836 Phil. 655
GESMUNDO, J.:
1) | Maricalum Mining Corporation (Maricalum Mining) in G.R. No. 221813; and |
2) | Ely Florentino, Glenn Buenviaje, Rudy J. Gomez,[1] Fernando Siguan, Dennis Abelida, Noel S. Acollador, Wilfredo C. Taganile, Sr., Martir S. Agsoy, Sr., Melchor B. Apucay, Domingo Lavida, Jesus Mosqueda, Ruelito A. Villarmia, Sofronio M. Ayon, Efren T. Genise, Alquin A. Franco, Pabio L. Aleman, Pepito G. Hepriana, Elias S. Trespeces, Edgar M. Sobrino, Alejandro H. Sitchon, Nenet Arita, Dr. Welilmo T. Neri, Erlinda L. Fernandez, and Edgardo S. Peñaflorida (complainants) in G.R. No. 222723. |
In 2000, each of the said cooperatives executed identical sets of Memorandum of Agreement[12] with Maricalum Mining wherein they undertook, among others, to provide the latter with a steady supply of workers, machinery and equipment for a monthly fee.
COOPERATIVE DATE OF REGISTRATIONSan Jose Multi-Purpose Cooperative (SJMPC) December 8, 1998 Centennial Multi-Purpose Cooperative (CeMPC) April 5, 1999 Sipalay Integrated Multi-Purpose Cooperative (SIMPC) April 5, 1999 Allied Services Multi-Purpose Cooperative (ASMPC) July 23, 1999 Cansibit Multi-Purpose Cooperative (CaMPC) September 16, 1999
WHEREFORE, premises considered, judgment is hereby rendered DIRECTING respondent "G" HOLDINGS, INC. to pay complainants as follows:The parties filed their respective appeals to the NLRC.
Unpaid Salaries/Wages 13th Month Pay(1) Salvador Arceo P81,418.08 P6,784.84(2) Sofronio Ayon 79,158.50 6,596.54(3) Glenn Buenviaje 105,558.40 8,796.53(4) Ely Florentino 102,325.28 8,527.11(5) Rogelio Fulo 99,352.23 8,279.35(6) Efren Genise 161,149.18 13,429.10(7) Rudy Gomez 72,133.41 6,011.12(8) Jessie Magallanes 239,251.94 19,937.66(9) Freddie Masicampo 143,415.85 11,951.32(10) Edgardo Penaflorida 146,483.60 12,206.97(11) Noel Acollador 89,163.46 7,430.29(12) Gorgonio Baladhay 220,956.10 18,413.01(13) Jesus Mosqueda 48,303.22 4,025.27(14) Alquin Franco 180,281.25 15,023.44(15) Fabio Aleman 30,000.00 2,500.00(16) Elias Trespeces 180,000.00 15,000.00(17) Pepito Hedriana 18,000.00 1,500.00(18) Dennis Abelida 149,941.00 12,945.08(19) Melchor Apucay 371,587.01 30,965.58(20) Martin Agsoy 128,945.08 10,745.42(21) Ruelito Villarmia 224,486.95 18,707.25(22) Fernando Siguan 417,039.32 34,753.28(23) Alejandro Sitchon 380,423.16 31,701.93(24) Welilmo Neri 456,502.36 38,041.86(25) Erlinda Fernandez 125,553.88 10,462.82(26) Edgardo Sobrino 112,521.40 9,376.78(27) Wildredo Taganile 52,386.82 4,365.57(28) Bartholomew Jamboy 68,000.00 5,666.67 P4,484,337.48 P373,694.79
and the amount of P485,803.23 as attorney's fees, or the total amount of FIVE MILLION THREE HUNDRED FORTY-THREE THOUSAND EIGHT HUNDRED THIRTY-FIVE and 50/100 PESOS (P5,343,835.50).
The other claims are DISMISSED for lack of merit.
Further, the complaints against respondents SIPALAY INTEGRATED MULTI-PURPOSE COOPERATIVE, ALLIED SERVICES MULTI-COOPERATIVE, SAN JOSE MULTI-PURPOSE COOPERATIVE, CANSIBIT MULTI-PURPOSE COOPERATIVE, and CENTENNIAL MULTI-PURPOSE COOPERATIVE, being mere agents of respondent "G" HOLDINGS, INC., are hereby DISMISSED.
SO ORDERED.[25]
WHEREFORE, premises considered, the Decision rendered by the Labor Arbiter on 20 April 2011 is hereby MODIFIED, to wit:Complainants and Maricalum Mining filed their respective motions for reconsideration before the NLRC. On January 31, 2012, it issued a resolution modifying its previous decision. The dispositive portion of the NLRC resolution state:
1) the monetary award adjudged to complainants Jessie Magallanes, Rogelio E. Fulo, Salvador J. Arceo, Freddie Masicampo, Welilmo Neri, Erlinda Fernandez and Edgar Sobrino are CANCELLED; 2) the award of ten percent (10%) attorney's fees is ADJUSTED commensurate to the award of unpaid salaries/wages and 13th month pay of the remaining complainants; 3) the directive for respondent "G" Holdings, Inc. to pay complainants the monetary awards adjudged by the Labor Arbiter is CANCELLED; 4) it is intervenor that is, accordingly, directed to pay the remaining complainants their respective monetary awards.
In all other respects the Decision STANDS.
SO ORDERED.[28]
WHEREFORE, premises considered, intervenor's Motion for Reconsideration is only PARTIALLY GRANTED. The Decision promulgated by the Commission on 29 November 2011 modifying the Labor Arbiter's decision as stated therein, is further MODIFIED to the effect that the monetary awards adjudged in favor of complainants Wilfredo Taganile and Bartholomew T. Jamboy are CANCELLED.Undaunted, the parties filed their respective petitions for certiorari before the CA.
SO ORDERED.[29]
WHEREFORE, premises considered, the instant petition for certiorari is DENIED, and the assailed Decision dated 29 December 2011 and two Resolutions both dated 31 January 2012 of the National Labor Relations Commission are hereby AFFIRMED in all respects.Hence, these consolidated petitions essentially raising the following issues:
Costs against petitioners.
SO ORDERED.[30]
Complainants argue that the CA committed several reversible errors because: (a) it refused to re-evaluate the facts of the case even if the factual findings of the NLRC and the LA were conflicting; (b) it failed to consider that G Holdings had already acquired all of Maricalum Mining's assets and that Teodoro G. Bernardino (Bernardino) was now the president and controlling stockholder of both corporations; (c) it failed to take into account that Maricalum Mining was allowed to intervene only on appeal even though it was not a real party-in-interest; (d) it failed to appreciate the LA's findings that Maricalum Mining could not have hired complainants because G Holdings had already acquired in an auction sale all the assets in the Sipalay Mining Complex; (e) it failed to consider that all resident managers of the Sipalay Mining Complex were employed by G Holdings; (f) the foreclosure of the assets in the Sipalay Mining Complex was intended to bring the said properties outside the reach of complainants; (g) the Sipalay Hospital had been existing as a hospital for Maricalum Mining's employees long before G Holdings arrived; (h) Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and Wilfredo C. Taganile, Sr. were all hired by Maricalum Mining but were dismissed by G Holdings; (i) Sipalay Hospital existed without a board of directors and its employees were receiving orders from Maricalum Mining and, later on, replaced by G Holdings' officer-in-charge; and j) Maricalum Mining and G Holdings controlled the affairs of Sipalay Hospital.I
WHETHER THE COURT OF APPEALS ERRED IN REFUSING TO RE-EVALUATE THE FACTS AND IN FINDING NO GRAVE ABUSE OF DISCRETION ON THE PART OF THE NLRC;II
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC'S FINDING OF SUBSTANTIAL EVIDENCE IN GRANTING THE COMPLAINANTS' MONETARY AWARD AS WELL AS ITS REFUSAL TO REMAND THE CASE BACK TO THE LABOR ARBITER FOR RE-COMPUTATION OF SUCH AWARD;III
WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THAT THE NLRC ALLOWED MARICALUM MINING TO INTERVENE IN THE CASE ONLY ON APPEAL;IV
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC'S RULING WHICH ALLOWED THE PIERCING OF THE CORPORATE VEIL AGAINST MARICALUM MINING BUT NOT AGAINST SIPALAY HOSPITAL.
Here, the virtually identical sets of memorandum of agreement with the manpower cooperatives state among others that: (a) the services covered shall consist of operating loading, drilling and various auxiliary equipments; and (b) the cooperative members shall abide by the norms and standards of the Maricalum Mining. These services and guidelines are essential to the operations of Maricalum Mining. Thus, since the cooperative members perform the work vital to the operation of the Sipalay Mining Complex, the they were being contracted in a labor-only arrangement. Moreover, the burden of proving the supposed status of the contractor rests on the principal[47] and Maricalum Mining, being the principal, also failed to present any evidence before the NLRC that each of the manpower cooperatives had an independent viable business.
1) The cooperative had a measly paid-up capital of P6,600.00 and had only managed to increase the same by continually engaging in labor-only contracting with its client; 2) The cooperative did not carry out an independent business from its client and its own office and equipment were mainly used for administrative purposes; 3) The cooperative's members had to undergo instructions and pass the training provided by the client's personnel before they could start working alongside regular employees; 4) The cooperative was not engaged to perform a specific and special job or service; and 5) The cooperative's members performed activities directly related and vital to the principal business of its client.
The elements of the alter ego theory were discussed in Philippine National Bank v. Hydro Resources Contractors Corporation,[71] to wit:
1) Control-not mere stock control, but complete domination-not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such 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 a fraud or a wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and 3) The said control and breach of duty must have proximately caused the injury or unjust loss complained of.[70]
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the control and domination of the parent. It examines the parent corporation's relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate entity will be ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation, though acting through the subsidiary in form and appearance, "is operating the business directly for itself."Again, all these three elements must concur before the corporate veil may be pierced under the alter ego theory. Keeping in mind the parameters, guidelines and indicators for proper piercing of the corporate veil, the Court now proceeds to determine whether Maricalum Mining's corporate veil may be pierced in order to allow complainants to enforce their monetary awards against G Holdings.
The second prong is the "fraud" test. This test requires that the parent corporation's conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an element of injustice or fundamental unfairness."
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant's control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A causal connection between the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant's exercise of control and improper use of the corporate form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the corporate veil. (emphases and underscoring supplied)
Later, in Philippine National Bank v. Ritratto Group Inc., et al.,[73] the Court expanded the aforementioned probative factors and enumerated a combination of any of the following common circumstances that may also render a subsidiary an instrumentality, to wit:
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.
In the instant case, there is no doubt that G Holdings-being the majority and controlling stockholder-had been exercising significant control over Maricalum Mining. This is because this Court had already upheld the validity and enforceability of the PSA between the APT and G Holdings. It was stipulated in the PSA that APT shall transfer 90% of Maricalum Mining's equity securities to G Holdings and it establishes the presence of absolute control of a subsidiary's corporate affairs. Moreover, the Court evinces its observation that Maricalum Mining's corporate name appearing on the heading of the cash vouchers issued in payment of the services rendered by the manpower cooperatives is being superimposed with G Holding's corporate name. Due to this observation, it can be reasonably inferred that G Holdings is paying for Maricalum Mining's salary expenses. Hence, the presence of both circumstances of dominant equity ownership and provision for salary expenses may adequately establish that Maricalum Mining is an instrumentality of G Holdings.
1) The parent corporation owns all or most of the capital stock of the subsidiary; 2) The parent and subsidiary corporations have common directors or officers; 3) The parent corporation finances the subsidiary; 4) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation; 5) The subsidiary has grossly inadequate capital; 6) The parent corporation pays the salaries and other expenses or losses of the subsidiary; 7) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation; 8) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own; 9) The parent corporation uses the property of the subsidiary as its own; 10) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation; and 11) The formal legal requirements of the subsidiary are not observed.
Aside from the aforementioned circumstances, it must be determined whether the transfer of assets from Maricalum Mining to G Holdings is enough to invoke the equitable remedy of piercing the corporate veil. The same issue was resolved in Y-I Leisure Phils., Inc., et al. v. Yu[77] where this Court applied the "Nell Doctrine"[78] regarding the transfer of all the assets of one corporation to another. It was discussed in that case that as a general rule that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except:
1) Commingling of funds and other assets of the corporation with those of the individual shareholders; 2) Diversion of the corporation's funds or assets to non-corporate uses (to the personal uses of the corporation's shareholders); 3) Failure to maintain the corporate formalities necessary for the issuance of or subscription to the corporation's stock, such as formal approval of the stock issue by the board of directors; 4) An individual shareholder representing to persons outside the corporation that he or she is personally liable for the debts or other obligations of the corporation; 5) Failure to maintain corporate minutes or adequate corporate records; 6) Identical equitable ownership in two entities; 7) Identity of the directors and officers of two entities who are responsible for supervision and management (a partnership or sole proprietorship and a corporation owned and managed by the same parties); 8) Failure to adequately capitalize a corporation for the reasonable risks of the corporate undertaking; 9) Absence of separately held corporate assets; 10) Use of a corporation as a mere shell or conduit to operate a single venture or some particular aspect of the business of an individual or another corporation; 11) Sole ownership of all the stock by one individual or members of a single family; 12) Use of the same office or business location by the corporation and its individual shareholder(s); 13) Employment of the same employees or attorney by the corporation and its shareholder(s); 14) Concealment or misrepresentation of the identity of the ownership, management or financial interests in the corporation, and concealment of personal business activities of the shareholders (sole shareholders do not reveal the association with a corporation, which makes loans to them without adequate security); 15) Disregard of legal formalities and failure to maintain proper arm's length relationships among related entities; 16) Use of a corporate entity as a conduit to procure labor, services or merchandise for another person or entity; 17) Diversion of corporate assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors, or the manipulation of assets and liabilities between entities to concentrate the assets in one and the liabilities in another; 18) Contracting by the corporation with another person with the intent to avoid the risk of nonperformance by use of the corporate entity; or the use of a corporation as a subterfuge for illegal transactions; and 19) The formation and use of the corporation to assume the existing liabilities of another person or entity.
If any of the above-cited exceptions are present, then the transferee corporation shall assume the liabilities of the transferor.[79]
1) Where the purchaser expressly or impliedly agrees to assume such debts; 2) Where the transaction amounts to a consolidation or merger of the corporations; 3) Where the purchasing corporation is merely a continuation of the selling corporation; and 4) Where the transaction is entered into fraudulently in order to escape liability for such debts.
In this connection, we stress that the control necessary to invoke the instrumentality or alter ego 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. The control must be shown to have been 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. (emphases and underscoring supplied)Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.[90] More comprehensively, the proximate legal cause is that "acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom."[91] Hence, for an act or event to be considered as proximate legal cause, it should be shown that such act or event had indeed caused injury to another.
A perusal of the aforementioned documents fails to show that the services of complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and Wilfreda C. Taganile, Sr. were indeed selected and engaged by either Maricalum Mining or G Holdings. This gap in evidence clearly shows that the first factor of the four-fold test, or the selection and engagement of the employee, was not satisfied and not supported by substantial evidence.
1) Affidavit[99] of Dr. Welilmo T. Neri attesting among others that he was the Medical Director of Sipalay Hospital which is allegedly owned and operated by G Holdings/Maricalum Mining; 2) Several cash vouchers[100] issued by G Holdings/Maricalum Mining representing Dr. Welilmo T. Neri's payment for services rendered to "various" personnel; 3) Schedules of social security premium payments[101] in favor of Dr. Welilmo T. Neri, Edgar M. Sobrino and Wilfredo C. Taganile, Sr. stamped paid by G Holdings; 4) Notice of termination[102] dated July 3, 2010 issued by Rolando G. Degojas (OIC of G-Holdings Inc.) issued to Dr. Welilmo T. Neri and some of his companions who are not complainants in this case; 5) Notice of termination[103] addressed to Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and some of their co-employees who are not complainants in this case with a collatilla stating that the services of Dr. Welilmo T. Neri and nurse Erlinda L. Fernandez will be engaged on per call basis; and 6) A "Statement of Unpaid Salaries of Employees of G Holdings, Inc. Assigned to the Sipalay General Hospital"[104] prepared by Dr. Welilmo T. Neri which included his own along with complainants Erlinda L. Fernandez, Wilfredo C. Taganile, [Sr.] and Edgar M. [Sobrino].
To own, manage, lease or operate hospitals or clinics offering and providing medical services and facilities to the general public, provided that purely professional, medical or surgical services shall be performed by duly qualified physicians or surgeons who may or may not be connected with the corporation and who shall be freely and individually contracted by patients. (emphasis supplied)It is immediately apparent that Sipalay Hospital, even if its facilities are located inside the Sipalay Mining Complex, does not limit its medical services only to the employees and officers of Maricalum Mining and/or G Holdings. Its act of holding out services to the public reinforces the fact of its independence from either Maricalum Mining or G Holdings because it is free to deal with any client without any legal or contractual restriction. Moreover, G Holdings is a holding company primarily engaged in investing substantially in the stocks of another company-not in directing and managing the latter's daily business operations. Because of this corporate attribute, the Court can reasonably draw an inference that G Holdings does not have a considerable ability to control means and methods of work of Sipalay Hospital employees. Markedly, the records are simply bereft of any evidence that G Holdings had, in fact, used its ownership to control the daily operations of Sipalay Hospital as well as the working methods of the latter's employees. There is no evidence showing any subsequent transfer of shares from the original incorporators of Sipalay Hospital to G Holdings. Worse, it appears that complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Wilfreda C. Taganile, Sr. and Edgar M. Sobrino are trying to derive their employment connection with G Holdings merely on an assumed premise that the latter owns the controlling stocks of Maricalum Mining.
A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.[23]This is the rule even if a single stockholder or a single corporation wholly owns all the capital stock of the corporation.[24] In MR Holdings, Ltd. v. Bajar:[25]
[T]he mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.[26] (Emphasis in the original, citation omitted)The exception to this rule is when the separate personality of the corporation is used to "defeat public convenience, justify wrong, protect fraud or defend crime."[27] It is done when the separate personality of the corporation is being abused or used for wrongful purposes,[28] such as a shield for fraud, illegality, or inequity committed against third persons.[29] It applies when it is used in defrauding creditors or evading obligations and liabilities.
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. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.When the separate personality of the corporation is pierced, the corporation is not seen as one (1) entity. Instead, its acts, assets, and liabilities become the direct responsibility of the individuals owning, controlling, and conducting its business. In Pantranco Employees Association v. National Labor Relations Commission:[37]
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded.[36] (Citations omitted)
The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. This is a fiction created by law for convenience and to prevent injustice . . .The doctrine of piercing the corporate veil applies in three (3) instances:
Under the doctrine of "piercing the veil of corporate fiction", the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned. conducted and controlled by the same parties. both law and equity will. when necessary to protect the rights of third parties. disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same.
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.[38] (Citations omitted)
Clearly, what can be inferred from the earlier cases is that 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. In the absence of malice, bad faith, or a specific provision of law making a corporate ofilcer liable, such corporate officer cannot be made personally liable for corporate liabilities.[40] (Citations omitted)In Philippine National Bank v. Andrada Electric & Engineering Co.,[41] the elements of piercing the corporate veil were enumerated as follows:
(1) [C]ontrol - not mere stock control, but complete domination - not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.[42] (Citation omitted)Thus, the elements are control, the commission of a wrong, and injury.
(a) | The parent corporation owns all or most of the capital stock of the subsidiary. |
(b) | The parent and subsidiary corporations have common directors or officers. |
(c) | The parent corporation finances the subsidiary. |
(d) | The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. |
(e) | The subsidiary has grossly inadequate capital. |
(f) | The parent corporation pays the salaries and other expenses or losses of the subsidiary. |
(g) | The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. |
(h) | In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. |
(i) | The parent corporation uses the property of the subsidiary as its own. |
(j) | The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation. |
(k) | The formal legal requirements of the subsidiary are not observed.[44] |
The circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises, Inc. hold office in the same building; (2) the officers and directors of both corporations are practically the same; and (3) the Del Rosarios assumed management and control of Sibagat and have been acting for and managing its business . . ., bolster the conclusion that petitioner is an alter ego of the Del Rosario & Sons Logging Enterprises, Inc.Likewise, the corporate veil was pierced in Philippine Bank of Communications v. Court of Appeals,[47] where a parcel of land could not be levied upon because the property had already been tran ferred to another corporation controlled by the liable person.
The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues . . . The theory of corporate entity was not meant to promote unfair objectives or otherwise, to shield them . . . Likewise, where it appears that two business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat them as identical . . .
. . . .
Assuming arguendo that this Court in G.R. No. 84497 held that petitioner is the owner of the properties levied under execution, that circumstance will not be a legal obstacle to the piercing of the corporate fiction. As found by both the trial and appellate courts, petitioner is just a conduit, if not an adjunct of Del Rosario & Sons Logging Enterprises, Inc. In such a case, the real ownership becomes unimportant and may be disregard for the two entities may/can be treated as only one agency or instrumentality.The corporate entity is disregarded 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.[46] (Citations omitted)
The well settled principle is that a corporation "is invested by law with a separate personality, separate and distinct from that of the person composing it as well as from any other legal entity to which it may be related." . . . However, the separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced when the corporation is used "as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors." . . .In Tomas Lao Construction v. National Labor Relations Commission,[49] the veils of corporate fiction of three (3) Companies owned, controlled, and managed by one (1) family were pierced to hold them all liable for monetary awards granted to illegally dismissed Workers.
In the instant case, the evidence clearly shows that IChua and his immediate family control JALECO. The Deed of Exchangy executed by Chua and JALECO had for its subject matter the sale of the only property of Chua at the time when Chua's financial obligations betame due and demandable. The records also show that despite the "sale", respondent Chua continued to stay in the property, subject matter of, the Deed of Exchange.
These circumstances tend to show that the Deed of Exchange was not what it purports to be. Instead, they tend to show that the Deed of Exchange was executed with the sole intention to defraud Chua's creditor - the petitioner. It was not a bona fide transaction between ALECO and Chua. Chua entered a sham or simulated transaction with JALECO for the sole purpose of transferring the title of the property to JALECO without really divesting himself of the title and control of the said property.
Hence, JALECO's separate personality should be disregarded and the corporation veil pierced. In this regard, the transaction leading to the execution of the Deed of Exchange between Chua and JALECO must be considered a transaction between Chua and himself and not between Chua and JALECO. Indeed, Chua took advantage of his control over JALECO to execute the Deed of Exchange to defraud his creditor, the petitioner herein. JALECO was but a mere alter ego of Chua.[48] (Citations omitted)
Finally, public respondent NLRC did not err in disregarding the veil of separate corporate personality and holding petitioners jointly and severally liable for private respondents' back wages and separation pay. The records disclose that the three (3) corporations were in fact substantially owned and controlled by members of the Lao family composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E. Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in LVM and T&J is owned by the Lao family. T&J is 100% owned by the Laos as reflected in its Articles of Incorporation. The Lao Group of Companies therefore is a closed corporation where the incorporators and directors belong to a single family. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction, and President and Managing Director of the Lao Group of Companies. Petitioners are engaged in the same line of business under one management and use the same equipment including manpower services. Where it appears that [three] business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that the [three] corporations are distinct entities, and treat them as identical.Later, this Court became stricter in the application of the instrumentality rule. It laid down requisites before the corporate veil may be pierced in alter-ego cases. It required that the control must have been used "to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right."[51] In Philippine National Bank v. Andrada Electric & Engineering Co.:[52]
Consonant with our earlier ruling, we hold that the liability of petitioners extends to the responsible officers acting in the interest of the corporations. In view of the peculiar circumstances of this case, we disregard the separate personalities of the three (3) corporations and at the same time declare the members of the corporations jointly and severally liable with the corporations for the monetary awards due to private respondents. It should always be borne in mind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisaged for convenience and to serve justice; therefore it should not be used as a subterfuge to commit injustice and circumvent labor laws.[50] (Citations omitted)
The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control - not mere stock control, but complete domination not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.This Court further ruled that similarities are not sufficient to pierce the corporate veil, especially if there is a plausible business purpose for the existence of the corporate fiction. In Padilla v. Court of Appeals,[54] respondent Susana Realty, Inc. sought to enforce an alias writ of execution against the properties of petitioner Phoenix-Omega Development and Management Corporation to satisfy a monetary award, based on the finding that Phoenix-Omega Development and Management Corporation was the sister company of the liable corporation, PKA Development and Management Corporation. This Court ruled that it was not proper to pierce the corporate veil as there was no showing that it was used to defeat public convenience, justify wrong, protect fraud, or defend crime:
We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of [Pampanga Sugar Mill], there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third, respondent was not defrauded or injured when petitioners acquired the assets of [Pampanga Sugar Mill].
Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule. However, it utterly failed to discharge this burden; it failed to establish by competent evidence that petitioner's separate corporate veil had been used to conceal fraud, illegality or inequity.[53] (Citations omitted)
This veil of corporate fiction may only be disregarded in cases where the corporate vehicle is being used to defeat public convenience, justify wrong, protect fraud, or defend crime. (PKA Development and Management Corporation) and Phoenix-Omega are admittedly sister companies, and may be sharing personnel and resources, but we find in the present case no allegation, much less positive proof, that their separate corporate personalities are being used to defeat public convenience, justify wrong, protect fraud, or defend crime. "For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed." We find no reason to justify piercing the corporate veil in this instance.[55] (Citations omitted)In Development Bank of the Philippines v. Court of Appeals,[56] Remington Corporation (Remington) sought payment for construction materials purchased by Marinduque Mining and Industrial Corporation (Marinduque Mining). The Philippine National Bank and the Development Bank of the Philippines foreclosed and acquired the mortgaged properties of Marinduque Mining, and assigned their rights to the properties to three (3) newly created mining corporations. Remington then filed a collection case against Marinduque Mining, and impleaded the Philippine National Bank, the Development Bank of the Philippines, and the three (3) mining companies. It argued that the transfer of Marinduque Mining's properties to the three (3) mining corporations were made in fraud of creditors considering that the Philippine National Bank and the Development Bank of the Philippines practically wholly own the three (3) newly created entities. This Court ruled that the piercing of the corporate veil is not warranted because the transfer was done in good faith and in accordance with law and sound business practice:
[T]his Court has disregarded the separate personality of the corporation where the corporate entity was used to escape liability to third parties. In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil.In Jardine Davies, Inc. v. JRB Realty, Inc.,[58] respondent JRB Realty, Inc. filed an action against the parent corporation, Jardine Davies, Inc. for the replacement of air-conditioning units purchased from its subsidiary, Aircon and Refrigeration Industries, Inc. (Aircon). This Court refused to pierce the corporate veil:
It bears stressing that [the Philippine National Bank] and [the Development Bank of the Philippines] are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation . . .
Thus, [the Philippine National Bank] and [the Development Bank of the Philippines] did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey the statutory command.
. . . .
Neither do we discern any bad faith on the part of [the Development Bank of the Philippines] by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself concedes, [the Development Bank of the Philippines] is not authorized by its charter to engage in the mining business. The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired by [the Development Bank of the Philippines] in the foreclosure sale, convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets are heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil.[57] (Citations omitted)
The rationale behind piercing a corporation's identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.Thus, it is not enough that there is dominance over the subsidiary company. The rule is there must be "a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right."[60]
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircon's corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc., the Court categorically held that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the former, and vice versa. In applying the doctrine, the following requisites must be established: (1) control, not merely majority or complete stock control; (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 acts 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 records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircon's majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner.
Jardine Davies, Inc., incorporated as early as June 28, 1946, is primarily a financial and trading company . . .
On the other hand, Aircon, incorporated on December 27, 1952, is a manufacturing firm. Its Articles of Incorporation states that its purpose is mainly -To carry on the business of manufacturers of commercial and household appliances and accessories of any form, particularly to manufacture, purchase, sell or deal in air conditioning and refrigeration products of every class and description as well as accessories and parts thereof, or other kindred articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories, warehouses, and depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid appliances, accessories and products . . .The existence of interlocking directors, corporate officers and shareholders . . . is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. To warrant resort to this extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice. Any piercing of the corporate veil has to be done with caution. The wrongdoing must be clearly and convincingly established. It cannot just be presumed.
In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of air conditioners, complied with its obligation of providing two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to its contract with the respondent.[59] (Emphasis supplied, citations omitted)
The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the other.In De Leon v. National Labor Relations Commission,[65] Fortune Tobacco Corporation (Fortune Tobacco) contracted Fortune Integrated Services, Inc. (Fortune Integrated) to provide security guards. Around 11 years later, Fortune Integrated's incorporators and stockholders sold out their shares lock, stock, and barrel. Fortune Integrated's corporate name in the Articles of Incorporation was amended to read as Magnum Integrated Services, Inc. (Magnum Integrated). Fortune Tobacco then terminated its contract for security services with Fortune Integrated and engaged the services of two (2) other security agencies, thus, displacing 582 security guards who were originally assigned to it. Several security guards, through their labor union, filed a complaint for illegal dismissal and unfair labor practice, alleging that they were regular employees of Fortune Tobacco, which also used the corporate names Fortune Integrated and Magnum Integrated. In this case, this Court pierced the corporate veil:
. . . .
In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing him as to who really was his true employer - such a callous and despicable treatment of a worker who had rendered faithful service to their company.[64] (Citations omitted)
We are not persuaded by the argument of respondent [Fortune Tobacco] denying the presence of an employer-employee relationship. We find that the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to hold all respondents liable for unfair labor practice and illegal termination of petitioners' employment. It is a fundamental principle in corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it is connected. However, when the concept of separate legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of persons, or in case of two corporations, merge them into one. The separate juridical personality of a corporation may also be disregarded when such corporation is a mere alter ego or business conduit of another person. In the case at bar, it was shown that [Fortune Integrated] was a mere adjunct of [Fortune Tobacco]. [Fortune Integrated], by virtue of a contract for security services, provided [Fortune Tobacco] with security guards to safeguard its premises. However, records show that [Fortune Integrated] and [Fortune Tobacco] have the same owners and business address, and [Fortune Integrated] provided security services only to [Fortune Tobacco] and other companies belonging to the Lucio Tan group of companies. The purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to terminate the services of [Fortune Integrated]'s security guards posted at the premises of [Fortune Tobacco] and bust their newly-organized union which was then beginning to become active in demanding the company's compliance with Labor Standards laws. Under these circumstances, the Court cannot allow [Fortune Tobacco] to use its separate corporate personality to shield itself from liability for illegal acts committed against its employees.[66] (Citation omitted)In Reynoso IV v. Court of Appeals,[67] a former resident manager employee sought the enforcement of an alias writ of execution against the mother corporation of a subsidiary:
The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.Thus, the corporate veil may be pierced when it ts used to evade obligations or perpetrate a social injustice.
. . . .
Factually and legally, the [Commercial Credit Corporation] had dominant control of the business operations of CCC-QC. The exclusive management contract insured that [Commercial Credit Corporation Quezon City] would be managed and controlled by [Commercial Credit Corporation] and would not deviate from the commands of the mother corporation. In addition to the exclusive management contract, [Commercial Credit Corporation] appointed its own employee, petitioner, as the resident manager of [Commercial Credit Corporation-Quezon City].
. . . .
There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the dominance of policy and practice by the mother corporation insure that [Commercial Credit Corporation-Quezon City] was an instrumentality or agency of [Commercial Credit Corporation].
. . . .
A court judgment becomes useless and ineffective if the employer, in this case [Commercial Credit Corporation] as a mother corporation, is placed beyond the legal reach of the judgment creditor[.][68] (Citation omitted)
It may be remembered that [the Asset Privatization Trust] acquired the [Maricalum Mining] from the [the Philippine National Bank] and the [the Development Bank of the Philippines]. Then, in compliance with its mandate to privatize government assets, [the Asset Privatization Trust] sold the aforesaid [Maricalum Mining] shares and notes to [G Holdings]. To repeat, this Court has recognized this Purchase and Sale Agreement in Republic, etc., v. "G" Holdings, Inc.In the same case, the separate and distinct personalities of Maricalum Mining and G Holdings in relation to the mortgage and transfer of the properties were also ruled on:
The participation of the Government, through [the Asset Privatization Trust], in this transaction is significant. Because the Government had actively negotiated and, eventually, executed the agreement, then the transaction is imbued with an aura of official authority, giving rise to the presumption of regularity in its execution. This presumption would cover all related transactional acts and documents needed to consummate the privatization sale, inclusive of the Promissory Notes. It is obvious, then, that the Government, through [the Asset Privatization Trust], consented to the "establishment and constitution" of the mortgages on the assets of [Maricalum Mining] in favor of [G Holdings], as provided in the notes. Accordingly, the notes (and the stipulations therein) enjoy the benefit of the same presumption of regularity accorded to government actions. Given the Government consent thereto, and clothed with the presumption of regularity, the mortgages cannot be characterized as sham, fictitious or fraudulent.
. . . .
It is difficult to conceive that these mortgages, already existing in 1992, almost four (4) years before [the National Mines and Allied Workers Union Local 103] filed its notice of strike, were a "fictitious" arrangement intended to defraud [the National Mines and Allied Workers Union Local 103]. After all, they were agreed upon long before the seeds of the labor dispute germinated.
While it is true that the Deed of Real Estate and Chattel Mortgage was executed only on September 5, 1996, it is beyond cavil that this formal document of mortgage was merely a derivative of the original mortgage stipulations contained in the Promissory Notes of October 2, 1992. The execution of this Deed in 1996 does not detract from, but instead reinforces, the manifest intention of the parties to "establish and constitute" the mortgages on [Maricalum Mining]'s real and personal properties.
. . . .
The execution of the subsequent Deed of Real Estate and Chattel Mortgage on September 5, 1996 was simply the formal documentation of what had already been agreed in the seminal transaction (the Purchase and Sale Agreement) between [the Asset Privatization Trust] and [G Holdings]. It should not be viewed in isolation, apart from the original agreement of October 2, 1992. And it cannot be denied that this original agreement was supported by an adequate consideration. The [Asset Privatization Trust] was even ordered by the court to deliver the shares and financial notes of [Maricalum Mining] in exchange for the payments that [G Holdings] had made.
It was also about this time, in 1996, that [the National Mines and Allied Workers Union Local 103] filed a notice of strike to protest non payment of its rightful labor claims. But, as already mentioned, the outcome of that labor dispute was yet unascertainable at that time, and [the National Mines and Allied Workers Union Local 103] could only have hoped for, or speculated about, a favorable ruling. To paraphrase MR Holdings, we cannot see how [the National Mines and Allied Workers Union Local 103]'s right was prejudiced by the Deed of Real Estate and Chattel Mortgage, or by its delayed registration, when substantially all of the properties of [Maricalum Mining] were already mortgaged to [G Holdings] as early as October 2, 1992. Given this reality, the Court of Appeals had no basis to conclude that this Deed of Real Estate and Chattel Mortgage, by reason of its late registration, was a simulated or fictitious contract.
. . . .
Under the Torrens system, registration is the operative act which gives validity to the transfer or creates a lien upon the land. Further, entrenched in our jurisdiction is the doctrine that registration in a public registry creates constructive notice to the whole world . . .
But, there is nothing in Act No. 496, as amended by P.D. No. 1529, that imposes a period within which to register annotations of "conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land". If liens were not so registered, then it "shall operate only as a contract between the parties and as evidence of authority to the Registry of Deeds to make registration". If registered, it "shall be the operative act to convey or affect the land insofar as third persons are concerned". The mere lapse of time from the execution of the mortgage document to the moment of its registration does not affect the rights of a mortgagee.
Neither will the circumstance of [G Holdings]'s foreclosure of [Maricalum Mining]'s properties on July 31, 2001, or after the [Department of Labor and Employment] had already issued a Partial Writ of Execution on May 9, 2001 against [Maricalum Mining], support the conclusion of the [Court of Appeals] that [G Holdings]'s act of foreclosing on [Maricalum Mining]'s properties was "effected to prevent satisfaction of the judgment award". [G Holdings]'s mortgage rights, constituted in 1992, antedated the Partial Writ of Execution by nearly ten (10) years. [G Holdings]'s resort to foreclosure was a legitimate enforcement of a right to liquidate a bona fide debt. It was a reasonable option open to a mortgagee which, not being a party to the labor dispute between [the National Mines and Allied Workers Union Local 103] and [Maricalum Mining], stood to suffer a loss if it did not avail itself of the remedy of foreclosure.
The well-settled rule is that a mortgage lien is inseparable from the property mortgaged. While it is true that [G Holdings]'s foreclosure of [Maricalum Mining]'s mortgaged properties may have had the "effect to prevent satisfaction of the judgment award against the specific mortgaged property that first answers for a mortgage obligation ahead of any subsequent creditors", that same foreclosure does not necessarily translate to having been "effected to prevent sati faction of the judgment award" against [Maricalum Mining].
. . . .
We also observe the error in the [Court of Appeals]'s finding that the 1996 Deed of Real Estate and Chattel Mortgage was not supported by any consideration since at the time the deed was executed, "all the real and personal property of [Maricalum Mining] had already been transferred in the hands of G Holdings". It should be remembered that the Purchase and Sale Agreement between [G Holdings] and [the Asset Privatization Trust] involved large amounts (P550M) and even spawned a subsequent court action (Civil Case No. 95-76132, RTC of Manila). Yet, nowhere in the Agreement or in the RTC decision is there any mention of real and personal properties of [Maricalum Mining] being included in the sale to [G Holdings] in 1992. These properties simply served as mortgaged collateral for the 1992 Promissory Notes. The Purchase and Sale Agreement and the Promissory Notes themselves are the best evidence that there was ample consideration for the mortgage.
Thus, we must reject the conclusion of the [Court of Appeals] that the Deed of Real Estate and Chattel Mortgage executed in 1996 was a simulated transaction.[70] (Emphasis in the original, citations omitted)
The negotiations between the [G Holdings] and the Government through [the Asset Privatization Trust], dating back to 1992 culminating in the Purchase and Sale Agreement, cannot be depicted as a contrived transaction. In fact, in the said Republic, etc. v. "G" Holdings, Inc., this Court adjudged that [G Holdings] was entitled to its rightful claims-not just to the shares of [Maricalum Mining] itself, or just to the financial notes that already contained the mortgage clauses over [Maricalum Mining's] disputed assets, but also to the delivery of those instruments. Certainly, we cannot impute to this Court's findings on the case any badge of fraud. Thus, we reject the [Court of Appeals]'s conclusion that it was right to pierce the veil of corporate fiction, because the foregoing circumstances belie such an inference. Furthermore, we cannot ascribe to the Government, or the [Asset Privatization Trust] in particular, any undue motive to participate in a transaction designed to perpetrate fraud. Accordingly, we consider the [Court of Appeals] interpretation unwarranted.However, I maintain that the application or non-application of the doctrine of piercing the corporate veil in a particular case is not a fixed and permanent ruling on the subject corporations' legal personalities. The ruling applies only to the particular instance for which that doctrine was applied. Thus, in Koppel (Phils.), Inc. v. Yatco,[72]
We also cannot agree that the presumption of fraud in Article 1387 of the Civil Code relative to property conveyances, when there was already a judgment rendered or a writ of attachment issued, authorizes piercing the veil of corporate identity in this case. We find that Article 1387 finds less application to an involuntary alienation such as the foreclosure of mortgage made before any final judgment of a court. We thus hold that when the alienation is involuntary, and the foreclosure is not fraudulent because the mortgage deed has been previously executed in accordance with formalities of law, and the foreclosure is resorted to in order to liquidate a bona fide debt, it is not the alienation by onerous title contemplated in Article 1387 of the Civil Code wherein fraud is presumed.
Since the tactual antecedents of this case do not warrant a finding that the mortgage and loan agreements between [Maricalum Mining] and [G Holdings] were simulated, then their separate personalities must be recognized. To pierce the veil of corporate fiction would require that their personalities as creditor and debtor be conjoined, resulting in a merger of the personalities of the creditor ([G Holdings]) and the debtor ([Maricalum Mining]) in one person, such that the debt of one to the other is thereby extinguished. But the debt embodied in the 1992 Financial Notes has been established, and even made subject of court litigation (Civil Case No. 95-76132, RTC Manila). This can only mean that [G Holdings] and [Maricalum Mining] have separate corporate personalities.
Neither was [Maricalum Mining] used merely as an alter ego, adjunct, or business conduit for the sole benefit of [G Holdings], to justify piercing the former's veil of corporate fiction so that the latter could be held liable to claims of third-party judgment creditors, like [the National Mines and Allied Workers Union Local 103]. In this regard, we find American jurisprudence persuasive. In a decision by the Supreme Court of New York bearing upon similar facts, the Court denied piercing the veil of corporate fiction to favor a judgment creditor who sued the parent corporation of the debtor, alleging fraudulent corporate asset-shifting effected after a prior final judgment. Under a factual background largely resembling this case at bar, viz.:
. . . .
This doctrine is good law under Philippine jurisdiction.
In Concept Builders, Inc.v. National Labor Relations Commission, we laid down the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:. . . .
- Control, not mere majority or complete 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.
- 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 plaintiffs legal rights; and,
- The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
Time and again, we have reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not, by itself, a sufficient ground for disregarding a separate corporate personality. It is basic that a corporation has a personality separate and distinct from that composing it as well as from that of any other legal entity to which it may be related. Clear and convincing evidence is needed to pierce the veil of corporate fiction.
In this case, the mere interlocking of directors and officers does not warrant piercing the separate corporate personalities of [Maricalum Mining] and [G Holdings]. Not only must there be a showing that there was majority or complete 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. The mortgage deed transaction attacked as a basis for piercing the corporate veil was a transaction that was an offshoot, a derivative, of the mortgages earlier constituted in the Promissory Notes dated October 2, 1992. But these Promissory Notes with mortgage were executed by [G Holdings] with [the Asset Privatization Trust] in the name of [Maricalum Mining], in a full privatization process. It appears that if there was any control or domination exercised over [Maricalum Mining], it was [the Asset Privatization Trust], not [G Holdings], that wielded it. Neither can we conclude that the constitution of the loan nearly four (4) years prior to [the National Mines and Allied Workers Union Local 103]'s notice of strike could have been the proximate cause of the injury of [the National Mines and Allied Workers Union Local 103] for having been deprived of [Maricalum Mining]'s corporate assets.[71] (Citations omitted)
I. In its first assignment of error appellant submits that the trial court erred in not holding that it is a domestic corporation distinct and separate from and not a mere branch of Koppel Industrial Car and Equipment Company. It contends that its corporate existence as a Philippine corporation [cannot] be collaterally attacked and that the Government is estopped from so doing. As stated above, the lower court did not deny legal personality to appellant for any and all purposes, but held in effect that in the transactions involved in this case the public interest and convenience would be defeated and what would amount to tax evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate fiction." In other words, in looking through the corporate form to the ultimate person or corporation behind that form, in the particular transactions which were involved in the case submitted to its detennination and judgment, the court did so in order to prevent the contravention of the local internal revenue laws, and the perpetration of what would to a play evasion, inasmuch as it considered - and in our opinion, correctly - that appellant Koppel (Philippines) Inc. . . . as a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co. The court did not hold that the corporate personality of Koppel (Philippines), Inc., would also be disregarded in other cases or for other purposes. It would have had no power to so hold. The courts' action in this regard must he confined to the transactions involved in the case at bar "for the purpose of adjudging the rights and liabilities of the parties in the case. They have no jurisdiction to do more." . . .Thus, while the corporate veil cannot be pierced as to the mortgage and transfer of Maricalum Mining's properties to G Holdings, the corporate veil may still be pierced for other acts in which the elements for the application of the doctrine are present.
A leading and much cited case puts it as follows:"If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears, but, 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 of persons."[73] (Citations omitted, emphasis supplied)
(a) G Holdings connived with Mar[i]calum Mining in orchestrating the formation of manpower cooperatives to circumvent the complainants' labor standards rights; (b) it is highly unlikely that complainants (except Sipalay Hospital's employees) would spontaneously form manpower cooperatives on their own and in unison without the guidance of G Holdings and Maricalum Mining; and (c) the complainants effectively became the employees of G Holdings because their work had changed from assisting in the mining and milling operations to caretaking and safeguarding the properties in the Sipalay Mining Complex which had already been acquired from Maricalum Mining. Additionally it denied the claims of complainants Nenet Arita and Domingo Lavida for lack of factual basis.[77]G Holdings did not merely own Maricalum Mining sa holding company. It had a say in its processes and procedures. Thus, it cannot claim to be innocent. It cannot participate in the illegal disn;issal of employees and thereafter hide behind its separate corporate personality to avoid the liability arising from it.
It must be underscored that no less than our Constitution looks with compassion on the workingman and protects his rights not only under a general statement of a state policy, but under the Article on Social Justice and Human Rights, thus placing labor contracts on a higher plane and with greater safeguards. Verily, relations between capital and labor are not merely contractual. They are impressed with public interest and labor contracts must, perforce, yield to the common good.[80] (Citations omitted)Thus, I DISSENT as to the ruling that the corporate veil should not be pierced. I maintain that the doctrine of piercing the corporate veil properly applies and that G Holdings, Inc. should be held liable with Maricalum Mining Corporation.