Dutch Movers, Inc. vs. Lequin

The veil of corporate fiction may be pierced and responsible persons held solidarily liable with the corporation even after a judgment becomes final and executory, where supervening events render execution against the corporation impossible or unjust, and where such persons deliberately used the corporate vehicle to evade judgment obligations, resorted to fraud or bad faith, or actively participated in management to the extent that the corporation became a mere conduit for their personal business interests.

Dutch Movers, Inc. (DMI) was a domestic corporation engaged in hauling liquefied petroleum gas. Respondents Edilberto Lequin, Christopher Salvador, Reynaldo Singsing, and Raffy Mascardo were employed by DMI as truck driver and helpers. On December 28, 2004, Cesar Lee, through a supervisor, informed respondents that DMI would cease its hauling operations. No formal notice of closure was filed with the Department of Labor and Employment. Respondents filed a complaint for illegal dismissal, initially dismissed by the Labor Arbiter but subsequently reversed by the NLRC, which found them illegally dismissed and ordered their reinstatement with full backwages. The NLRC decision became final and executory on December 30, 2007. During execution proceedings, respondents discovered that DMI had ceased operations without notice and that petitioners, though not named in the Articles of Incorporation, were the individuals who actually managed DMI and represented themselves as its owners.

• The Illegal Dismissal and Initial Adjudication: Respondents were employed by DMI until December 28, 2004, when Cesar Lee, through a supervisor, informed them of the cessation of hauling operations. They filed a complaint for illegal dismissal against DMI and petitioners. The Labor Arbiter dismissed the complaint on October 28, 2005. On November 23, 2007, the NLRC reversed the dismissal, finding that respondents were illegally dismissed when DMI placed them on standby without providing work, and ordered their reinstatement with full backwages and attorney's fees. The decision became final and executory on December 30, 2007.
• Execution Proceedings and Motion to Implead: Respondents filed a Motion for Writ of Execution. Pending resolution, they discovered that DMI no longer operated and had not filed any notice of business closure with the Department of Labor and Employment or the Securities and Exchange Commission. They filed a Manifestation and Motion to Implead petitioners Cesar and Yolanda Lee, alleging that petitioners were the actual owners and managers of DMI who now operated Toyota Alabang, and that the Articles of Incorporation listed only dummy incorporators (spouses Edgar and Millicent Smith) who were unknown to them.
• Opposition of Named Incorporators: Spouses Smith opposed the motion to implead, declaring that they were lawyers who merely lent their names to assist petitioners in incorporating DMI, immediately transferred their rights to petitioners thereafter, and never participated in management or owned shares at the time of respondents' termination.
• Labor Arbiter's Ruling on Liability: On April 1, 2009, Labor Arbiter Lilia S. Savari issued an Order holding petitioners liable for the judgment awards, finding that petitioners represented themselves as owners and were afforded due process as they were impleaded from the beginning of the case. On July 31, 2009, a Writ of Execution was issued against DMI and/or petitioners for P4,240,505.32.
• Procedural Posture before the NLRC and CA: Petitioners moved to quash the Writ, arguing that the Labor Arbiter lacked jurisdiction to modify the final NLRC decision. The Labor Arbiter denied the motion on September 4, 2009. The NLRC reversed the Labor Arbiter on October 29, 2009, quashing the Writ as to petitioners on the ground that the final decision did not hold them liable and that there was no showing of bad faith warranting the piercing of the corporate veil. The NLRC denied reconsideration on January 29, 2010. The Court of Appeals reversed the NLRC on July 1, 2013, reinstating the Labor Arbiter's order holding petitioners liable, and denied reconsideration on November 13, 2013.

• Inapplicability of Valderrama and David: Petitioners argued that Valderrama v. NLRC and David v. Court of Appeals were distinguishable because those cases involved motions for clarification or instances where the body of the decision mentioned individual liability, whereas here the NLRC decision did not mention petitioners' liability, and the respondents merely filed a motion to implead.
• Lack of Basis for Piercing the Corporate Veil: Petitioners maintained that DMI possessed a separate and distinct personality from its officers and stockholders. They contended that there was no evidence showing they were stockholders or officers of DMI, nor was there any showing of bad faith in the termination of respondents to justify piercing the corporate veil.
• Immutability of Final Judgments: Petitioners argued that the NLRC decision having become final and executory, it could no longer be altered or modified to add them as liable parties, and the Labor Arbiter lacked jurisdiction to do so.

• Active Participation and Ownership: Respondents countered that petitioners were identified as the persons who hired them and who owned and managed DMI throughout the employment period.
• Due Process: Respondents argued that petitioners were consistently impleaded from the inception of the illegal dismissal case and were afforded ample opportunity to be heard, rendering the procedural aspect of the impleading proper.

• Personal Liability Despite Final Judgment: Whether petitioners are personally liable to pay the judgment awards in favor of respondents despite the finality of the NLRC decision which only decreed liability against the corporation.

• Personal Liability Despite Final Judgment: The petition was denied. The Court ruled that the veil of corporate fiction must be pierced and petitioners held solidarily liable for the judgment awards. The principle of immutability of final judgments admits an exception where supervening events occurring after finality render execution impossible or unjust. Here, the closure of DMI without formal notice after the judgment became final, coupled with the revelation through the declarations of spouses Smith that petitioners were the true owners and managers who used dummy incorporators to form the corporation, constituted supervening events justifying the impleading of petitioners during execution. Piercing the veil was warranted because petitioners controlled DMI, actively participated in its operation to the extent that it functioned as their alter ego or conduit, and employed the corporate form specifically to evade labor obligations. The failure of petitioners to refute the declarations of spouses Smith or to reveal who actually operated DMI if not themselves, bolstered the finding that they were the responsible persons behind the corporation. Accordingly, because reinstatement was no longer feasible due to the closure of DMI, separation pay was awarded instead of reinstatement.

• Immutability of Final Judgments and Supervening Events — While a final and executory judgment cannot be altered or modified, this principle is not absolute. An exception exists when a supervening event occurs after the judgment becomes final and executory, which renders the decision unenforceable or its execution unjust. A supervening event refers to facts that transpired after finality or new situations that developed thereafter, including matters that the parties were unaware of before or during trial as they were not yet existing. In this case, the closure of the corporation without notice and the discovery that the alleged owners were not the named incorporators but were the true controllers of the entity constituted supervening events.
• Piercing the Veil of Corporate Fiction in Labor Cases — The corporate veil may be pierced and personal liability attached when the corporate personality is used to defeat public convenience, justify wrong, protect fraud, defend crime, or defeat labor laws. This is particularly warranted where the corporation is a mere alter ego or conduit of a person or another corporation, or where responsible persons actively participated in management or acted in bad faith in committing illegal dismissal. Responsible persons may be held solidarily liable even after final judgment and during execution if they deliberately used the corporate vehicle to unjustly evade judgment obligations or resorted to fraud, bad faith, or malice.
• Active Participation and Control as Basis for Piercing — Control by an individual over a corporation, coupled with the use of the corporate form to evade legal obligations, justifies piercing the veil. Factors indicating control include the individual's representation as owner, participation in filing pleadings and defending the corporation, and the use of dummy incorporators to conceal true ownership. Where the corporation is made to appear as having no mind of its own and serving merely as a shield for the individual's business interests, equitable piercing is applied to prevent the evasion of labor laws.

• "The principle of immutability of judgment, or the rule that once a judgment has become final and executory, the same can no longer be altered or modified and the court's duty is only to order its execution, is not absolute. One of its exceptions is when there is a supervening event occurring after the judgment becomes final and executory, which renders the decision unenforceable."
• "By responsible person, we refer to an individual or entity responsible for, and who acted in bad faith in committing illegal dismissal or in violation of the Labor Code; or one who actively participated in the management of the corporation."
• "Piercing the veil of corporate fiction is allowed, and responsible persons may be impleaded, and be held solidarily liable even after final judgment and on execution, provided that such persons deliberately used the corporate vehicle to unjustly evade the judgment obligation, or resorted to fraud, bad faith, or malice in evading their obligation."
• "The act of hiding behind the cloak of corporate fiction will not be allowed in such situation where it is used to evade one's obligations, which 'equitable piercing doctrine was formulated to address and prevent.'"

• Valderrama v. National Labor Relations Commission, 326 Phil. 477 (1996) — Applied as controlling precedent for the exception to the immutability of final judgments based on supervening events (corporate closure without bankruptcy proceedings), and for holding the owner personally liable where they controlled the company.
• David v. Court of Appeals, 375 Phil. 177 (1999) — Cited for the same exception to the immutability of judgments regarding supervening events.
• Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil. 955 (1996) — Established the grounds for piercing the corporate veil when the corporate personality is used to defeat labor laws or public convenience.
• Guillermo v. Uson, G.R. No. 198967, March 7, 2016 — Cited for the rule that responsible persons may be held liable even after final judgment if they used the corporate vehicle to evade obligations.
• Sarona v. National Labor Relations Commission, 679 Phil. 394 (2012) — Referenced regarding the equitable piercing doctrine formulated to prevent the use of corporate fiction to evade obligations.

• Rule 45, Rules of Court — Governs petitions for review on certiorari to the Supreme Court, which generally entertain only questions of law; however, the Court may examine factual findings where they are contrary to those of the lower tribunal or where the conclusions are not supported by evidence.
• Labor Code (implied provisions on Illegal Dismissal, Reinstatement, and Backwages) — Underlying statutory basis for the original NLRC award of reinstatement and backwages.

Sereno, C.J., Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ.