Concept Builders vs. NLRC

The corporate veil may be pierced and the separate juridical personality of a corporation disregarded when it is merely an alter ego, instrumentality, or conduit of another corporation, particularly where there is complete domination of finances, policy, and business practices, identity of officers and directors, common stock ownership, and shared premises, and where such corporate fiction is used as a device to evade statutory labor obligations and perpetrate fraud against employees.

Concept Builders, Inc., a domestic corporation engaged in the construction business, employed private respondents as laborers, carpenters, and riggers. In November 1981, petitioner terminated their employment allegedly due to the completion of the project, but the project was actually ongoing and petitioner hired subcontractors to continue the work. The Labor Arbiter found the dismissal illegal and ordered reinstatement and back wages. During execution proceedings, petitioner claimed it ceased operations and could not satisfy the judgment, while a sister corporation, HPPI, occupied the same premises with identical corporate control.

• Concept Builders, Inc. employed private respondents as laborers, carpenters, and riggers in its construction business, with principal office at 355 Maysan Road, Valenzuela, Metro Manila.
• On November 1981, petitioner served written notices of termination effective November 30, 1981, claiming the project was completed, though the project was actually unfinished and petitioner hired subcontractors to continue the work.
• On December 19, 1984, the Labor Arbiter rendered judgment finding illegal dismissal and ordering reinstatement and payment of back wages equivalent to one year or three hundred working days.
• The decision became final and executory on November 27, 1985.
• Execution proceedings yielded partial satisfaction through garnishment of P81,385.34 from petitioner's debtor, Metropolitan Waterworks and Sewerage Authority, leaving a balance of P117,414.76.
• On February 1, 1989, an Alias Writ of Execution was issued for the remaining balance and reinstatement.
• Petitioner claimed it ceased business operations on April 29, 1986, but filed a General Information Sheet with the Securities and Exchange Commission (SEC) on May 15, 1987, indicating its principal office at 355 Maysan Road, Valenzuela, Metro Manila.
• Hydro Pipes Philippines, Inc. (HPPI), a manufacturing firm, filed its General Information Sheet on May 25, 1987, listing the same principal office address at 355 Maysan Road, Valenzuela, Metro Manila.
• Both corporations shared identical corporate officers: Antonio W. Lim as President and Chairman; Dennis S. Cuyegkeng as Assistant to the President; Elisa C. Lim as Treasurer; Virgilio O. Casino as Corporate Secretary; and Teodulo R. Dino as Board Member.
• Both had substantially the same set of subscribers/directors, with HPPI owning P6,999,500.00 (majority) of petitioner's subscribed capital.
• Both Information Sheets were filed by the same Corporate Secretary, Virgilio O. Casino.
• On November 2, 1989, the sheriff reported that employees at 355 Maysan Road claimed they were HPPI employees, not Concept Builders employees, and security guards prevented removal of levied properties.
• On November 6, 1989, Dennis Cuyegkeng, Vice-President of HPPI, filed a third-party claim alleging the properties belonged to HPPI.
• Private respondents filed a Motion for Break-Open Order alleging HPPI was petitioner's alter ego created to evade liability and were willing to post an indemnity bond.

• The NLRC committed grave abuse of discretion in issuing a break-open order despite a valid third-party claim by HPPI, which possesses a separate and distinct juridical personality from petitioner.
• The doctrine of piercing the corporate veil is inapplicable absent proof that HPPI was created specifically to evade petitioner's liability to private respondents.
• HPPI is engaged in a distinct business (manufacturing and sale of steel, concrete, and iron pipes) compared to petitioner's construction business, rendering the identity of premises, officers, and stockholders inconsequential.
• The third-party claim should have been respected as HPPI has a separate corporate personality independent of petitioner.

• HPPI is merely an alter ego, business conduit, and instrumentality of petitioner, sharing identical officers, directors, stockholders, and business premises at 355 Maysan Road, Valenzuela, Metro Manila.
• Petitioner temporarily suspended its business operations and used HPPI as a shield to evade its legal obligations for back wages and reinstatement.
• The break-open order was necessary to satisfy the final judgment, and private respondents were willing to post an indemnity bond to answer for any damages.
• The corporate veil should be pierced to prevent fraud, defeat public convenience, and prevent the use of corporate fiction to circumvent labor laws.

• Procedural Issues:
  • Whether the NLRC committed grave abuse of discretion in issuing a break-open order to enforce execution against properties claimed by a third-party corporation (HPPI).
  • Whether due process was observed in issuing the break-open order and dismissing the third-party claim.
• Substantive Issues:
  • Whether the corporate veil of HPPI may be pierced to hold petitioner liable for the judgment award, considering the identity of officers, stockholders, premises, and the alleged use of HPPI to evade labor obligations.

• Procedural:
  • The NLRC did not commit grave abuse of discretion. The issuance of a break-open order is proper under Section 3, Rule VII of the NLRC Manual of Execution of Judgment when the losing party or its agent refuses entry to the sheriff.
  • The record shows due notice and hearing were afforded to petitioner and HPPI, who were given opportunity to submit evidence in support of their claims.
  • The NLRC correctly dismissed the third-party claim for lack of merit after finding HPPI was merely an alter ego of petitioner.
• Substantive:
  • The corporate veil of HPPI must be pierced. The separate corporate personality is a fiction created by law for convenience and to promote justice; when used to defeat public convenience, justify wrong, protect fraud, or defeat labor laws, it may be disregarded.
  • The "instrumentality rule" or "alter ego" doctrine applies where: (1) there is complete domination of finances, policy, and business practices; (2) such control was used to commit fraud or wrong, or violate statutory duty; and (3) such control and breach proximately caused the injury.
  • Here, HPPI and petitioner shared the same address, president, board of directors, corporate officers, and substantially the same subscribers, with HPPI being the majority stockholder of petitioner. Both SEC Information Sheets were filed by the same corporate secretary.
  • HPPI is a mere business conduit of petitioner, skillfully orchestrated to avoid financial liability for back wages and to bar reinstatement. The corporate fiction cannot shield petitioner from its labor obligations.

• Piercing the Veil of Corporate Fiction (Doctrine of Corporate Entity Disregard) — A corporation's separate juridical personality may be disregarded when used to defeat public convenience, justify wrong, protect fraud, defend crime, or defeat labor laws. In such cases, the corporation is regarded as a mere association of persons, and two corporations may be merged into one for purposes of liability.
• Instrumentality/Alter Ego Doctrine — Where one corporation is so controlled and its affairs conducted such that it is merely an instrumentality or adjunct of another, its separate entity may be disregarded. Control requires complete domination of finances, policy, and business practices such that the controlled corporation has no separate mind, will, or existence of its own, but is a mere conduit for its principal. This control must have been used to commit fraud or wrong, and must proximately cause the injury.
• Break-Open Order — Under Section 3, Rule VII of the NLRC Manual of Execution of Judgment, a judgment creditor may apply for a break-open order when the losing party refuses or prohibits the sheriff's entry to the place where the property subject of execution is located.

• "The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation."
• "Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught."
• "Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation."
• "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."
• "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."

• Claparols v. Court of Industrial Relations, 65 SCRA 613 (1975) — Analogous case where a successor corporation was deemed a continuation of a dissolved entity, with the veil pierced to prevent evasion of financial obligations to employees.
• Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965) — Cited for the fundamental principle that a corporation is a separate entity distinct from stockholders and other corporations.
• Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961) — Cited for the fundamental principle of separate corporate personality.
• Laguna Transportation Company, Inc. v. Social Security System, 107 SCRA 833 (1980) — Cited for the principle that corporate personality is a fiction created by law for convenience.
• La Campana Coffee Factory, Inc. v. Kaisahan Ng Mga Manggagawa sa La Campana (KMM), 93 Phil. 160 (1953) — Cited regarding the use of corporate personality to defeat labor laws.
• Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976) — Cited for disregarding corporate personality when used to defeat public convenience or justify wrong.
• Tan Boon Bee and Co. v. Jarencio, 263 SCRA 205 (1988) — Cited for the concept of a corporation as an adjunct, business conduit, or alter ego.
• Avelina G. Ramoso, et al. v. General Credit Corporation et al., SEC AC No. 295, October 6, 1992 — Cited for the instrumentality rule test requiring control, use of control for wrongdoing, and proximate causation.
• Phoenix Safety Inc. Co. v. James, 28 Ariz 514, 237, p. 958 — Cited for the principle that whether a corporation is an alter ego is purely a question of fact.
• Maya Farms Employees Organization v. National Labor Relations Commission, 239 SCRA 508 (1994) — Cited for the rule that factual findings of quasi-judicial agencies supported by substantial evidence are binding on the Court.
• Capitol Industrial Construction Groups v. National Labor Relations Commission, 221 SCRA 469 (1993) — Cited regarding factual findings of quasi-judicial agencies.
• Sunset View Condominium Corporation v. National Labor Relations Commission, 228 SCRA 466 (1993) — Cited regarding factual findings of quasi-judicial agencies.

• Section 3, Rule VII of the NLRC Manual of Execution of Judgment — Provides for the issuance of a break-open order when the losing party refuses the sheriff entry to the premises where subject property is located.

• Padilla, Bellosillo, Vitug and Kapunan, JJ. — Concurred in the decision without separate opinion.