Concept Builders, Inc. v. NLRC

G.R. No. 108734 (May 29, 1996)

Facts:

Petitioner Concept Builders, Inc. (CBI) is a domestic corporation engaged in the construction business, with its principal office located at 355 Maysan Road, Valenzuela, Metro Manila. Private respondents, who were employed by CBI as laborers, carpenters, and riggers, received individual written notices of termination of employment in November 1981, stating that their contracts had expired due to the completion of the project for which they were hired. However, the National Labor Relations Commission (NLRC) found that the project was not completed at the time of termination, and CBI had engaged subcontractors to perform the work of the private respondents.

Aggrieved by their termination, the private respondents filed a complaint against CBI for illegal dismissal, unfair labor practice, and non-payment of legal holiday pay, overtime pay, and thirteenth-month pay. On December 19, 1984, the Labor Arbiter ruled in favor of the private respondents, ordering their reinstatement and awarding back wages equivalent to one year. CBI's motion for reconsideration was dismissed by the NLRC on November 27, 1985, and the decision became final and executory.

Subsequent attempts to execute the decision were met with challenges. A writ of execution was issued, and partial satisfaction was achieved through garnishment from CBI's debtor. However, when the sheriff attempted to enforce an alias writ of execution in 1989, he was met with resistance, as employees on-site claimed to be working for Hydro Pipes Philippines, Inc. (HPPI), a sister company of CBI, and security guards prevented the removal of levied properties.

Private respondents filed a motion for a "break-open order" to allow the sheriff to enter CBI's premises and proceed with the auction sale of the levied properties. They argued that CBI and HPPI were owned by the same incorporators and that CBI had suspended operations to evade its obligations to the private respondents. The Labor Arbiter denied the motion, but the NLRC later reversed this decision, issuing a break-open order and directing the sheriff to proceed with the auction sale.

CBI contended that the NLRC committed grave abuse of discretion by ordering the execution despite a third-party claim on the levied property and argued that HPPI was a separate entity engaged in a different business. The NLRC found that the two corporations shared the same address, officers, and stockholders, indicating that HPPI was merely a conduit for CBI to evade its liabilities.

Legal Issues:

1. Did the NLRC commit grave abuse of discretion in issuing a break-open order against CBI's premises?
2. Should the corporate veil between CBI and HPPI be pierced to hold CBI liable for the obligations to the private respondents?

Arguments:

• Petitioner (CBI):

  • CBI argued that the NLRC's decision was erroneous as HPPI is a separate and distinct corporation engaged in a different business.
  • CBI contended that there was no evidence to support the claim that HPPI was created to evade liabilities to the private respondents.
  • CBI maintained that the doctrine of piercing the corporate veil should not apply in this case.

• Respondents (Private Respondents):

  • The private respondents argued that CBI and HPPI were essentially the same entity, sharing the same incorporators, officers, and business address.
  • They asserted that CBI had suspended operations to avoid paying the back wages owed to them and that HPPI was merely a business conduit for CBI.
  • They sought the break-open order to allow the sheriff to execute the judgment in their favor.

Court's Decision and Legal Reasoning:

The Supreme Court dismissed CBI's petition, affirming the NLRC's resolutions. The Court held that the separate corporate personality of CBI could be disregarded due to the circumstances surrounding the case. It emphasized that the doctrine of piercing the corporate veil applies when a corporation is merely an alter ego or instrumentality of another, particularly when used to evade legal obligations.

The Court outlined the conditions under which the corporate veil may be pierced, including:

1. Common ownership of both corporations.
2. Identity of directors and officers.
3. Similarity in the manner of keeping corporate records.
4. Methods of conducting business.

The Court found that CBI and HPPI shared the same address, officers, and stockholders, indicating that HPPI was a mere instrumentality of CBI. The evidence suggested that CBI had ceased operations to evade its financial obligations to the private respondents, and thus, the NLRC did not commit grave abuse of discretion in issuing the break-open order.

Significant Legal Principles Established:

1. The principle of piercing the corporate veil allows courts to disregard the separate legal personality of corporations when they are used to perpetrate fraud, evade legal obligations, or defeat public convenience.
2. The "instrumentality rule" applies when one corporation is so controlled by another that it is merely an adjunct or instrumentality of the latter, allowing the court to treat them as one entity for liability purposes.
3. The factual findings of quasi-judicial agencies, such as the NLRC, are entitled to great respect and are binding on the courts in the absence of grave abuse of discretion.