Case Summary (G.R. No. 108734)
Factual Background
Petitioner CONCEPT BUILDERS, INC. was a domestic corporation engaged in construction with principal office at 355 Maysan Road, Valenzuela, Metro Manila. The private respondents were employed by petitioner as laborers, carpenters and riggers. In November 1981 petitioner served individual notices of termination effective November 30, 1981, stating that the projects had been completed; private respondents alleged the projects were not finished and that petitioner thereafter engaged subcontractors to perform the same functions. Private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of statutory benefits. The Labor Arbiter rendered judgment on December 19, 1984 ordering reinstatement and back wages equivalent to one year or three hundred working days.
Enforcement Efforts and Sheriff’s Reports
A writ of execution issued October 29, 1986 was partially satisfied by garnishment of P81,385.34 from petitioner’s debtor, Metropolitan Waterworks and Sewerage Authority. An Alias Writ of Execution issued February 1, 1989 directed the sheriff to collect the remaining P117,414.76 and to reinstate private respondents. The sheriff reported difficulty executing the writ: service was refused on the ground that petitioner no longer occupied the premises, employees inside the premises claimed to be employees of Hydro Pipes Philippines, Inc. (HPPI), personal properties found in the premises were levied upon, and security guards prevented removal. The sheriff thus recommended issuance of a break-open order to enable entry and auction.
Third-Party Claim and Evidence of Corporate Relationship
On November 6, 1989 Dennis Cuyegkeng filed a third-party claim alleging that the levied properties belonged to Hydro (Phils.), Inc. (HPPI). Private respondents moved for a break-open order on November 23, 1989, alleging common incorporators and stockholders and that petitioner had suspended business to evade obligations; they offered to post an indemnity bond. Private respondents submitted General Information Sheets dated May 15, 1987 for both petitioner and HPPI. The information sheets showed overlapping subscribed capital entries, substantially identical boards of directors and officers, and the same principal office address at 355 Maysan Road, Valenzuela, Metro Manila.
Labor Arbiter and NLRC Proceedings
HPPI opposed the motion on February 1, 1990, asserting corporate separateness and distinct business activities. The Labor Arbiter denied the break-open order on March 2, 1990. Private respondents appealed to the NLRC. On April 23, 1992 the NLRC set aside the Labor Arbiter’s order, issued the break-open order, directed private respondents to file a bond, ordered the sheriff to proceed with auction of the levied properties, and dismissed the third-party claim for lack of merit. Petitioner’s motion for reconsideration was denied by the NLRC in a Resolution dated December 3, 1992.
The Parties’ Contentions in the Supreme Court
Petitioner argued that the NLRC committed grave abuse of discretion by ordering execution in the face of a third-party claim and that the doctrine of piercing the corporate veil was inapplicable because there was no showing that HPPI was created specifically to evade petitioner’s liability; petitioner emphasized divergent business activities and contended that common officers and a shared address were insufficient to disregard corporate separateness. Private respondents and the NLRC relied on the evidence of shared officers, subscribers and address, and on the contention that petitioner ceased business operations to evade its obligations, rendering HPPI a business conduit or alter ego.
Issues Presented
The central issues were whether the NLRC acted with grave abuse of discretion in issuing and enforcing a break-open order despite a third-party claim, and whether the NLRC properly disregarded corporate separateness by applying the doctrine of piercing the corporate veil under the instrumentality rule.
Legal Principles Applied
The Court reiterated that a corporation is ordinarily a juridical person separate from its stockholders and related corporations but that this separate personality is a legal fiction created for convenience and justice. The fiction may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, evade labor laws or to defeat legal obligations. The Court cited the instrumentality rule, as expounded by the SEC en banc, and adopted the multi-part test for piercing the corporate veil: (1) control amounting to complete domination of finances, policy and business practice with no separate mind or existence as to the transaction attacked; (2) use of such control to commit fraud or wrong or to perpetuate violation of a statutory duty; and (3) proximate causation of the injury or unjust loss. The Court emphasized that the test is factual and that the absence of any one element prevents piercing the veil.
Application of Law to the Facts
The Court found substantial evidence supporting the NLRC’s findings: both corporations filed General Information Sheets listing the same principal office at 355 Maysan Road; the same individual, Virgilio O. Casino, filed both information sheets as corporate secretary; both corporations had the same president, the same board of directors, the same corporate officers and substantially the same subscribers. The Court concluded that petitioner’s cessation of operations occurred in a context that suggested evasion of liability to private respondents and that HPPI functioned as a business conduit
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Case Syllabus (G.R. No. 108734)
Parties and Procedural Posture
- Concept Builders, Inc. was the petitioner and a domestic corporation engaged in the construction business with principal office at 355 Maysan Road, Valenzuela, Metro Manila.
- The National Labor Relations Commission was the public respondent whose resolutions affirming a break-open order and denying reconsideration were assailed.
- The private respondents were laborers, carpenters and riggers who filed a complaint for illegal dismissal, unfair labor practice and unpaid statutory benefits against Concept Builders, Inc..
- The Labor Arbiter rendered judgment on December 19, 1984, ordering reinstatement and backwages, and the NLRC dismissed petitioner’s motion for reconsideration on November 27, 1985.
- Execution proceedings produced partial satisfaction by garnishment and subsequent alias writs directed against Concept Builders, Inc. with a reported balance due of P117,414.76 and a backwages computation of P199,800.00.
- A sheriff’s levy encountered resistance and a third-party claim by Hydro Pipes Philippines, Inc. (HPPI), leading to an NLRC break-open order dated April 23, 1992 and a denial of petitioner’s motion for reconsideration on December 3, 1992.
- Concept Builders, Inc. filed the present petition alleging grave abuse of discretion in the issuance and enforcement of the break-open order and challenging application of the doctrine of piercing the corporate veil.
Key Factual Allegations
- Private respondents received termination notices in November 1981 stating their contracts expired and projects were completed, but the project was in fact unfinished and petitioner engaged subcontractors to perform their work.
- The Labor Arbiter awarded reinstatement and backwages on December 19, 1984, and execution efforts in 1986 and later resulted in partial garnishment of P81,385.34 from a debtor and issuance of alias writs.
- The special sheriff reported refusal of service at petitioner’s premises, claimants inside the premises asserting employment by HPPI, levied personal property on the premises, and security guards preventing removal of the levied properties.
- HPPI filed a third-party claim asserting ownership of the levied properties and, along with private respondents, produced General Information Sheets submitted to the SEC dated May 15, 1987 showing shared officers, subscribers and the same principal office address at 355 Maysan Road.
- The records showed overlapping stockholders, identical or substantially similar boards of directors and corporate officers, and common corporate secretary filings for both corporations.
- The NLRC concluded that HPPI and Concept Builders, Inc. were related and that petitioner ceased operations to evade liabilities to its employees.
Issues Presented
- Whether the NLRC committed grave abuse of discretion in issuing and enforcing a break-open order despite a pending third-party claim by HPPI.
- Whether the NLRC correctly applied the doctrine of piercing the corporate veil to treat HPPI as a conduit or alter ego of Concept Builders, Inc..
Contentions of the Parties
- Concept Builders, Inc. contended that HPPI was a separate and distinct corporation engaged in a manufacturing business, that shared premises and officers did not justify piercing the corporate veil, and that there was no showing that HPPI was created to evade liabilities.
- Private respondents and HPPI contended that the two corporations shared stockholders, officers and address and that petitioner suspended operations to avoid payment of backwages, thereby warranting application of the instrumentality rule.
- The NLRC maintained that factual evidence demonstrated domination and continuity such that HPPI served as a business conduit for petitioner and that due process requirements for issuance of a break-open order were satisfied.
Statutory and Doctrinal Framework
- The NLRC relied on Section 3, Rule VII of the NLRC Manual of Execution of Judgment which permits a break-open order when entry to the place where the property subject of execution is located is refused.
- The Court applied the doctrine of piercing the corporate veil and the instrumentality