mean in this context?	Due process requires that a person be given notice of the legal proceedings against them and an opportunity to present their defense before being held liable.
What law governs the liability of corporate officers?	Section 31 of the Corporation Code governs the liability of corporate officers, specifying that they can be held liable only if they acted with gross negligence, bad faith, or have willfully assented to unlawful acts.
What did the Supreme Court ultimately decide?	The Supreme Court granted the petition, setting aside the Court of Appeals’ decision and ruling that Armando David could not be held liable for MAC’s debts because he was denied due process.
What is the significance of Article 212(e) of the Labor Code?	Article 212(e) of the Labor Code defines “employer” but does not, on its own, make a corporate officer personally liable for the debts of the corporation; Section 31 of the Corporation Code remains the governing law.
Was there evidence of David acting in bad faith?	No, the Supreme Court found no evidence that David willfully and knowingly voted for or assented to patently unlawful acts of the corporation, or that he was guilty of gross negligence or bad faith.
What was the effect of David’s resignation?	Although David’s resignation occurred after the initial labor complaint, the Supreme Court focused on the lack of due process in impleading and holding him liable without prior notice or summons.
How does this case affect corporate officers?	This case reinforces the protection afforded to corporate officers, clarifying that they cannot be held personally liable for corporate debts unless they have acted with gross negligence, bad faith, or willfully assented to unlawful acts, and only after due process.

The Supreme Court’s decision in Armando David v. National Federation of Labor Union and Mariveles Apparel Corporation emphasizes the importance of due process in labor disputes and the protection afforded to corporate officers. It serves as a reminder that individuals cannot be held liable for corporate obligations without notice and an opportunity to defend themselves.

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: ARMANDO DAVID VS. NATIONAL FEDERATION OF LABOR UNION AND MARIVELES APPAREL CORPORATION, G.R. Nos. 148263 and 148271-72, April 21, 2009