Concept Builders Inc. vs.

National Labor Relations Commission (NLRC, First

Division) [GR
108734, 29 May 1996]
First Division, Hermosisima Jr. (J): 4 concur
Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction business while Norberto Marabe; Rodolfo
Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand
Torres, Felipe Basilan, and Ruben Robalos were employed by said company as laborers, carpenters and
riggers. On November 1981, Marabe, et. al. were served individual written notices of termination of
employment by CBI, effective on 30 November 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were hired had been completed. The
National Labor
Relations Commission (NLRC) found it to be, the fact, however, that at the time of the termination of
Marabe, et.al.'s employment, the project in which they were hired had not yet been finished and
completed. CBI had to engage the services of sub-contractors whose workers performed the functions of
Marabe, et. al. Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against CBI. On 19
December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate Marabe et. al. and to pay
them back wages equivalent to 1 year
or 300 working days. On 27 November 1985, the NLRC dismissed the motion for reconsideration filed by
CBI on the ground that the said decision had already become final and executory. On 16 October 1986,
the NLRC Research and Information Department made the finding that Marabe, et. al.'s back wages
amounted to P199,800.00. On 29 October 1986, the Labor Arbiter issued a writ of execution directing the
sheriff to execute the Decision, dated 19 December 1984. The writ was partially satisfied through
garnishment of sums from CBI's debtor, the Metropolitan Waterworks and Sewerage Authority, in the
amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1 February 1989, an
Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from CBI the sum
of
P117,414.76, representing the balance of the judgment award, and to reinstate Marabe, et. al. to their
former positions. On 13 July 1989, the sheriff issued a report stating that he tried to serve the alias writ of
execution on petitioner through the security guard on duty but the service was refused on the ground that
CBI no longer occupied the premises. On 26 September 1986, upon motion of Marabe, et. al., the Labor
Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff
because, as stated in his progress report dated 2 November 1989, that all the employees inside CBI's
premises claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was made upon
personal properties he found in the premises; and that security guards with high-powered guns prevented
him from removing the properties he had levied upon. The said special sheriff recommended that a
"break-open order" be issued to enable him to enter CBI's premises so that he could proceed with the
public auction sale of the aforesaid personal properties on 7 November 1989. On 6 November 1989, a
certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties
sought to be levied upon by the sheriff were owned by HPPI, of which he is the Vice-President. On 23
November 1989, Marabe, et. al. filed a
"Motion for Issuance of a Break-Open Order," alleging that HPPI and CBI 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 Marabe, et. al. were willing to post an indemnity
bond to answer for any damages which CBI and HPPI may suffer because of the issuance of the breakopen order. On 2 March 1990, the Labor Arbiter issued an Order which denied Marabe, et. al.'s motion for

break-open order. Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed Marabe, et. al. to file a bond.
Thereafter, it directed the sheriff
to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim
for lack of merit. CBI moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated 3 December 1992. Hence, the petition.
Issue: Whether the NLRC was correct in issuing the break-open order to levy the HPPI properties
located at CBI amd/or HPPIs premises at 355 Maysan Road, Valenzuela, Metro Manila.
Held: It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
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; and (4) Methods of conducting the business. The
SEC en
banc explained the "instrumentality rule" which the courts have applied in disregarding the separate
juridical personality of corporations as "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 control necessary to invoke the rule is
not majority or even complete stock control but such domination of instances, policies and practices that
the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must
be kept in mind that the control must be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for
which the complaint is made." The test in determining the applicability of the doctrine of piercing the veil
of corporate fiction is as (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. Thus the question of
whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is
purely one of fact. Here, while CBI claimed that it ceased its business operations on 29 April 1986, it filed
an Information Sheet with the Securities and Exchange Commission on 15 May 1987, stating that its
office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party
claimant, submitted on the same day, a similar information sheet stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila. Further, both information sheets were filed by the same Virgilio
O. Casio as the corporate secretary of both corporations. Both corporations had the same president, the

same board of directors, the same corporate officers, and substantially the same subscribers. From the
foregoing, it appears that, among other things, the CBI and the HPPI shared the same address and/or
premises. Under these circumstances, it cannot be said that the property levied upon by the sheriff were
not of CBI's. Clearly, CBI ceased its business operations in order to evade the payment to Marabe, et. al.
of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business
conduit of CBI and its emergence was skillfully orchestrated to avoid the financial liability that already
attached to CBI.
Heirs of Tan Uy represented by Lim v. International Exchange Bank
FACTS: International Exchange Bank, on several occasions, granted loans to Hammer
Garments Corporation covered by promissory notes and deeds of assignment. These
were made pursuant to the Letter-Agreement between iBank and Hammer, represented
by its President and General Manager, Manuel Chua, granting Hammer a P 25 MillionPeso Omnibus Line. The loans were secured by a Real Estate Mortgage executed
by Goldkey Development Corporation over several of its properties and a Surety
Agreement signed by Chua and his wife, Fe Tan Uy. Hammer defaulted in the payment of
its loans, prompting iBank to foreclose on Goldkeys third-party Real Estate Mortgage.
For failure Of Hammer to pay the deficiency, iBank filed a Complaint for sum of
moneyagainst Hammer, Chua, Uy, and Goldkey before the RTC. Uy claimed that she
was not liable to iBank because she never executed a surety agreement in favor of
iBank. Goldkey, on the other hand, also denies liability, averring that it acted only as a
third-party mortgagor and that it was a corporation separate and distinct from Hammer.
The RTC, in its Decision ruled in favor of iBank. It came to the conclusion, however, that
Goldkey and Hammer were one and the same entity. On appeal, the CA affirmed the RTC
decision.
ISSUE: Whether Goldkey can be held liable for the obligation of Hammer for being a
mere alter ego of the latter.
RULING: Goldkey is a mere alter ego of Hammer. Under a variation of the doctrine of
piercing the veil of corporate fiction, when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary
to protect the rights of third parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or one and the same. While the conditions
for
the disregard of the juridical entity may vary, the following are some probative factors
of identity that will justify the application of the doctrine of piercing the corporate veil,
as laid down in Concept Builders, Inc. v NLRC: (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, and (4) Methods of conducting the business.
These factors are unquestionably present in the case of Goldkey and Hammer, as
observed by the RTC, as follows: 1. Both corporations are family corporations of
defendants Manuel Chua and his wife Fe Tan Uy. The other incorporators and
shareholders of the two corporations are the brother and sister of Manuel Chua and the

sister of Fe Tan Uy, Milagros Revilla. 2. Hammer Garments and Goldkey share the same
office and practically transact their business from the same place. 3. Manuel Chua is the
President and Chief Operating Officer of both corporations. All business transactions of
Goldkey and Hammer are done at the instance of defendant Manuel Chua who is
authorized to do so by the corporations. 4. The assets of Gold key and Hammer are comingled. The real properties of Goldkey are mortgaged to secure Hammer's obligation
with creditor banks. 5. When defendant Manuel Chua "disappeared", Goldkey ceased to
operate despite the claim that the other officers and stockholders are still around and
may be able to continue the business of Goldkey, if it were different or distinct from
Hammer which suffered financial setback.

PNB v Hydro Resources

Facts:

Sometime in 1984, petitioners DBP and PNB foreclosed on certain

mortgages made on the properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure, DBP and PNB
acquired substantially all the assets of MMIC and resumed the business
operations of the defunct MMIC by organizing NMIC.7 DBP and PNB
owned 57% and 43% of the shares of NMIC, respectively, except for five
qualifying shares.8 As of September 1984, the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben
Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or
PNB.9 Subsequently, NMIC engaged the services of Hercon, Inc., for
NMICs Mine Stripping and Road Construction Program in 1985 for a total
contract price of P35,770,120. After computing the payments already made
by NMIC under the program and crediting the NMICs receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of
P8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a
letter of final demand dated August 12, 1986, and when these were not
heeded, a complaint for sum of money was filed in the RTC of Makati, Branch 136
seeking to hold petitioners NMIC, DBP, and PNB solidarily
liable for the amount owing Hercon, Inc.11 The case was docketed as Civil
Case No. 15375.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired
by HRCC in a merger. This prompted the amendment of the complaint to
substitute HRCC for Hercon, Inc.12
In its answer,15 NMIC claimed that HRCC had no cause of action. It
also asserted that its contract with HRCC was entered into by its then

President without any authority. Moreover, the said contract allegedly failed
to comply with laws, rules and regulations concerning government contracts.
NMIC further claimed that the contract amount was manifestly excessive
and grossly disadvantageous to the government. NMIC made counterclaims
for the amounts already paid to Hercon, Inc. and attorneys fees, as well as
payment for equipment rental for four trucks, replacement of parts and other
services, and damage to some of NMICs properties.16
For its part, DBPs answer17 raised the defense that HRCC had no
cause of action against it because DBP was not privy to HRCCs contract
with NMIC. Moreover, NMICs juridical personality is separate from that
of DBP. DBP further interposed a counterclaim for attorneys fees.18

Issue: whether

or not there is sufficient ground to pierce

the veil of corporate fiction

In this jurisdiction, it is well-settled that where it appears that the

business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of
third persons, disregard legal fiction that two (2) corporations are distinct
entities, and treat them as identical. (Phil. Veterans Investment
Development Corp. vs. CA, 181 SCRA 669).
From all indications, it appears that [NMIC] is a mere adjunct,
business conduit or alter ego of both DBP and PNB. Thus, the DBP and
PNB are jointly and severally liable with [NMIC] for the latters unpaid
obligations to plaintiff.23

Having found DBP and PNB solidarily liable with NMIC, the
dispositive portion of the Decision of the trial court reads:
All three petitioners assert that NMIC is a corporate entity with a
juridical personality separate and distinct from both PNB and DBP. They
insist that the majority ownership by DBP and PNB of NMIC is not a
sufficient ground for disregarding the separate corporate personality of
NMIC because NMIC was not a mere adjunct, business conduit or alter ego
of DBP and PNB. According to them, the application of the doctrine of
piercing the corporate veil is unwarranted as nothing in the records would
show that the ownership and control of the shareholdings of NMIC by DBP
and PNB were used to commit fraud, illegality or injustice. In the absence
of evidence that the stock control by DBP and PNB over NMIC was used to

commit some fraud or a wrong and that said control was the proximate cause
of the injury sustained by HRCC, resort to the doctrine of piercing the veil
of corporate entity is misplaced.31