del Rosario vs. NLRC

The separate juridical personality of a corporation may be disregarded only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, and the wrongdoing must be clearly and convincingly established; it cannot be presumed. In this case, the NLRC's reliance on the expiration of Philsa's license and its delisting, as well as the existence of a second corporation with substantially the same incorporators, was insufficient to establish fraud warranting the piercing of the corporate veil.

Petitioner Francisco V. Del Rosario was the president and general manager of Philsa Construction and Trading Co., Inc. (Philsa), a corporation registered as a construction contractor and licensed recruiter. Private respondent Leonardo V. Atienza was an overseas worker whose money claims arose from his employment through Philsa as recruiter and Arieb Enterprises as foreign employer. The POEA regulatory scheme required recruiters to post cash and surety bonds to guarantee satisfaction of valid claims of overseas workers, and required recruiters to be jointly and severally liable with foreign employers.

Private respondent Leonardo V. Atienza filed a complaint for money claims with the Philippine Overseas Employment Administration (POEA) on June 4, 1985, against Philsa Construction and Trading Co., Inc. (Philsa), the recruiter, and Arieb Enterprises, the foreign employer. The last renewal of Philsa's license expired on October 12, 1985. The POEA dismissed the complaint on February 4, 1986, but on appeal, the NLRC reversed on April 30, 1987, ordering Philsa and Arieb Enterprises to jointly and severally pay private respondent the peso equivalent of $16,039.00 as salary differentials and $2,420.03 as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987, with entry of judgment on September 24, 1987.

A writ of execution was issued by the POEA but was returned unsatisfied because Philsa was no longer operating and was financially incapable of satisfying the judgment. Private respondent then moved for the issuance of an alias writ against the officers of Philsa, which was opposed by the officers led by petitioner, the president and general manager of the corporation. On February 12, 1988, the POEA issued a resolution ordering an alias writ of execution against the properties of petitioner and, if insufficient, against the cash and/or surety bond of the bonding company concerned.

The POEA's resolution was founded on two certifications: first, that Philsa, represented by petitioner as President and General Manager, was formerly a registered construction contractor whose authority was originally issued on July 21, 1978 but was delisted on August 15, 1986 for inactivity; and second, that another corporation, Philsa International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was registered as a licensed private employment agency on November 5, 1981, also represented by petitioner as its President/General Manager. The POEA applied the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC to disregard the corporate personality of Philsa. Philsa was delisted for inactivity on August 15, 1986, pursuant to POEA Rules and Regulations, Rule II, Section 17, which provides that any agency or entity which fails to renew its license or authority shall, upon expiration thereof, be immediately delisted and disallowed from conducting recruitment and placement.

Petitioner appealed to the NLRC, which dismissed the appeal on September 23, 1988, and denied the motion for reconsideration on October 21, 1988. The petition was filed with the Supreme Court on October 28, 1988, alleging grave abuse of discretion.

• Grave Abuse of Discretion: Petitioner alleged that the NLRC gravely abused its discretion in affirming the issuance of the alias writ of execution against his personal properties.
• Lack of Fraud: Petitioner opposed the motion for alias writ, maintaining that there was no basis to disregard the corporate personality of Philsa and to hold him personally liable.

• Piercing the Corporate Veil: Private respondent moved for the issuance of an alias writ against the officers of Philsa, and the POEA granted the motion on the theory that the corporate personality of Philsa should be disregarded based on the delisting of Philsa for inactivity and the existence of Philsa International Placement & Services Corp. with practically the same incorporators/stockholders, applying the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC.

• Piercing the Corporate Veil: Whether the NLRC gravely abused its discretion in affirming the issuance of an alias writ of execution against petitioner on the ground that the corporate personality of Philsa should be disregarded.
• Execution Against Bonds: Whether execution should first be enforced against the cash and surety bonds filed with the POEA before proceeding against the personal properties of the corporate officer.

• Piercing the Corporate Veil: Yes. The NLRC committed grave abuse of discretion. The wrongdoing must be clearly and convincingly established before the separate juridical personality of a corporation may be disregarded, and it cannot be presumed. The facts did not establish fraud on the part of petitioner or Philsa.
• Execution Against Bonds: No. Execution should initially be enforced against the cash and surety bonds filed with the POEA, which answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment, and which guarantee compliance with the Labor Code and its implementing rules.

• Piercing the Corporate Veil: The Court found that the NLRC's reliance on the POEA's findings and the ruling in A.C. Ransom was totally misplaced. Under the law, a corporation is bestowed juridical personality, separate and distinct from its stockholders (Civil Code, Art. 44; Corporation Code, sec. 2). However, when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the corporation shall be considered as a mere association of persons, and its responsible officers and/or stockholders shall be held individually liable. But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established; it cannot be presumed. The Court found the NLRC's decision wanting because the conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim was not supported by the facts. At the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his claims could not therefore be implied from the expiration of Philsa's license and its delisting. Neither did the organization of Philsa International Placement and Services Corp. and its registration with the POEA imply fraud, since it was organized and registered in 1981, several years before private respondent filed his complaint in 1985. The creation of the second corporation could not have been in anticipation of private respondent's money claims. Substantial identity of the incorporators of the two corporations does not necessarily imply fraud. The Court distinguished this case from La Campana Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana (KKM) and Claparols vs. Court of Industrial Relations, where the veil of corporate fiction was pierced because of the clear presence of fraud, such as the transfer of assets, the cessation of operations followed by succession the next day, and the interchangeability of workers. In A.C. Ransom, the distinguishing marks of fraud were clearly apparent: a new corporation was created, owned by the same family, engaging in the same business and operating in the same compound, in anticipation of an adverse judgment. In the present case, not only was there a failure to establish fraud, but it was also not shown that petitioner was the corporate officer responsible for private respondent's predicament. The claim for differentials and benefits was actually directed against the foreign employer; Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign employer, an undertaking required by the rules of the POEA (Rule II, sec. 1(d)(3)), together with the filing of cash and surety bonds (Rule II, sec. 4).
• Execution Against Bonds: The Court pointed out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. Under the POEA Rules and Regulations, the bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment, and shall guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement. The bonds do not answer for a single specific liability but for all sorts of liabilities of the recruiter to the worker and to the POEA. The obligations guaranteed by the bonds are continuing, subject to replenishment when garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license (Rule II, sec. 19). A cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three years (Rule II, sec. 20). The Court found it surprising that the POEA ordered execution against the properties of petitioner and, if insufficient, against the cash and/or surety bond of the bonding company, in complete disregard of the scheme outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have affirmed the POEA.

• Doctrine of Piercing the Corporate Veil — A corporation is bestowed juridical personality, separate and distinct from its stockholders (Civil Code, Art. 44; Corporation Code, sec. 2). When the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the corporation shall be considered as a mere association of persons, and its responsible officers and/or stockholders shall be held individually liable. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established; it cannot be presumed. In this case, the Court applied the doctrine by requiring clear and convincing proof of fraud, which was not established by the expiration of Philsa's license, its delisting for inactivity, or the existence of a second corporation with substantially the same incorporators organized years before the complaint was filed.

• "But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed." — This passage states the controlling standard for piercing the corporate veil and is the ratio decidendi of the case, requiring clear and convincing proof of wrongdoing rather than mere inference or presumption.
• "The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains inviolable." — This passage applies the standard to the facts, showing that the timing of the license expiration and delisting, which occurred before any judgment was rendered, negated any inference of intent to evade payment.
• "The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose." — This passage, quoting the POEA Rules and Regulations, establishes the scheme for enforcing judgments against recruiters, which requires execution against the cash and surety bonds before proceeding against corporate officers.

• A.C. Ransom Labor Union-CCLU vs. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269 — Distinguished. The Court found the ruling inapplicable because in A.C. Ransom, the distinguishing marks of fraud were clearly apparent: a new corporation was created, owned by the same family, engaging in the same business and operating in the same compound, in anticipation of an adverse judgment. In the present case, no such fraud was established.
• Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496 (1946) — Cited as authority for the principle that when the juridical personality of a corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the corporation shall be considered as a mere association of persons.
• Palay, Inc. vs. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638 — Cited in support of the principle that the corporate fiction may be disregarded when used to defeat public convenience, justify wrong, protect fraud, or defend crime.
• Namarco vs. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962 — Cited for the proposition that responsible officers and/or stockholders shall be held individually liable when the corporate personality is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
• La Campana Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana (KKM), 93 Phil. 160 (1953) — Distinguished. In that case, the two corporations were substantially owned by the same person, had one office, one management, a single payroll, and interchangeable workers, justifying the piercing of the corporate veil.
• Claparols vs. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613 — Distinguished. In that case, the corporation ordered to pay backwages ceased operations and was succeeded the next day by a new corporation substantially owned and controlled by the same person, with all assets transferred, justifying the piercing of the corporate veil.

• Article 44, Civil Code — Provides that a corporation is bestowed juridical personality, separate and distinct from its stockholders. The Court cited this provision as the basis for the general rule of separate corporate personality.
• Section 2, Corporation Code — Provides that a corporation is a juridical person vested with the capacity of exercise civil rights and incur obligations. The Court cited this provision together with Article 44 of the Civil Code as the basis for the separate juridical personality of corporations.
• Rule II, Section 1(d)(3), POEA Rules and Regulations — Requires the recruiter to be jointly and severally bound with the foreign employer. The Court noted that Philsa became liable only because of this undertaking required by the POEA rules.
• Rule II, Section 4, POEA Rules and Regulations — Provides that the bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment, and shall guarantee compliance with the Labor Code and its implementing rules. The Court applied this provision to hold that execution should initially be enforced against the cash and surety bonds.
• Rule II, Section 17, POEA Rules and Regulations — Provides that any agency or entity which fails to renew its license or authority shall, upon expiration thereof, be immediately delisted and disallowed from conducting recruitment and placement. The Court noted this provision as the basis for Philsa's delisting.
• Rule II, Section 19, POEA Rules and Regulations — Provides that the bonds are subject to replenishment when garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license. The Court cited this to show the continuing nature of the obligations guaranteed by the bonds.
• Rule II, Section 20, POEA Rules and Regulations — Provides that a cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three years. The Court cited this to show the scheme designed to ensure recovery from the recruiter.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.