Indophil v.

Calica
205 SCRA 698 (1992)

Doctrine:

The legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioner
does not seek to impose a claim against the members of the Acrylic.

Facts:

Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization

duly registered with the Department of Labor and Employment and the exclusive
bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated.
Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary
Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and
Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged
in the manufacture, sale and export of yarns of various counts and kinds and of materials
of kindred character and has its plants at Barrio Lambakin. Marilao, Bulacan.

Petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil
Textile Mills, Inc. executed a collective bargaining agreement. Indophil Acrylic
Manufacturing Corporation was formed and registered with the Securities and Exchange
Commission. Subsequently, Acrylic applied for registration with the Board of Investments
for incentives under the 1987 Omnibus Investments Code. The application was approved
on a preferred non-pioneer status.

Acrylic became operational and hired workers according to its own criteria and standards.
The workers of Acrylic unionized and a duly certified collective bargaining agreement was
executed.

A year after the workers of Acrylic have been unionized and a CBA executed, the petitioner
union claimed that the plant facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of private respondent Company pursuant to Section
1(c), Article I of the CBA, to wit:

c) This Agreement shall apply to the Company's plant facilities and installations and to any
extension and expansion thereat. (Rollo, p.4)
In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining
unit.

The petitioner's contention was opposed by private respondent which submits that it is a
juridical entity separate and distinct from Acrylic.

The existing impasse led the petitioner and private respondent to enter into a submission
agreement on September 6, 1990. The parties jointly requested the public respondent to
act as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the
proper interpretation of the CBA provision.
After the parties submitted their respective position papers and replies, the public
respondent Voluntary Arbitrator rendered its award on December 8, 1990, the dispositive
portion of which provides as follows:

PREMISES CONSIDERED, it would be a strained interpretation and application of the

questioned CBA provision if we would extend to the employees of Acrylic the coverage
clause of Indophil Textile Mills CBA. Wherefore, an award is made to the effect that the
proper interpretation and application of Sec. l, (c), Art. I, of the 1987 CBA do (sic) not
extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills,
Inc. (Rollo, p.21)

Issue:

Whether or not the operations in Indophil Acrylic Corporation are an extension or

expansion of private respondent Company

Held:

No. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate
and distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is liability will
attach directly to the officers and stockholders. The doctrine applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
or when it is made as a shield to confuse the legitimate issues, or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. (Umali et al. v. Court of
Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA 529, 542)

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging
that the creation of the corporation is a devise to evade the application of the CBA
between petitioner Union and private respondent Company. While we do not discount the
possibility of the similarities of the businesses of private respondent and Acrylic, neither
are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The
fact that the businesses of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons manning and providing for
auxilliary services to the units of Acrylic, and that the physical plants, offices and facilities
are situated in the same compound, it is our considered opinion that these facts are not
sufficient to justify the piercing of the corporate veil of Acrylic.

In the same case of Umali, et al. v. Court of Appeals (supra), We already emphasized that
"the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation." In the instant case, petitioner
does not seek to impose a claim against the members of the Acrylic.

Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the
ULGWP v. Ople (supra) that it is grave abuse of discretion to treat two companies as a
single bargaining unit when these companies are indubitably distinct entities with separate
juridical personalities.
Hence, the Acrylic not being an extension or expansion of private respondent, the rank-
and-file employees working at Acrylic should not be recognized as part of, and/or within
the scope of the petitioner, as the bargaining representative of private respondent.
 Umali v. CA
189 SCRA 529 (1990)

Doctrine:

The legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case,
petitioners do not seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it is these corporations which desire to enforce an
alleged right against petitioners.

Facts:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de Castillo. The
Castillo family are the owners of parcel of land located in Lucena City which was given as
security for a loan from the development Bank of the Philippines (DBP) for their failure to
pay the amortization, foreclosure of the said property was about to be initiated. This
problem was made known to Santiago Rivera, who proposed to them the conversion into
subdivision of the four parcels of land adjacent to the mortgaged property to raise the
necessary fund. The idea was accepted by the Castillo family and to carry out the project,
a memorandum of agreement was executed by and between Slobec Realty and
Development Inc. represented by its president Santiago Rivera and Castillo family. In this
agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000
immediately after the execution of the agreement and to pay additional amount of P40,000
after the property has been converted into a subdivision. Rivera, with agreement
approached Mr. Modesto Cervantes, president of defendant Bormaheco and proposed to
purchase from Bormaheco two tractors model D7 and D8 subsequently a sales agreement
was executed on December 28, 1970. On January 3, 1971, Slobec, through Rivera,
executed in favor of Bormaheco a chattel mortgage over the said equipment as security for
the payment of the aforesaid balance of P180,000. As further security of the
aforementioned unpaid balance, Slobec obtained from insurance corporation of the
Philippines a security bond, with Insurance Corporation of the Philippines (ICP) as surety
and Slobec as principal, in favor of Bormaheco, as borne out of by Exhibit 8. The aforesaid
surety bond was in turn secured by an agreement of counter-guaranty with real estate
mortgage executed by Rivera as President of Slobec and Mauricia Mur Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena as mortgagors and insurance corporation of the Philippines as
mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in
the amount of P180,000. In giving the bond, ICP required that the Castillos mortgage to
them the properties in question, namely, four parcels of land covered by TCT in the name
of the aforementioned mortgagors, namely TCT no. 13114, 13115, 13116, and 13117 all of
the Register of Deeds of Lucena City. Meanwhile, for violation of the terms and conditions
of the counter-guaranty agreement, the properties of the Castillos were foreclosed by ICP
as the highest bidder with a bid of P285,212, a certificate of sale was issued by the
provincial sheriff of Lucena City and TCT over the subject parcels of land were issued.

Issue:

Whether or not the foreclosure is proper so as to apply the doctrine of piercing the veil of
corporate entity
Held:

No. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exists, the legal fiction that a corporation is an entity with a juridical personality separate
and distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will
attach directly to the officers and stockholders. The doctrine applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
on when it is made as a shield to confuse the legitimate issues or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

In the case at bar, petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP
and PM parts, alleging that these corporations employed fraud in causing the foreclosure
and subsequent sale of the real properties belonging to petitioners while we do not
discount the possibility of existence of fraud in the foreclosure proceeding, neither are we
inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our
considered opinion that piercing the veil of corporate entity is not the proper remedy in
order that the foreclosure proceeding may be declared a nullity under the circumstances
obtaining in the legal case at bar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation. In the instant
case, petitioners do not seek to impose a claim against the individual members of the
three corporations involved; on the contrary, it is these corporations which desire to
enforce an alleged right against petitioners. Assuming that petitioners were indeed
defrauded by private respondents in the foreclosure of the mortgaged properties, this fact
alone is not, under the circumstances, sufficient to justify the piercing of the corporate
fiction, since petitioners do not intend to hold the officers and/or members of respondent
corporations personally liable therefor. Petitioners are merely seeking the declaration of
the nullity of the foreclosure sale, which relief may be obtained without having to disregard
the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners
failed to establish by clear and convincing evidence that private respondents were
purposely formed and operated, and thereafter transacted with petitioners, with the sole
intention of defrauding the latter.

The mere fact, therefore, that the business of two or more corporations are interrelated is
not a justification for disregarding their separate personalities, absent sufficient showing
that the corporate entity was purposely used as a shield to defraud creditors and third
persons of their rights.