Dutch Movers, Inc., Cesar Lee and Yolanda Lee, v.

Lequin
GRN. 210032, April 25, 2017
Del Castillo, J.:

FACTS:

Dutch Movers, Inc. (DMI) is a ​domestic corporation engaged in hauling liquefied

petroleum gas with ​private respondents Edilberto Lequin, Christopher Salvador, Reynaldo Singsing,
and Raffy Mascardo as employees, and Cesar Lee and Yolanda Lee as President/Owner and Manager
respectively. Cesar Lee informed the said respondents that DMI would cease its hauling operation for no
reason and requested DMI to issue a formal notice regarding the matter, but to no avail. ​Upon
respondents' request, the Department of Labor and Employment - National Capital Region
issued a certification ​revealing that DMI did not file any notice of business closure. Thus,
respondents filed an illegal dismissal complaint against DMI with Cesar Lee and Yolanda Lee.

The Labor Arbiter dismissed the case for lack of cause of action. ​The National Labor
Relations Commission (NLRC) ​reversed and set aside the Labor Arbiter’s decision, ordered the
respondents’ reinstatement, and awarded them their full backwages with costs against DMI.
This NLRC Decision became final and executory.

Respondents then filed a Motion for Writ of Execution, but they later discovered that
DMI no longer operated. They, nonetheless, insisted that petitioners - who managed and
operated DMI, and consistently represented to them that they were the owners of DMI -
continued to work at Toyota Alabang, which the Lees also own. They further averred that:
the Articles of Incorporation (AOI) of DMI ironically did not include the Lees as its directors
or officers, and those actually named were persons unknown to them; DMI did not file any
notice of business closure; and the creation and operation of DMI was attended with fraud,
making it convenient for petitioners to evade their legal obligations to them. The
respondents subsequently prayed that the Lees, and the officers named in DMI's AOI, which
included Edgar Smith and Millicent Smith (spouses Smith), be impleaded, and be held
solidarily liable with DMI in paying the judgment awards.

Spouses Smith stressed that they never participated in the management and
operations of DMI and they were not its stockholders, directors, officers or managers at the
time respondents were terminated because they lent their names to Cesar and Yolanda Lee
to assist them in incorporating DMI and promptly transferred their supposed rights in favor
of the Lees.

Another Labor Arbiter issued an Order holding the petitioners liable for the judgment
awards and then issued a subsequent writ of execution. The Lees moved to quash the Writ
of Execution contending that the Order was void because the Labor Arbiter had no
jurisdiction to modify the final and executory NLRC Decision. Nonetheless, the motion was
denied. Consequently, they appealed to the NLRC.

The NLRC quashed the Writ of Execution insofar as it held petitioners Cesar Lee and
Yolanda Lee liable to pay the judgment awards and ruled that the Writ of Execution should
only pertain to DMI since the petitioners were not held liable to pay the awards under the
final and executory NLRC Decision. It added that petitioners could not be sued personally for
the acts of DMI because the latter had a separate and distinct personality from the persons
comprising it; and, there was no showing that the Lees were stockholders or officers of
DMI; or even granting that they were, they were not shown to have acted in bad faith
against respondents.

The respondents filed a Petition for Certiorari with the Court of Appeals. The CA
reversed the NLRC Resolutions and accordingly affirmed the Writ of Execution impleading
Cesar and Yolanda Lee as party-respondents liable to answer for the judgment awards. The
Lees then filed a Petition for Review on Certiorari with the Supreme Court on the ground
that there was no legal basis to pierce the veil of corporate fiction of DMI.

ISSUE:
Whether petitioners Cesar and Yolanda Lee are personally liable to pay the judgment
awards in favor of the respondents.

RULING:

Yes, petitioners Cesar and Yolanda Lee are personally liable to pay the judgment
awards in favor of the respondents.

A corporation has a separate and distinct personality from its stockholders, and from
other corporations it may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced attaching personal liability
against responsible person, if the corporation's personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat
the labor laws. Also, piercing the veil of corporate fiction is allowed where a corporation is a
mere alter ego or a conduit of a person, or another corporation.

Here, Cesar and Yolanda Lee controlled DMI and actively participated in its operation
such that DMI existed not as a separate entity but only as business conduit of petitioners
under the following circumstances:

First, the Lees were aware of and disclosed the circumstances surrounding
respondents' employment, and propounded arguments refuting that respondents were
illegally dismissed. If they were indeed not part of DMI, they could have revealed who
operated it and from whom they derived the information embodied in their pleadings; and

Second, the spouses Smith categorically identified petitioners as the owners and
managers of DMI. In the Motion to Quash of petitioners Lee, however, they neither denied
such allegation nor adduced evidence to establish that they were not the owners and
managers of DMI.

To end, 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.
 (While it is true that one's control does not by itself result in the disregard of
corporate fiction; however, considering the irregularity in the incorporation of DMI, then
there is sufficient basis to hold that such corporation was used for an illegal purpose,
including evasion of legal duties to its employees, and as such, the piercing of the corporate
veil is warranted. 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.)