D.

Corporate Juridical Personality

3. Doctrine of Piercing the Veil of Corporate Fiction

a. Grounds for Application of Doctrine
iii. Alter Ego/Instrumentality

G.R. NO. 108734 29 MAY 1996

CONCEPT BUILDERS, INC. V. NATIONAL LABOR RELATIONS COMMISSION

Facts
Petitioner Concept Builders, Inc. is engaged in the construction business. While private
respondents Norberto Marabe, et.al were employed by said company as laborers, carpenters and riggers.
Marabe, et.al were served individual written notices of termination of employment by Concept Builders,
Inc. informing them that their contracts of employment had expired and the project in which they were
hired had been completed. Marabe, et.al 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. The
Labor Arbiter ruled in favor of the dismissed employees ordering their reinstatement and the payment of
their back wages. National Labor Relations Commission (NLRC) dismissed the motion for reconsideration
filed by petitioner on the ground that the said decision had already become final and executory.

The back wages amounted to P199, 800.00, of which the sheriff was able to collect only P81,
385.34. The service of the alias writ of execution for the remaining balance was refused on the ground
that Concept Builders, Inc. no longer occupied the premises. The second alias writ of execution was also
not enforced due to the presence of Security guards with high-powered guns who prevented the special
sheriff from removing the properties he had levied upon. The special sheriff recommended that a break-
open order be issued to enable him to enter Concept Builders, Inc. premises so that he could proceed
with the public auction sale of the aforesaid personal properties.

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. Marabe, et.al filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and
petitioner corporation were owned by the same incorporator stockholders. HPPI filed an Opposition
contending that HPPI is a corporation which is separate and distinct from Concept Builders, Inc. and 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.

Labor Arbiter issued an Order which denied Marabe, et.al’s motion for break-open order. NLRC
set aside the order of the Labor Arbiter.

Issue
Is HPPI a mere conduit or an alter ego of Concept Builders, Inc.?

Ruling
 Yes. The corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for
damages, the corporation may not be heard to say that it has a personality separate and distinct from the
other corporation. The piercing of the corporate veil comes into play.

There are 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.

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 NLRC noted that, while Concept Builders, Inc. 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.

Both information sheets were filed by the same Virgilio O. Casino 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.

Clearly, Concept Builders, Inc. ceased its business operations in order to evade the payment to
Marabe, et.al of backwages and to bar their reinstatement to their former positions. HPPI is obviously a
business conduit of Concept Builders, Inc. and its emergence was skillfully orchestrated to avoid the
financial liability that already attached to petitioner corporation.
 b. Test in Determining Applicability

G.R. NO. 185280 18 JANUARY 2012

TIMOTEO SARONA V. NATIONAL LABOR RELATIONS COMMISSION

Facts

Petitioner Timoteo Sarona, who was hired by Sceptre as a security guard sometime in April 1976,
was asked by Karen Therese Tan , Sceptre’s Operation Manager, to submit a resignation letter as the same
was supposedly required for applying for a position at Royale. Sarnona was assigned at Highlight Metal
Craft, Inc. thereafter he was transferred and assigned to Wide Wide World Express, Inc. During his
assignment at Highlight Metal, Sarona used the patches and agency cloths of Sceptre and it was only when
he was posted at WWWE, Inc. that he started using those of Royale. On September 17, 2003, Sarona was
informed that his assignment at WWWE, Inc. had been withdrawn because Royale had allegedly been
replaced by another security agency. However, Sarona discovered that Royale was never replaced as
WWWE, Inc.’s security agency. Sarona was once again assigned at Highlight Metal, however when he
reported at Royale’s office, he was informed him that he would no longer be given any assignment per
the instructions of Aida Sabalones-Tan, the general manager of Sceptre. This prompted him to file a
complaint for illegal dismissal.

The Labor Arbiter ruled in favor of Sarona finding him to be illegally dismissed. However, the labor
arbiter refused to pierce Royale’s corporate veil for purposes of factoring the petitioner’s length of service
with Sceptre in the computation of his separation pay. The National Labor Relations Commission partially
affirmed the labor arbiter’s decision. On appeal, the Court of Appeals ruled against Sarona and found the
evidence he submitted to support his allegation that Royale and Sceptre are one and the same juridical
entity to be wanting.

Sarona claimed that Royale and Sceptre are not separate legal persons for purposes of computing
the amount of his separation pay and other benefits under the Labor Code. The piercing of Royale’s
corporate personality is justified by several indicators that Royale was incorporated for the sole purpose
of defeating his right to security of tenure and circumvent payment of his benefits to which he is entitled
under the law: (i) Royale was holding office in the same property used by Sceptre as its principal place of
business; (ii) Sceptre and Royal have the same officers and employees; (iii) on October 14, 1994, Roso, the
sole proprietor of Sceptre, sold to Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo), the property
used by Sceptre as its principal place of business; (iv) Wilfredo is one of the incorporators of Royale; (v)
on May 3, 1999, Roso ceded the license to operate Sceptre issued by the Philippine National Police to
Aida; (vi) on July 28, 1999, the business name “Sceptre Security & Detective Agency” was registered with
the Department of Trade and Industry (DTI) under the name of Aida; (vii) Aida exercised control over the
affairs of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from employment;
(viii) Karen, the daughter of Aida, was Sceptre’s Operation Manager and is one of the incorporators of
Royale; and (ix) Cesar Tan II, the son of Aida was one of Sceptre’s officers and is one of the incorporators
of Royale.

Issue
 Are Royale and Sceptre one and the same juridical entity?

Ruling

Royale is continuation or successor of Sceptre. Equally well-settled is the principle that the
corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego
of a person or of another corporation. The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for
the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a
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.

It was Aida who exercised control and supervision over the affairs of both Sceptre and Royale.
Aida took over as early as 1999 when Roso assigned his license to operate Sceptre on May 3, 1999. She
also caused the registration of the business name “Sceptre Security & Detective Agency” under her name
with the DTI a few months after Roso abdicated his rights to Sceptre in her favor. As far as Royale is
concerned, the respondents do not deny that she has a hand in its management and operation and
possesses control and supervision of its employees, including the petitioner. Aida was the one who
decided to stop giving any assignments to the petitioner and summarily dismiss him is an eloquent
testament of the power she wields insofar as Royale’s affairs are concerned. The presence of actual
common control coupled with the misuse of the corporate form to perpetrate oppressive or manipulative
conduct or evade performance of legal obligations is patent; Royale cannot hide behind its corporate
fiction. The manner by which the petitioner was made to resign from Sceptre and how he became an
employee of Royale suggest the perverted use of the legal fiction of the separate corporate personality.
It is undisputed that the petitioner tendered his resignation and that he applied at Royale at the instance
of Karen and Cesar and on the impression they created that these were necessary for his continued
employment. Also, Sceptre and Royale have the same principal place of business. The respondents do not
likewise deny that Royale and Sceptre share the same officers and employees. Karen assumed the dual
role of Sceptre’s Operation Manager and incorporator of Royale. With respect to the petitioner, even if
he has already resigned from Sceptre and has been employed by Royale, he was still using the patches
and agency cloths of Sceptre during his assignment at Highlight Metal. Sarona cannot be deemed to have
changed employers as Royale and Sceptre are one and the same.