G.R. No. 108734, 29 May 1996

FACTS:

Petitioner Concept Builders, Inc., a domestic corporation, engaged in the construction business employed Private respondents as laborers, carpenters and riggers. After the project in which they were hired had been completed, they were served individual written notices of termination of employment by petitioner stating that their contracts of employment had expired. Public respondent found it to be, the fact, however, that at the time of the termination of private respondent’s employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and nonpayment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. The National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory.

The Labor Arbiter issued a writ of execution and was partially satisfied through garnishment of sums from petitioner’s debtor, the Metropolitan Waterworks and Sewerage Authority with the amount turned over to the cashier of the NLRC. As to the balance of the award, two alias writs of execution were issued but to no avail since the properties stated were alleged to be owned by another corporation, of Hydro Pipes Philippines, Inc. (HPPI).

In the light of such circumstances, a “break-open order was issued inspite of a third-party claim filed Dennis Cuyegkeng in behalf of HPPI. It was alleged that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.

ISSUE:

Whether or not the National Labor Relations Commission committed grave abuse of discretion when it issued a “break-open order” to the sheriff to be enforced against personal property found in the premises of petitioner’s sister company.

RULING:

Yes. The sister corporation is used as a shield to evade a corporation’s subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations;
2. Identity of directors and officers;
3. The manner of keeping corporate books and records;
4. Methods of conducting the business.

In addition, where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality” may be disregarded. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents “piercing the corporate veil.” In applying the “instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.

*Case digest by Radolf Zell Adasa JD-IV, Andres Bonifacio Law School, SY 2019-2020