G.R. No. 224099, 11 June 2017

FACTS:

Respondent closed its operations and terminated the employment of Petitioners. The latter claims that the same was illegal dismissal.

Respondent states that its closure was due to sustained financial losses, as evidenced by its audited financial statements.

Petitioner alleges that such financial losses were a mere sham to avoid liability where it merely transferred its machinery and continued operations via its wholly owned Pacific Carpet Manufacturing Corporation.

The LA, NLRC and the CA ruled in favor of the Respondent hence this petition.

ISSUE:

May Pacific Mining Manufacturing be held liable for the obligations of Respondent?

RULING:

It may not.

The petitioners, in asking the Court to disregard the separate corporate personality of Pacific Carpet and to make it liable for the obligations of Phil Carpet, rely heavily on the former being a subsidiary of the latter.

A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which may be related.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the corporate veil.

None have been met in this case. As to the transfer of Phil Carpet’s machines to Pacific Carpet, settled is the rule that “where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. All told, the petitioners failed to present substantial evidence to prove their allegation that Pacific Carpet is a mere alter ego of Phil Carpet.

*Case digest by Roger Angielo V. Atenta, JD-IV, Andres Bonifacio College, SY 2019-2020