Toledo Construction Corp. Employees' Association-ADLO-KMU vs. Toledo Construction Corp.

A petition for relief from judgment is warranted when a party is prevented from fully presenting its case due to extrinsic fraud, which includes advice from a hearing officer that causes the party to pursue an improper remedy and lose its right to appeal. The separate corporate personalities of related corporations will be disregarded to hold them solidarily liable for a labor judgment award where it is shown that the corporate fiction was used as a vehicle to evade an existing obligation through fraudulent transfers of assets.

The Toledo Construction Corp. Employees' Association-ADLO-KMU (Union) filed multiple complaints for illegal dismissal and unfair labor practice against Toledo Construction Corp. (Toledo), Dumaguete Builders and Equipment Corp. (Dumaguete), and Januario Rodriguez (Rodriguez). The National Labor Relations Commission (NLRC) rendered a decision finding Toledo liable for illegal dismissal and awarding monetary claims to several employees. This decision became final and executory. During execution, Toledo transferred its vehicles to Dumaguete and Castelweb Trading and Development Corp. (Castelweb) via deeds of sale executed after the liability was determined but before the writ of execution was issued. The Union sought to pierce the corporate veil to hold all respondent corporations and Rodriguez jointly and severally liable, but the NLRC denied this. The Union then filed a Petition for Relief from Judgment, alleging extrinsic fraud by a commissioner, which the NLRC also denied.

• Nature of the Action: The case originated from consolidated complaints for illegal dismissal, unfair labor practice, and money claims filed by the Union against Toledo, Dumaguete, and Rodriguez.
• The Dismissals and Labor Dispute: In 2003, following the Union's affiliation with a national federation, Toledo dismissed numerous Union officers and members on various grounds. A strike ensued, and the labor dispute was certified to the NLRC.
• NLRC Decision and Finality: The NLRC found Toledo liable for illegal dismissal and awarded backwages, separation pay, and other benefits. The decision became final and executory on March 16, 2006.
• Execution and Fraudulent Transfers: During execution, Toledo's assets proved insufficient. The Union discovered that Toledo had executed deeds of sale transferring its vehicles to Dumaguete and Castelweb in 2007, after its liability was fixed but before the writ of execution was issued. The vehicles were registered in the new corporations' names only in 2009, after a motion to quash the writ was filed. The Land Transportation Office later cancelled some of these transfers as fraudulent.
• Union's Attempts to Pierce the Corporate Veil: The Union argued that Toledo, Dumaguete, Castelweb, KJP Resources, One Trading, and Rodriguez were all alter egos of each other, sharing the same owners, directors, and business address, and that the transfers were a scheme to evade liability. The NLRC refused to pierce the corporate veil.
• Alleged Extrinsic Fraud: The Union claimed that during a pre-execution conference, Commissioner Raul T. Aquino advised its counsel to file a Motion for Clarification to include the other corporations in the writ. Relying on this advice, the Union filed the motion, which the NLRC later treated as a prohibited second motion for reconsideration and denied, causing the Union to lose its chance to file a timely petition for certiorari.

• Extrinsic Fraud: Petitioner argued that the fraud committed by Commissioner Aquino—by inducing it to file an improper motion—constituted extrinsic fraud that prevented it from being heard on its case, justifying relief from judgment. It contended that Rule 38, Section 1 of the Rules of Court does not require that the fraud be committed by the prevailing party.
• Piercing the Corporate Veil: Petitioner maintained that the respondent corporations were used as cloaks for fraud and to evade an existing obligation. It cited the fraudulent transfers of vehicles from Toledo to Dumaguete and Castelweb after liability attached, and the incorporation of KJP Resources and One Trading as standby transferees. It argued this fell under the exceptions for defeating public convenience and perpetrating fraud.
• Immutability of Judgment: Petitioner asserted that the doctrine of immutability should not apply because the fraudulent transfers were supervening events that made execution unjust, and the non-inclusion of Dumaguete and Rodriguez in the writ was a clerical error correctible by a nunc pro tunc order.

• Nature of Fraud for Relief: Respondents countered that the extrinsic fraud required for relief from judgment must be perpetrated by the prevailing party, not by a tribunal member. They characterized the Union's predicament as inexcusable negligence of its own counsel.
• Due Process and Separate Personalities: Respondents argued that piercing the corporate veil to hold Castelweb, KJP Resources, and One Trading liable would violate their right to due process as they were not parties to the original case. They insisted the corporations were separate entities engaged in different businesses for legitimate reasons.
• Finality of Judgment: Respondents contended that the NLRC decision had long become final and immutable, and holding other parties liable would constitute an impermissible modification of that decision.

• Extrinsic Fraud and Relief from Judgment: Whether the Court of Appeals erred in ruling that a petition for relief from judgment requires that the extrinsic fraud be committed by the prevailing party.
• Piercing the Corporate Veil: Whether the separate corporate veils of Toledo, Dumaguete, Castelweb, KJP Resources, One Trading, and Rodriguez should be pierced to hold them solidarily liable for the judgment award.
• Immutability of Judgment: Whether the doctrine of immutability of judgment prevents the inclusion of parties not originally held liable in the writ of execution.

• Extrinsic Fraud and Relief from Judgment: The Court of Appeals erred. The essence of extrinsic fraud for relief from judgment is the deprivation of a party's right to be heard, regardless of who commits it. Commissioner Aquino's unsolicited advice, which induced the Union to pursue a futile remedy and lose its right to certiorari, constituted extrinsic fraud that prevented a fair adjudication.
• Piercing the Corporate Veil: The corporate veils of Toledo, Dumaguete, Castelweb, and Rodriguez must be pierced. The corporate fiction was used as a vehicle to evade an existing obligation. The timing of the vehicle transfers—after liability was fixed but before execution—and the subsequent LTO cancellation of registrations for fraud demonstrated a deliberate scheme to place assets beyond the reach of creditors. Rodriguez, as the signatory to the deeds, was complicit. However, insufficient evidence linked KJP Resources and One Trading to the fraudulent scheme.
• Immutability of Judgment: The doctrine admits of exceptions. The fraudulent transfers constituted a supervening event that occurred after the judgment's finality, making its execution unjust and inequitable. Piercing the corporate veil to satisfy the award from related entities is a permissible exception to immutability to prevent injustice.

• Extrinsic Fraud for Relief from Judgment — Extrinsic fraud is fraud committed outside the trial that prevents a party from fully presenting their case. It is not limited to fraud by the prevailing party; the critical element is the deprivation of the opportunity to be heard. Relief is an equitable remedy to correct a judgment obtained through such defective process.
• Piercing the Corporate Veil — The separate personality of a corporation may be disregarded when the corporate fiction is used to defeat public convenience (e.g., evade existing obligations), justify wrong, protect fraud, or defend crime. In labor cases, courts readily pierce the veil to prevent corporations from using their separate identities to escape judgment liabilities, especially when assets are fraudulently transferred.
• Exceptions to Immutability of Judgment — A final and executory judgment may be altered only in cases of: (1) clerical errors, (2) nunc pro tunc entries, (3) void judgments, or (4) supervening events that make execution unjust. A supervening event is a fact or circumstance that arises after the judgment's finality, altering the parties' situation and rendering execution inequitable.

• "Ex parte communication with a party-litigant initiated by the hearing officer casts doubt on the integrity of the adjudicatory process, especially when the information willingly and spontaneously given pertains to an issue in the case." — This underscores the due process violation inherent in the commissioner's advice.
• "The timing of all these transactions clearly show that respondents were attempting to escape their liability... The deeds of sale were executed only after respondent Toledo was found liable... Despite the sales, respondent Toledo retained the vehicles as evidenced by its continuous payment of the Motor Vehicle User's Charge." — This details the factual basis for finding a fraudulent scheme.
• "The constitutional protection accorded to labor acknowledges the inherent power imbalance in employment relationships. Dishonest schemes intended to take away victories justly won by laborers must be rejected." — This highlights the policy justification for piercing the corporate veil in labor cases.

• AFP Mutual Benefit Association v. Regional Trial Court, 658 Phil. 69 (2011) — Distinguished. The Court of Appeals erroneously relied on this case for the proposition that extrinsic fraud must be committed by the prevailing party. The Supreme Court clarified that AFP Mutual Benefit Association focused on the intrinsic vs. extrinsic nature of the fraud, not on the perpetrator's identity.
• General Credit Corporation v. Alsons Development, 542 Phil. 219 (2007) — Applied. Cited for the three instances justifying piercing the corporate veil: (1) defeating public convenience, (2) fraud, and (3) alter ego cases.
• Philippine National Bank v. Andrada Electric & Engineering Co., 430 Phil. 882 (2002) — Applied. Cited for the elements of piercing the veil: (1) complete control, (2) use of control for fraud or wrong, and (3) proximate cause of injury.
• Guillermo v. Uson, 782 Phil. 215 (2016) — Applied. Reiterated that the corporate veil can be pierced even after final judgment in labor cases to prevent evasion of obligations through fraud or bad faith.
• Sy Bang v. Sy, 604 Phil. 606 (2009) — Applied. Cited for the principle that extrinsic fraud can be committed by a party's own counsel, preventing the client from presenting their case.

• Rule 38, Section 1, 1997 Rules of Civil Procedure — Provides the grounds for a petition for relief from judgment (fraud, accident, mistake, excusable negligence). The Court held that the "fraud" contemplated is extrinsic fraud, without requiring it to be committed by the prevailing party.
• Article 1387, Civil Code — Establishes the presumption of fraud for alienations made by persons against whom a judgment has been rendered. Applied to the transfers from Toledo to the other corporations.
• Republic Act No. 8794, Section 2 — Requires payment of the Motor Vehicle User's Charge by the "owner of the motor vehicle." Toledo's continued payment after the alleged sales indicated it retained ownership, belying the transfers' genuineness.

• Justice Amy C. Lazaro-Javier
• Justice Henri Jean Paul B. Inting
• Justice Jhosep Y. Lopez
• Justice Antonio T. Kho, Jr.