Title
Toledo Construction Corp. Employees' Association-Adlo-KMU, represented by Danilo Reyes, vs. Toledo Construction Corp. et al.
Case
G.R. No. 204868
Decision Date
Dec 7, 2022
Union members dismissed for union activities; Supreme Court ruled extrinsic fraud by NLRC commissioner, pierced corporate veil, and held corporations and owner liable for judgment evasion.
petition for
relief
extrinsic fraud
A

Case Summary (G.R. No. 109111)

Factual Background

The Union affiliated with ADLO-KMU in September 2003. Union officers and members alleged discriminatory acts by Toledo Construction Corporation arising from union activities. Beginning late September 2003, Toledo issued memoranda putting several union officers on "floating status" and ultimately instructed some not to report for work. The Union filed a Notice of Strike on October 28, 2003. The Secretary of Labor assumed jurisdiction by Order dated November 13, 2003. Dismissals of additional Union members continued into 2004. From January 26 to 28, 2004 the Union filed seven complaints for illegal dismissal, unfair labor practice, and nonpayment claims, naming Toledo, Dumaguete, and Januario Rodriguez as respondents. Toledo filed an illegal strike complaint on February 11, 2004. The various matters were consolidated.

NLRC and Court of Appeals Proceedings

On February 24, 2005 the NLRC Second Division rendered a Decision declaring the strike illegal and awarding separation pay, backwages, and certain benefits to specified employees found to have been illegally dismissed. The NLRC modified the Decision on February 22, 2006 to exclude three employees and that Decision became final and executory March 16, 2006. An Entry of Judgment followed. The Court of Appeals later reversed the NLRC only as to one employee and otherwise affirmed the NLRC findings on December 20, 2006. The NLRC Computation Division fixed the monetary award at P6,430,538.61 on February 8, 2007. A Writ of Execution issued August 13, 2007 and attempted levy and garnishment produced minimal funds. Subsequent events included attempted levies on motor vehicles, transfers of title and registration of vehicles from Toledo to Dumaguete and Castelweb, and third-party claims by those transferees before the NLRC.

Motions, Alleged Fraud, and Petition for Relief from Judgment

After the writ and attempts to execute, Toledo moved to quash or recall the writ. The NLRC denied that motion and ordered sale on execution of levied vehicles. The Union filed motions seeking to include Dumaguete and Rodriguez among liable parties in execution, and later sought to pierce the corporate veil of five corporations to hold them jointly and severally liable. The Union alleged that Commissioner Raul T. Aquino of the NLRC induced its counsel to file an Urgent Motion for Clarification instead of a Petition for Certiorari, thereby depriving the Union of its proper remedy. After denial of the Union’s motions, the Union filed a Petition for Relief from Judgment before the NLRC on December 20, 2010, asserting extrinsic fraud and seeking to set aside the NLRC September 30, 2010 Resolution and to pierce the corporate veil.

NLRC and Court of Appeals Decisions on Relief and Piercing

The NLRC dismissed the Petition for Relief from Judgment in a February 14, 2011 Resolution for lack of merit and denied reconsideration in a March 11, 2011 Resolution. The Court of Appeals dismissed the Union’s Petition for Certiorari challenging the NLRC Resolutions. The Court of Appeals held that the extrinsic fraud necessary to justify a petition for relief from judgment must be fraud perpetrated by the prevailing party that prevented the losing party from being heard; it found no such fraud by the respondents. The Court of Appeals also declined to pierce the corporate veils of the corporations, citing lack of clear and convincing evidence of fraud or use of the corporations as mere alter egos and noting that some corporations were not parties in the original proceedings.

Issues Presented to the Supreme Court

The Supreme Court identified the issues as: (1) whether the Petition for Relief from Judgment was correctly dismissed because extrinsic fraud must be committed only by the prevailing party and not by a member of the tribunal; (2) whether the veil of corporate fiction should be pierced to hold the five respondent corporations jointly and severally liable for the NLRC award; and (3) whether the doctrine of immutability of judgment prevented holding respondents not named in the Writ of Execution liable for the award.

Petitioner's Contentions

The Union argued that Rule 38, Section 1 does not limit fraud to acts by the prevailing party and that the NLRC commissioner’s unsolicited advice induced its counsel to file a Motion for Clarification instead of a Petition for Certiorari, thereby constituting extrinsic fraud that deprived it of the opportunity to pursue the proper remedy. The Union further argued that the respondent corporations and Rodriguez used interlocked ownership, common officers, transfers of assets, and post-judgment incorporations to effect fraudulent transfers designed to evade execution, and that the corporate veil must be pierced under the standards in General Credit Corporation v. Alsons Development and related precedents. The Union asserted exceptions to immutability of judgment, including clerical error, nunc pro tunc entries, and supervening fraudulent acts that render execution unjust.

Respondents' Contentions

Respondents maintained that extrinsic fraud must be committed by the prevailing party and that the alleged act by Commissioner Aquino did not constitute the type of fraud contemplated by Rule 38. They argued that any procedural misstep by the Union’s counsel was inexcusable negligence binding the client. Respondents denied participation in any ex parte meeting and denied that the transfers were fraudulent. They contended that piercing the corporate veil would deprive nonparties of due process because the NLRC did not adjudicate them liable, and that mere common ownership, shared officers, or interlocking management is insufficient to disregard separate corporate personality. Respondents also argued that the NLRC decision had become final and immutable and could not be modified to impose liability on those not adjudged liable.

Supreme Court Disposition

The Supreme Court GRANTED the Petition for Review on Certiorari. It REVERSED and SET ASIDE the Court of Appeals August 31, 2012 Decision and December 10, 2012 Resolution. The Court held that Toledo Construction Corporation, Dumaguete Builders and Equipment Corporation, Castelweb Trading and Development Corporation, and Januario Rodriguez are solidarily liable for the NLRC monetary award.

Legal Reasoning — Relief from Judgment and Extrinsic Fraud

The Court reiterated that a petition for relief from judgment is an extraordinary equitable remedy under Rule 38, Section 1 and that relief on the ground of fraud requires extrinsic fraud that prevented the party from fully and fairly presenting its case. The Court clarified that prior authority cited by the Court of Appeals, AFP Mutual Benefit Association v. Regional Trial Court, addressed whether alleged fraud was extrinsic or intrinsic, but did not establish that extrinsic fraud must be committed only by the prevailing party. The Court held that extrinsic fraud refers to fraud outside the merits that affects the manner in which the case was tried and that the dispositive inquiry is whether a party was deprived of the opportunity to be heard. The Court found that Commissioner Aquino, who was the presiding commissioner on the case, gave unsolicited advice to the Union’s counsel to file an Urgent Motion for Clarification instead of a Petition for Certiorari, and later authored the Resolution treating the motion as a second motion for reconsideration and denying it. The Court concluded that ex parte communication and unsolicited advice by the adjudicator to a litigant undermines due process and constituted extrinsic fraud in the circumstances. The Union relied on that advice and was thereby prevented from pursuing its proper remedy. The Court therefore found relief from judgment appropriate.

Legal Reasoning — Piercing the Corporate Veil

The Court summarized the legal doctrine: the separate personality of a corporation is generally respected, but courts may pierce the corporate veil in equity where the corporate form is used to defeat public convenience, justify wrongdoing, protect fraud, or as an alter ego. The Court surveyed the jurisprudential evolution from permissive applications to stricter formulations requiring proof of control used to perpetrate fraud or wrong. The Court emphasized that in labor cases the veil may be pierced to prevent injustice and to ensure full satisfaction of awards. Applying the doctrine to the record, the Court found sufficient evidence that Toledo used the separate corporate personality of Dumaguete and Castelweb to evade an existing judgment obligation. The Court relied on the timing and sequence of deeds of sale, registrations, payments of Motor Vehicle User’s Charges by Toledo after purported transfers, and the late re-registration dates occurring after the writ and after Toledo filed a Motion to Quash. The Court observed that many deeds of sale were executed in 2007 after the Computation Division's report fixing the award but before the writ, and that title and registration changes occurred only after execution steps were initiated. The Land Transportation Office’s order canceling registrations corroborated findings of fraudulent transfers. The Court concluded that these acts manifested an intent to evade liability and therefore justified piercing the corporate veil as to Dumaguete and Castelweb and holding them jointly and severally liable with Toledo. The Court also held that Rodriguez, who sig

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