USA COLLEGE OF LAW

Case Name Concept Builders, Inc. Vs. NLRC

RELEVANT FACTS
 Petitioner is 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,
effective on November 30, 1981. 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.
 Public respondent later found out that at the time of their termination the project in which they were hired had
not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.
 Private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and 13th month pay against petitioner.
 The Labor Arbiter ordered the petitioner to reinstate private respondents and to pay them back wages
equivalent to one year or 300 working days. NRLC dismissed the MR filed by petitioner on the ground that
the said decision had already become final and executory.
 The LA then issued a writ of execution directing the sheriff to execute the decision, which was partially
satisfied through the garnishment of the sums from petitioner’s debtor, the MWSA.
 On February 1, 1989, an Alias Writ of Execution was issued by the LA directing the sheriff to collect from
herein petitioner the remaining the balance of the judgment award, and to reinstate private respondents to
their former positions.
 On July 13, 1989, 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. Also, the second alias writ of execution issued by the LA had not been
enforced by the special sheriff.
 A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter 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.
 On November 23, 1989, 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.
 On the other hand, HPPI filed an Opposition, 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.
 LA denied private respondents' motion for break-open order. NLRC, upon appeal, set aside the order of the
LA, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the
sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party
claim for lack of merit.
 Petitioner’s MR was denied. Hence, this petition.
 USA COLLEGE OF LAW

ISSUES: WON the doctrine of piercing the corporate veil is applicable in this case
HELD:

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.

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact. In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15,
1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the
third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages
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.

RULING:
Petition is DISMISSED and the assailed resolutions of the NLRC are AFFIRMED.

NOTES

Some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.

Instrumentality rule – applied by courts in disregarding the separate juridical personality of corporations
"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be disregarded.
The control necessary to invoke the rule is not majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence
of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been
 USA COLLEGE OF LAW
exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is made."