Concept Builders Inc. vs.

National Labor Relations Commission

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 VicePresident. 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 break-open 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.
General Credit Corp v. Alsons Dev. and Investment Corp
FACTS:

Petitioner General Credit Corporation (GCC), then known as

Commercial Credit Corporation (CCC), established CCC franchise
companies in different urban centers of the country. In furtherance of
its business, GCC was able to secure license from Central Bank (CB)
and SEC to engage also in quasi-banking activities. On the other hand,
respondent CCC Equity Corporation (EQUITY) was organized in by
GCC for the purpose of, among other things, taking over the
operations and management of the various franchise companies. At a
time material hereto, respondent Alsons Development and Investment
Corporation (ALSONS) and the Alcantara family, each owned, just
like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC
Davao and CCC Cebu.

ALSONS and the Alcantara family, for a consideration of P2M, sold

their shareholdings (101,953 shares), in the CCC franchise companies
to EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory
note for P2M with a one-year maturity date.
4 years later, the Alcantara family assigned its rights and interests over
the bearer note to ALSONS which became the holder thereof. But even
before the execution of the assignment deal aforestated, letters of
demand for interest payment were already sent to EQUITY. EQUITY
no longer then having assets or property to settle its obligation nor
being extended financial support by GCC, pleaded inability to pay.
ALSONS, having failed to collect on the bearer note aforementioned,
filed a complaint for a sum of money8 against EQUITY and GCC.
GCC is being impleaded as party-defendant for any judgment
ALSONS might secure against EQUITY and, under the doctrine of
piercing the veil of corporate fiction, against GCC, EQUITY having
been organized as a tool and mere conduit of GCC.
According to EQUITY (cross-claim against GCC): it acted merely as
intermediary or bridge for loan transactions and other dealings of GCC
to its franchises and the investing public; and is solely dependent upon
GCC for its funding requirements. Hence, GCC is solely and directly

liable to ALSONS, the former having failed to provide EQUITY the

necessary funds to meet its obligations to ALSONS.
GCC filed its ANSWER to Cross-claim, stressing that it is a distinct
and separate entity from EQUITY.
RTC, finding that EQUITY was but an instrumentality or adjunct of
GCC and considering the legal consequences and implications of such
relationship, rendered judgment for Alson. CA affirmed.
ISSUE: WON the doctrine of "Piercing the Veil of Corporate Fiction"
should be applied in the case at bar.
HELD: YES.
The notion of separate personality, however, may be disregarded under
the doctrine "piercing the veil of corporate fiction" as in fact the
court will often look at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that when
two (2) 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.
Authorities are agreed on at least three (3) basic areas where piercing
the veil, with which the law covers and isolates the corporation from
any other legal entity to which it may be related, is allowed. These are:
1) defeat of public convenience, as when the corporate fiction is used
as vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.

The Court agrees with the disposition of the CA on the application of

the piercing doctrine to the transaction subject of this case. Per the
Courts count, the trial court enumerated no less than 20 documented
circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but an
adjunct, an instrumentality or business conduit of petitioner GCC. This
relation, in turn, provides a justifying ground to pierce petitioners
corporate existence as to ALSONS claim in question. Foremost of
what the trial court referred to as "certain circumstances" are the
commonality of directors, officers and stockholders and even sharing
of office between petitioner GCC and respondent EQUITY; certain
financing and management arrangements between the two, allowing
the petitioner to handle the funds of the latter; the virtual domination if
not control wielded by the petitioner over the finances, business
policies and practices of respondent EQUITY; and the establishment of
respondent EQUITY by the petitioner to circumvent CB rules.
Verily, indeed, as the relationships binding herein [respondent
EQUITY and petitioner GCC] have been that of "parent-subsidiary
corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been satisfactorily and
indubitably shown that the said relationships had been used to perform
certain functions not characterized with legitimacy, this Court feels
amply justified to "pierce the veil of corporate entity" and disregard
the separate existence of the parent and subsidiary the latter having
been so controlled by the parent that its separate identity is hardly
discernible thus becoming a mere instrumentality or alter ego of the
former.

Telephone vs. WCC

FACTS:
Petitioner is a domestic corporation engaged in the business of
manufacturing telephone equipment. It has a sister company, the
Utilities Management Corporation (UMACOR), with offices in the

same location. UMACOR is also under the management of Jose Luis

Santiago.
UMACOR employed the late Pacifica L. Gatus as Purchasing Agent.
Then was detailed with petitioner company. He reported back to
UMACOR and after 2 years he contracted illness and died of "liver
cirrhosis with malignant degeneration."
Respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with Workmen's Compensation Commission suboffice, alleging therein that her deceased husband was an employee of
TESCO, and that he died of liver cirrhosis. On August 9, 1967, and
Office wrote petitioner transmitting the Notice and for Compensation,
and requiring it to submit an Employer's Report of Accident or
Sickness pursuant to Section 37 of the Workmen's Compensation Act
(Act No. 3428). An "Employer's Report of Accident or Sickness" was
thus submitted with UMACOR indicated as the employer of the
deceased. The Report was signed by Jose Luis Santiago. In answer, the
employer stated that it would not controvert the claim for
compensation, and admitted that the deceased employee contracted
illness "in regular occupation." On the basis of this Report, the Acting
Referee awarded death benefits plus burial expenses in favor of the
heirs of Gatus.
TESCO filed its "Motion for Reconsideration and/or Petition to Set
Aside Award" alleging as grounds therefor, that the admission made in
the "Employer's Report of Accident or Sickness" was due to honest
mistake and/or excusable negligence on its part, and that the illness for
which compensation is sought is not an occupational disease, hence,
not compensable under the law. The Motion for Reconsideration was
denied. Meanwhile, the Provincial Sheriff of Rizal levied on and
attached the properties of TESCO and scheduled the sale of the same
at public auction. Thus petition for "Certiorari with Preliminary
Injunction" seeking to annul the award and to enjoin the Sheriff from
levying and selling its properties at public auction.
ISSUE: Whether or not TESCO is liable for the death claim of the
deceased.

HELD:
Viewed in the light of these criteria, we note that it is only in this
Petition before us that petitioner denied, for the first time, the
employer-employee relationship. Although respect for the corporate
personality as such, is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as when
the same is made as a shield to confuse the legitimate issues. While,
indeed, jurisdiction cannot be conferred by acts or omission of the
parties, TESCO'S denial at this stage that it is the employer of the
deceased is obviously an afterthought, a devise to defeat the law and
evade its obligations. This denial also constitutes a change of theory
on appeal which is not allowed in this jurisdiction. Moreover, issues
not raised before the Workmen's Compensation Commission cannot be
raised for the first time on appeal. For that matter, a factual question
may not be raised for the first time on appeal to the Supreme Court. 20

FRANCISCO VS. CA
In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio
Manuel to recover from a him a sum of money in the amount of
P23,000.00+. Said amount was allegedly owed to them by Manuel for
the purchase of a jeep body plus repairs thereto. Manuel filed a
counterclaim in the amount of P50,000.00. In his counterclaim,
Manuel alleged that he was the Assistant Legal Officer for FMC; that
the Francisco Family, owners of FMC, engaged his services for the
intestate estate proceedings of one Benita Trinidad; that he was not
paid for his legal services; that he is filing the counterclaim against
FMC because said corporation was merely a conduit of the Francisco
Family. The trial court as well as the Court of Appeals granted
Manuels counterclaim on the ground that the legal fees were owed by
the incorporators of FMC (an application of the doctrine of piercing
the veil of corporation fiction in a reversed manner).
ISSUE: Whether or not the doctrine of piercing the veil of corporate
fiction was properly used by the Court of Appeals.

HELD: No. In the first place, the doctrine is to be used in disregarding

corporate fiction and making the incorporators liable in appropriate
circumstances. In the case at bar, the doctrine is applied upside down
where the corporation is held liable for the personal obligations of the
incorporators such was uncalled for and erroneous. It must be noted
that that Atty. Manuels legal services were secured by the Francisco
Family to represent them in the intestate proceedings over Benita
Trinidads estate. The indebtedness was incurred by the Francisco
Family in their separate and personal capacity. These estate
proceedings did not involve any business of FMC. The proper remedy
is for Manuel to sue the concerned members of the Francisco Family
in their individual capacity.
Sarona vs NLRC
Facts:
Petitioner, a security guard in Sceptre since April 1976, was asked by
Sceptres operations manager on June 2003, to submit a resignation
letter as a requirement for an application in Royale and to fill up an
employment application form for the said company. He was then
assigned at Highlight Metal Craft Inc. from July 29 to August 8, 2003
and was later transferred to Wide Wide World Express Inc. On
September 2003, he was informed that his assignment at WWWE Inc.
was withdrawn because Royale has been allegedly replaced by another
security agency which he later discovered to be untrue. Nevertheless,
he was once again assigned at Highlight Metal sometime in September
2003 and when he reported at Royales office on October 1, 2003, he
was informed that he would no longer be given any assignment as
instructed by Sceptres general manager.
He thus filed acomplaint for illegal dismissal. The LA ruled in
petitioners favor as he found him illegally dismissed and was
not convinced by the respondents claim on petitioners abandonment.
Respondents were ordered to pay back wages computed from the day
he was dismissed up to the promulgation of his decision on May 11,

2005.The LA also ordered for the payment of separation pay but

refused to pierce Royales corporate veil.
Respondents appealed to the NLRC claiming that the LA acted with
grave abuse of discretion upon ruling on the illegal dismissal of
petitioner. NLRC partially affirmed the LAs decision with regard to
petitioners illegal dismissal and separation pay but modified the
amount of backwages and limited it to only 3 months of his last month
salary reducing P95, 600 to P15, 600 since he worked for Royale for
only 1 month and 3 days.
Petitioner did not appeal to LA but raised the validity of LAs findings
on piercing Royales corporate personality and computation of his
separation pay and such petition was dismissed by the NLRC.
Petitioner elevated NLRCs decision to the CA on a petition for
certiorari, and the CA disagreed with the NLRCs decision of not
proceeding to review the evidence for determining if Royale is
Sceptres alter ego that would warrant the piercing of its corporate veil.
Issue:
Whether or not Royales corporate fiction should be pierced for the
purpose of compelling it to recognize the petitioners length of service
with Sceptre and for holding it liable for the benefits that have accrued
to him arising from his employment with Sceptre.
Whether or not petitioners back wages should be limited to his
salary for 3 months
Ruling:
The doctrine of piercing the corporate veil is applicable on alter ego
cases, where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation.
The respondents scheme reeks of bad faith and fraud and
compassionate justice dictates that Royale and Sceptre be merged as a

single entity, compelling Royale to credit and recognize the

petitioners length of service with Sceptre. The respondents cannot use
the legal fiction of a separate corporate personality for ends subversive
of the policy and purpose behind its creation or which could not have
been intended by law to which it owed its being.
Also, Sceptre and Royale have the same principal place of business. As
early as October 14, 1994, Aida and Wilfredo became the owners of
the property used by Sceptre as its principal place of business by virtue
of a Deed of Absolute Sale they executed with Roso. Royale, shortly
after its incorporation, started to hold office in the same property.
These, the respondents failed to dispute.
Royale also claimed a right to the cash bond which the petitioner
posted when he was still with Sceptre. If Sceptre and Royale are
indeed separate entities, Sceptre should have released the petitioners
cash bond when he resigned and Royale would have required the
petitioner to post a new cash bond in its favor.
The way on how petitioner was made to resign from Sceptre then later
on made an employee of Royale, reflects the use of the legal fiction of
the separate corporate personality and is an implication of continued
employment. Royale is a continuation or successor or Sceptre since the
employees of Sceptre and of Royale are the same and said companies
have the same principal place of business.
Because petitioners rights were violated and his employer has not
changed, he is entitled to separation pay which must be computed from
the time he was hired until the finality of this decision. Royale is also
ordered to pay him backwages from his dismissal on October 1, 2003
until the finality of this decision.
However, the amount already received by petitioner from the
respondents shall be deducted. He is also awarded moral and
exemplary damages amounting to P 25, 000.00 each for his dismissal
which was tainted with bad faith and fraud. Petition is granted. CAs
decision is reversed and set aside.