PIERCING THE CORPORATE VEIL

CONCEPT BUILDERS, INC. vs. THE NATIONAL LABOR RELATIONS COMMISSION

Facts:

• Petitioner Concept Builders, Inc., a domestic corporation engaged in the

construction business. Private respondents were employed by said company as
laborers, carpenters and riggers.
• Private respondents were served individual written notices of termination of
employment by petitioner. It was stated in the individual notices that their contracts
of employment had expired and the project in which they were hired had been
completed.
• Private respondents filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay
against petitioner.
• LA issued a writ of execution for the amount of 117k but the sheriff issued a report
stating that he tried to serve the alias writ of execution on petitioner through the
security guard on duty but the service was refused on the ground that petitioner no
longer occupied the premises.
• Dennis Cuyegkeng filed a third-party claim alleging that the properties sought to
be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which
he is the Vice-President.
• Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging
that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended
its business operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer for any
damages which petitioner and HPPI may suffer because of the issuance of the
break-open order.
• Private respondents presented duly certified copies of the General Information
Sheet submitted by petitioner to the SEC.
• HPPI filed an Opposition to private respondents' motion for issuance of a break-
open order, contending that HPPI is a corporation which is separate and distinct
from petitioner. HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner
was then engaged in construction.
Issue:
Whether or not the Doctrine of Piercing of the Corporate Veil may be applied in this case.
Ruling:

Yes. It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it may be
connected. But, this separate and distinct personality of a corporation is merely a fiction created
by law for convenience and to promote justice. So, when the notion of separate juridical
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, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows:

1. Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong,
to perpetuate the violation of a statutory or other positive legal duty or dishonest
and unjust act in contravention of plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil."
In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned
with reality and not form, with how the corporation operated and the individual
defendant's relationship to that operation.

In the case at bar, both information sheets were filed by the same Virgilio O. Casiño as the
corporate secretary of both corporations. It would also not be amiss to note that both corporations
had the same president, the same board of directors, the same corporate officers, and
substantially the same subscribers. From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant shared the same address and/or
premises. Under this circumstance, it cannot be said that the property levied upon by the sheriff
were not of respondents. Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
 EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL
PLANT, vs. COURT OF INDUSTRIAL RELATIONS

Facts:

• A complaint for unfair labor practice was filed by herein private respondent Allied Workers'
Association, respondent Demetrio Garlitos 10 respondent workers against herein
petitioners on account of the dismissal of respondent workers from petitioner Claparols
Steel and Nail Plant.
• Respondent Court rendered its decision finding Mr. Claparols guilty of union busting and
of having "dismissed said complainants because of their union activities.
• Respondent workers were accompanied by the Chief of Police of Talisay, Negros
Occidental to the compound of herein petitioner company to report for reinstatement per
order of the court. Respondent workers were, however, refused reinstatement by company
accountant Francisco Cusi for he had no order from plant owner Eduardo Claparols nor
from his lawyer Atty. Plaridel Katalbas, to reinstate respondent workers.
• Petitioners filed an opposition to said computations alleging that under the circumstances
Sta Cecilia Sawmills v CIR should apply to them so that the backwages shouldn’t exceed
3 months and since Claparols Steel closed on December 7 1962, re-employment cannot
go beyond that date.
• On November 1966, CIR approved Chief Examining Officer’s report. An MR of this
decision was denied. Petitioner filed a petition for certiorari with the SC (not this case) to
set aside the Nov 1966 order and denial of MR. SC denied the petition.
• Respondents moved for re-computation of back wages. CIR directed a re-computation.
The Chief Examining Officer, in its re-computation, included the bonuses of the
employees.
• CIR ordered to pay the bakcwages of the respondents based on the re-computation.

Issue:

Whether or not the doctrine of piercing of the corporate veil may be applied in this case.

Ruling:

Yes. Petitioners did not dispute the fact that the Claparols Steel and Nail Plant (which
ceased ops on June 30) was succeeded by the Claparols Steel Corporation effective July 1 1957
up to December 7, 1962. It’s very clear that Claparols Steel was a continuation and successor of
the 1st entity, and its emergence was skillfully timed to avoid the financial liability that attached to
its predecessor. Both predecessors and successor were owned and controlled by petitioner
Eduardo Claparols and there was no break in the succession and continuity of the same business.
According to the court, this “avoiding-the-liability” scheme is very patent, considering that 90% of
the subscribed shares of stock of Claparols Steel was owned by Claparols himself. It is very
obvious that the 2nd corporation seeks the protective shield of a corporate fiction whose veil in this
case should be pierced as it was deliberately and maliciously designed to evade its financial
obligations to its employees.
In Yutivo Sons v CTA, SC held that when the notion of 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. In Liddel
v CIR, the SC also held that where a corporation is a dummy and serves no business purpose
and is intended only as a blind, the corporate fiction may be ignored. In CIR v Norton and
Harrison, the Court ruled that where a corporation is merely an adjunct, business conduit or alter
ego of another corporation, the fiction of separate and distinct corporate entities should be
disregarded. The Court thus agreed with the CIR in ordering that back wages be computed until
December 7 1962, or the period when the successor Claparols Steel ceased operations.