Dinoyo vs. Undaloc Construction Company, Inc.

A Labor Arbiter may validly modify a final and executory judgment to pierce the veil of corporate entity and hold related corporations and their officers solidarily liable during execution proceedings, provided there is clear evidence of fraud, bad faith, or malice demonstrating that the corporate form was deliberately used to evade the judgment obligation.

Petitioners are former employees of respondent Undaloc Construction Company, Inc., a family corporation engaged in the construction business, owned and controlled by Spouses Cirilo and Gina Undaloc. After Undaloc Inc. ceased operations, Cigin Construction & Development Corporation was established by the same spouses, with their minor children listed as incorporators, carrying on the same construction business. The dispute arose from the workers' attempts to execute monetary awards granted for illegal dismissal, which they could not collect because Undaloc Inc. appeared to have no assets, prompting them to seek piercing of the corporate veil to hold Cigin Corp. and the spouses personally liable.

Petitioners are a group of construction workers formerly employed by Undaloc Construction Company, Inc., a family corporation owned and controlled by Spouses Cirilo and Gina Undaloc. They filed separate complaints for illegal dismissal against Undaloc Inc. before the Labor Arbiter, which ruled in their favor through decisions dated November 16, 2011, January 19, 2012, and January 20, 2012, awarding a total of P3,693,474.68 in backwages, money claims, moral and exemplary damages, and attorney's fees. Undaloc Inc. appealed to the NLRC, posting a partial cash bond of P300,000.00 beyond the 10-day reglementary period and later filing a supersedeas bond with several irregularities. The NLRC accepted the bond and reversed the Labor Arbiter, ordering reinstatement without backwages and awarding only P82,641.02.

Petitioners elevated the matter to the Court of Appeals via a Petition for Certiorari docketed as CA-G.R. SP No. 07306. While the case was pending, Undaloc Inc. stopped operations and Cigin Construction & Development Corporation was established. On September 4, 2015, the CA partially granted the petition, setting aside the NLRC decision and reinstating the Labor Arbiter's rulings. The CA found that petitioners were constructively dismissed and that the resignations and quitclaims of certain workers were not voluntarily executed. However, the CA ruled that malice or bad faith on the part of Cirilo Undaloc was not sufficiently proven to hold him solidarily liable. Petitioners sought reconsideration to hold Cigin Corp., Sps. Undaloc, and their children jointly liable, but the CA denied the motion on April 22, 2016, holding that apart from shared officers in the Articles of Incorporation, there was no clear evidence justifying piercing the corporate veil. This resolution became final and executory on May 28, 2016.

The case was remanded to the Labor Arbiter for execution. The sheriff reported that Undaloc Inc. had no assets that could be levied upon to satisfy the money judgment. On May 22, 2017, petitioners filed a Motion to Hold All Respondents Solidarily Liable for the Judgment Award, seeking to pierce the corporate veil of Undaloc Inc. and Cigin Corp. and hold Sps. Undaloc personally liable. The Labor Arbiter granted the motion on July 6, 2017, finding that Undaloc Inc., Sps. Undaloc, and Cigin Corp. used corporate fiction to cause injustice and defeat workers' rights. The Labor Arbiter noted that three vehicles previously registered under Undaloc Inc. were transferred to Cigin Corp. on various dates in 2016 and 2017 to circumvent execution, that both corporations were family corporations under the control of Sps. Undaloc, and that a construction company with reported gross sales of P65,000,000.00 for 2012 had no registered vehicle, real property, or sufficient bank funds. When the sheriff served notices of garnishment, Undaloc Inc. was found to have only P3,366.52 in its UCPB account.

Undaloc Inc. filed a Verified Petition with the NLRC seeking a TRO, but only Undaloc Inc. was impleaded in the caption. Despite this, the NLRC issued a TRO enjoining execution in favor of Sps. Undaloc and Cigin Corp. as well. Petitioners then filed a Petition for Certiorari with the CA, which denied the petition on May 11, 2018, holding that the closure of Undaloc Inc. in 2012 was not a supervening event that would justify modification of a final judgment, and declaring the Labor Arbiter's July 6, 2017 Order void. The CA denied reconsideration on August 29, 2019. Petitioners then filed the present Petition for Review on Certiorari before the Supreme Court.

• Improper Parties in NLRC Petition: Petitioners argued that only Undaloc Inc. filed the Verified Petition in the NLRC, and the automatic treatment of Cigin Corp. and Sps. Undaloc as petitioners was without legal basis.
• Evidence of Bad Faith: Petitioners presented documents reflecting acts allegedly committed by respondents in bad faith to evade their obligations, including the Articles of Incorporation of Cigin Corp. showing Cirilo as President, Gina as Treasurer, and their children as incorporators; LTO certifications showing motor vehicles transferred from Undaloc Inc. to Cigin Corp. on August 25, 2016, July 20, 2016, and February 7, 2017; LTO certifications listing motor vehicles owned by Cirilo; and a Memorandum of Encumbrances on TCT No. 107-180197 registered in the name of Cirilo and Gina allegedly used as collateral for loans obtained by Undaloc Inc. and Cigin Corp.

• Forum Shopping: Respondents argued that the petition should be dismissed outright as petitioners were guilty of forum shopping, the petition being substantially the same as CA-G.R. SP No. 07306 where the non-liability of Cigin Corp. and Sps. Undaloc had already been resolved with finality.
• Res Judicata: Respondents maintained that since the Decision and Resolution in CA-G.R. SP No. 07306 had already attained finality, these constituted res judicata on the issue of respondents' alleged joint and solidary liability.
• Supervening Event: Respondents stressed that the closure of Undaloc Inc. is not a supervening event that would merit modification of the final and executory decision of the CA in CA-G.R. SP No. 07306 to justify piercing the corporate veil.
• Violation of Prohibition on Forum Shopping: Respondents pointed out that petitioners omitted information about the final and executory CA decision in CA-G.R. SP No. 07306 in their Verification, violating the prohibition against forum shopping.

• Forum Shopping: Whether petitioners are guilty of forum shopping for filing a Motion to Hold All Respondents Solidarily Liable for the Judgment Award with the Labor Arbiter despite the final and executory decision of the CA holding that Undaloc Inc., Cigin Corp., Sps. Undaloc, Joseph, and John cannot be held solidarily liable.
• Piercing the Corporate Veil After Final Judgment: Whether the Labor Arbiter may validly modify the final and executory judgment of the CA in CA-G.R. SP No. 07306 to pierce the veil of corporate entity of Undaloc Inc. and Cigin Corp. and hold respondents solidarily liable for the monetary award granted to petitioners.

• Forum Shopping: No. Petitioners were not guilty of forum shopping, as the motion filed with the Labor Arbiter during the execution stage was premised on supervening events — specifically the discovery during garnishment in 2017 that Undaloc Inc. held only P3,366.52 and had transferred vehicles to Cigin Corp. — which were not in existence when the CA rendered its decision in CA-G.R. SP No. 07306.
• Piercing the Corporate Veil After Final Judgment: Yes. The Labor Arbiter properly modified the final and executory judgment to pierce the corporate veil, as respondents deliberately used the corporate vehicle to unjustly evade the judgment obligation, establishing fraud, bad faith, and malice through a pattern of creating "run-away corporations" to circumvent labor liabilities.

• Forum Shopping: Forum shopping is committed when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending or already resolved adversely. The three ways this occurs are: (1) filing multiple cases based on the same cause of action and the same prayer while the previous case is pending (litis pendentia); (2) filing multiple cases based on the same cause of action and the same prayer after the previous case has been finally resolved (res judicata); and (3) filing multiple cases based on the same cause of action but with different prayers (splitting causes of action). None of these circumstances were present. Although the issue of piercing the corporate veil had been passed upon by the CA in CA-G.R. SP No. 07306 and that decision had become final, there were glaring differences between the circumstances surrounding the filing of the Motion for Reconsideration in the CA and the Motion to Hold All Respondents Solidarily Liable filed during execution. While the cessation of Undaloc Inc.'s business transpired in 2012, it was not only this factor that was critical in invoking the doctrine of piercing the veil. It was only when the judgment award was being executed through notices of garnishment sent to banks in 2017 that it was discovered Undaloc Inc. held only P3,366.52 and had no other assets sufficient to satisfy the judgment. Petitioners therefore could not be faulted for filing their motion during execution, as they merely sought to protect their right to receive the judgment award that was in danger of not being collected due to the alleged transfer of Undaloc Inc.'s assets to Cigin Corp.

• Piercing the Corporate Veil After Final Judgment: Under the doctrine of conclusiveness or immutability of judgments, a judgment that has attained finality can no longer be disturbed. However, the Court in Guillermo vs. Uson stressed that the veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation may be impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith, or malice. The key element is the presence of fraud, malice, or bad faith, which imports a dishonest purpose or some moral obliquity and conscious doing of wrong. In this case, the factual circumstances necessitated application of the doctrine. Evidence established the scheme employed by respondents: the Memorandum of Encumbrances on TCT No. 107-180197 registered in the name of Cirilo and Gina was allegedly used as collateral for loans obtained by both Undaloc Inc. and Cigin Corp.; motor vehicles essential to the construction business were transferred from Undaloc Inc. to Cigin Corp. while the appeal was pending; and a pattern of evading labor obligations was demonstrated by the abrupt closure of Undaloc Construction (a sole proprietorship) following the decision in Sapio vs. Undaloc, the incorporation and subsequent cessation of Undaloc Inc. after the Labor Arbiter's decisions awarding monetary claims, and the incorporation of Cigin Corp. thereafter. No dissolution and liquidation proceedings were conducted. The suspicious timing of the cessation of Undaloc Inc.'s operations, combined with the incorporation of a new family corporation to operate the same construction business while the appeal remained pending, demonstrated bad faith. The Court observed that Cigin Corp. is the combination of "CI" in Cirilo and "GIN" in Gina. In A.C. Ransom Labor Union-CCLU vs. NLRC, the Court disregarded the corporate fiction of a company that organized a "run-away corporation" to evade financial obligations to employees, holding that when the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or merge two corporations into one. The same pattern was observed here, necessitating the application of the doctrine to prevent the separate personalities of Undaloc Inc. and Cigin Corp. from being used as instruments to commit injustice.

• Piercing the Veil of Corporate Fiction in Labor Cases — The veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation may be impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith, or malice in doing so. The key element is the presence of fraud, malice, or bad faith, which does not connote bad judgment or negligence but imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means a breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud. In this case, the Court found that respondents exhibited a pattern of creating "run-away corporations" every time their companies were embroiled in labor cases, deliberately circumventing the law and evading obligations to employees.

• Supervening Events as Exception to Immutability of Judgments — A supervening event consists of acts that transpire after the judgment became final and executory, or of new circumstances that develop after the judgment attained finality, including matters that the parties were not aware of prior to or during the trial because such matters were not yet in existence at that time. The discovery during execution proceedings that Undaloc Inc. held only P3,366.52 in its bank account and had transferred vehicles to Cigin Corp. constituted a supervening event justifying modification of the final judgment to pierce the corporate veil, as these facts were not known or in existence when the CA rendered its decision in CA-G.R. SP No. 07306.

• Forum Shopping — Forum shopping is committed when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in or already resolved adversely by some other court. The three ways it is committed are: (1) filing multiple cases based on the same cause of action and the same prayer, the previous case not having been resolved yet (litis pendentia); (2) filing multiple cases based on the same cause of action and the same prayer, the previous case having been finally resolved (res judicata); and (3) filing multiple cases based on the same cause of action, but with different prayers (splitting causes of action, where the ground for dismissal is also either litis pendentia or res judicata). None of these circumstances were present where the motion was filed during execution based on supervening facts discovered only through garnishment proceedings.

• "The veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, had faith or malice in doing so." — This passage, quoted from Guillermo vs. Uson, articulates the controlling doctrine permitting piercing of the corporate veil even after final judgment and during execution in labor cases, provided fraud, bad faith, or malice is established.

• "When the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one." — This passage, quoted from A.C. Ransom Labor Union-CCLU vs. NLRC, states the foundational principle that corporate fiction yields when used as an instrument of wrongdoing, and is frequently cited in veil-piercing jurisprudence.

• "Very apparent that CIGIN is the combination of 'CI' in Cirilo and 'GIN' in Gina." — This observation underscores the Court's finding that Cigin Corp. was a family corporation created by the same spouses to continue the same construction business, reinforcing the conclusion that it was a "run-away corporation" designed to evade labor obligations.

• Guillermo vs. Uson, 782 Phil. 215 (2016) — Controlling precedent cited for the doctrine that the corporate veil may be pierced even after final judgment and on execution in labor cases where fraud, bad faith, or malice is established. The Court applied this doctrine to uphold the Labor Arbiter's order piercing the veil of Undaloc Inc. and Cigin Corp.

• A.C. Ransom Labor Union-CCLU vs. NLRC, 234 Phil. 491 (1987) — Followed as precedent for disregarding corporate fiction where a "run-away corporation" was organized to evade financial obligations to employees. The Court found the same pattern present in the case, where Undaloc Inc. ceased operations and Cigin Corp. was incorporated by the same family to continue the same construction business while labor cases were pending.

• Chua vs. Metropolitan Bank & Trust Co., 613 Phil. 143 (2009) — Cited for the definition and enumeration of the ways forum shopping is committed. The Court used this framework to determine that petitioners were not guilty of forum shopping.

• Sapio vs. Undaloc Construction and/or Engr. Undaloc, 577 Phil. 39 (2008) — Referenced as a prior labor case against Cirilo Undaloc's sole proprietorship, the adverse decision in which prompted the abrupt closure of that business and incorporation of Undaloc Inc., establishing a pattern of evading labor obligations.

• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari by which petitioners elevated the case to the Supreme Court, assailing the CA's Decision dated May 11, 2018 and Resolution dated August 29, 2019 in CA-G.R. SP No. 11072.

• Rule 65, Rules of Court (Petition for Certiorari) — The procedural vehicle used by petitioners before the CA to challenge the NLRC's issuance of a TRO, and previously used to challenge the NLRC's reversal of the Labor Arbiter in CA-G.R. SP No. 07306.

Gesmundo, C.J. (Chairperson), Caguioa, Zalameda, and Gaerlan, JJ., concurred.