Concept Builders vs. NLRC

The corporate veil may be pierced, and a break-open order justified, where a sister corporation is proven to be a mere alter ego or business conduit of the judgment debtor, used to defeat the latter's final and executory labor obligations. The doctrine applies when there is complete domination of finances, policy, and business practice, such that the controlled corporation has no separate mind or existence, and this control is used to perpetrate a wrong or violate a legal duty.

Concept Builders, Inc., a construction firm, employed private respondents as laborers, carpenters, and riggers. In November 1981, it terminated their employment, alleging project completion. Private respondents filed a complaint for illegal dismissal and non-payment of monetary benefits. The Labor Arbiter ruled in their favor on December 19, 1984, ordering reinstatement and payment of back wages. This decision became final and executory. During execution, the sheriff encountered difficulties as employees at the petitioner's address claimed to work for HPPI, which filed a third-party claim over the levied properties. Private respondents then presented evidence showing both corporations shared the same incorporators, stockholders, board of directors, corporate officers, and principal office address.

• Nature of Employment and Termination: Private respondents were employed by Concept Builders, Inc. as laborers, carpenters, and riggers. On November 30, 1981, they received individual termination notices stating their contracts had expired and the project completed. The Labor Arbiter and NLRC later found that the project was not yet finished at the time of dismissal, and petitioner had engaged subcontractors to perform the private respondents' work.

• Labor Judgment and Execution: The Labor Arbiter's decision ordering reinstatement and back wages became final and executory. A writ of execution was partially satisfied through garnishment, leaving a balance of P117,414.76. Subsequent alias writs were issued, but the sheriff encountered obstacles at petitioner's premises.

• The Third-Party Claim and Break-Open Order: When the sheriff attempted to levy on personal properties at 355 Maysan Road, Valenzuela, employees claimed to work for Hydro Pipes Philippines, Inc. (HPPI). HPPI filed a third-party claim. Private respondents then moved for a break-open order, presenting SEC General Information Sheets for both corporations showing identical principal office addresses, substantially the same subscribers, the same board of directors (including Chairman and President Antonio W. Lim), and the same corporate officers (including Corporate Secretary Virgilio O. Casino).

• Petitioner's Defense: Petitioner contended it ceased operations on April 29, 1986, and that HPPI was a separate entity engaged in manufacturing (steel pipes), distinct from its construction business. It argued the corporate veil should not be pierced absent proof HPPI was created to evade liability.

• Separate Corporate Personality: Petitioner argued that HPPI is a corporation with a personality separate and distinct from Concept Builders, Inc., engaged in a different line of business (manufacturing vs. construction).
• No Intent to Evade Liability: Petitioner maintained that the doctrine of piercing the corporate veil should not apply because there was no showing it created HPPI to evade its labor liabilities.
• Grave Abuse of Discretion: Petitioner alleged the NLRC committed grave abuse of discretion by ordering execution despite a third-party claim on the levied property.

• Alter Ego and Business Conduit: Respondents countered that HPPI was a mere instrumentality or alter ego of Concept Builders, evidenced by common ownership, identical directors and officers, and the same principal office.
• Scheme to Evade Liability: Respondents argued that petitioner's cessation of operations and HPPI's emergence were a "skillfully orchestrated" scheme to avoid the financial liability attached to the final labor judgment.
• Propriety of Break-Open Order: Respondents contended the break-open order was procedurally proper under the NLRC Manual of Execution after the third-party claim was dismissed for lack of merit.

• Piercing the Corporate Veil: Whether the NLRC committed grave abuse of discretion in piercing the corporate veil between Concept Builders, Inc. and HPPI and issuing a break-open order against properties in HPPI's possession.
• Validity of the Break-Open Order: Whether the issuance of the break-open order violated due process and was contrary to law given the pending third-party claim.

• Piercing the Corporate Veil: The NLRC did not commit grave abuse of discretion. The corporate veil was properly pierced because the evidence established that HPPI was a mere alter ego or business conduit of Concept Builders, Inc. The two entities shared identical principal offices, substantially the same subscribers, the same board of directors, and the same corporate officers. This complete domination was used to perpetuate a wrong—evading a final and executory labor judgment—satisfying the instrumentality or alter ego doctrine.
• Validity of the Break-Open Order: The break-open order was validly issued. The third-party claim was correctly dismissed for lack of merit upon piercing the corporate veil. Furthermore, the procedure under Section 3, Rule VII of the NLRC Manual of Execution was followed, and both petitioner and HPPI were afforded due notice and hearing.

• Piercing the Corporate Veil (Instrumentality/Alter Ego Doctrine) — The separate juridical personality of a corporation may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The test requires: (1) Control, not merely stock control, but complete domination of finances, policy, and business practice regarding the transaction attacked, such that the corporate entity has no separate mind, will, or existence; (2) Such control must have been used to commit a fraud or wrong, or perpetrate a violation of a statutory or other positive legal duty; and (3) The control and breach of duty must proximately cause the injury or loss complained of. The absence of any one element prevents piercing.

• "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." — This passage frames the equitable basis for the doctrine.
• "HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation." — This finding applies the doctrine to the specific facts, establishing the alter ego relationship and the intent to evade liability.

• Claparols v. Court of Industrial Relations, 65 SCRA 613 (1975) — Cited as analogous precedent where a second corporation was found to be a continuation of the first, designed to evade financial obligations to employees. The Court followed this reasoning in finding HPPI was used to avoid Concept Builders' labor liabilities.

• Section 3, Rule VII, NLRC Manual of Execution of Judgment — Provides that if the losing party refuses entry to the sheriff, the judgment creditor may apply for a break-open order. The Court found this provision was properly applied after the third-party claim was dismissed.

Padilla, Bellosillo, Vitug, and Kapunan, JJ., concurred.