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EMILIO CANO ENTERPRISES, INC.

, petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.

D. T. Reyes and Associates for petitioner.


Mariano B. Tuason for respondent Court of Industrial Relations.
C. E. Santiago for respondent Honorata Cruz.

In a complaint for unfair labor practice filed before the Court of Industrial Relations on June 6,
1956 by a prosecutor of the latter court, Emilio, Ariston and Rodolfo, all surnamed Cano, were
made respondents in their capacity as president and proprietor, field supervisor and manager,
respectively, of Emilio Cano Enterprises, Inc.

After trial, Presiding Judge Jose S. Bautista rendered decision finding Emilio Cano and Rodolfo
Cano guilty of the unfair labor practice charge, but absolved Ariston for insufficiency of evidence.
As a consequence, the two were ordered, jointly and severally, to reinstate Honorata Cruz, to her
former position with payment of backwages from the time of her dismissal up to her
reinstatement, together with all other rights and privileges thereunto appertaining.

Meanwhile, Emilio Cano died on November 14, 1958, and the attempt to have the case dismissed
against him having failed, the case was appealed to the court en banc, which in due course
affirmed the decision of Judge Bautista. An order of execution was issued on August 23, 1961 the
dispositive part of which reads: (1) to reinstate Honorata Cruz to her former position as ordered
in the decision; and (2) to deposit with the court the amount of P7,222.58 within ten days from
receipt of the order, failing which the court will order either a levy on respondents' properties or
the filing of an action for contempt of court.

The order of execution having been directed against the properties of Emilio Cano Enterprises,
Inc. instead of those of the respondents named in the decision, said corporation filed an ex parte
motion to quash the writ on the ground that the judgment sought to be enforced was not
rendered against it which is a juridical entity separate and distinct from its officials. This motion
was denied. And having failed to have it reconsidered, the corporation interposed the present
petition for certiorari.1wph1.t

The issue posed before us is: Can the judgment rendered against Emilio and Rodolfo Cano in their
capacity as officials of the corporation Emilio Cano Enterprises, Inc. be made effective against the
property of the latter which was not a party to the case?

The answer must be in the affirmative. While it is an undisputed rule that a corporation has a
personality separate and distinct from its members or stockholders because of a fiction of the
law, here we should not lose sight of the fact that the Emilio Cano Enterprises, Inc. is a closed
family corporation where the incorporators and directors belong to one single family. Thus, the
following are its incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo and Carlos, and his
daughter-in-law Ana D. Cano. Here is an instance where the corporation and its members can be
considered as one. And to hold such entity liable for the acts of its members is not to ignore the
legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its
purpose is to use it as a shield to further an end subversive of justice. 1 And so it has been held
that while a corporation is a legal entity existing separate and apart from the persons composing
it, that concept cannot be extended to a point beyond its reason and policy, and when invoked
in support of an end subversive of this policy it should be disregarded by the courts (12 Am. Jur.
160-161).

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in
their private capacity, but as president and manager, respectively, of Emilio Cano Enterprises,
Inc. Having been sued officially their connection with the case must be deemed to be impressed
with the representation of the corporation. In fact, the court's order is for them to reinstate
Honorata Cruz to her former position in the corporation and incidentally pay her the wages she
had been deprived of during her separation. Verily, the order against them is in effect against the
corporation. No benefit can be attained if this case were to be remanded to the court a quo
merely in response to a technical substitution of parties for such would only cause an
unwarranted delay that would work to Honorata's prejudice. This is contrary to the spirit of the
law which enjoins a speedy adjudication of labor cases disregarding as much as possible the
technicalities of procedure. We, therefore, find unmeritorious the relief herein prayed for.

WHEREFORE, petition is dismissed, with costs.

TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,

vs.

WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA


SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and
Reynaldo, all surnamed GATUS, respondents.

These certiorari proceedings stem from the award rendered against petitioner Telephone
Engineering and Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional
Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, in favor of
respondent Leonila S. Gatus and her children, dependents of the deceased employee Pacifico L.
Gatus. The principal contention is that the award was rendered without jurisdiction as there was
no employer-employee relationship between petitioner and the deceased.

Petitioner is a domestic corporation engaged in the business of manufacturing telephone


equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and
General Manager is Jose Luis Santiago. It has a sister company, the Utilities Management
Corporation (UMACOR), with offices in the same location. UMACOR is also under the
management of Jose Luis Santiago.
On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On
May 16, 1965, Pacifico L. Gatus was detailed with petitioner company. He reported back to
UMACOR on August 1, 1965. On January 13, 1967, he contracted illness and although he retained
to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant
degeneration."

On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's
Compensation Section, alleging therein that her deceased husband was an employee of TESCO,
and that he died of liver cirrhosis. 1 On August 9, 1967, and Office wrote petitioner transmitting
the Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or
Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). 2 An
"Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the
employer of the deceased. The Report was signed by Jose Luis Santiago. In answer to questions
Nos. 8 and 17, the employer stated that it would not controvert the claim for compensation, and
admitted that the deceased employee contracted illness "in regular occupation." 3 On the basis
of this Report, the Acting Referee awarded death benefits in the amount of P5,759.52 plus burial
expenses of P200.00 in favor of the heirs of Gatus in a letter-award dated October 6, 1967 4
against TESCO.

Replying on October 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting Referee
that it would avail of the 15-days-notice given to it to state its non-conformity to the award and
contended that the cause of the illness contracted by Gatus was in no way aggravated by the
nature of his work. 5

On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion
for Reconsideration, 6 and on November 15, 1967, asked for an additional extension of five days.
7 TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November
18, 1967, alleging as grounds therefor, that the admission made in the "Employer's Report of
Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and
that the illness for which compensation is sought is not an occupational disease, hence, not
compensable under the law. 8 The extension requested was denied. The Motion for
Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional
Office dated December 28, 1967 9 predicated on two grounds: that the alleged mistake or
negligence was not excusable, and that the basis of the award was not the theory of direct
causation alone but also on that of aggravation. On January 28, 1968, an Order of execution was
issued by the same Office.

On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the
Records to the Workmen's Compensation Commission for Review." 10 Meanwhile, the Provincial
Sheriff of Rizal levied on and attached the properties of TESCO on February 17, 1968, and
scheduled the sale of the same at public auction on February 26, 1968. On February 28, 1968,
the Commission issued an Order requiring petitioner to submit verified or true copies of the
Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28, 1967,
and to show proof that said Motion for Reconsideration was filed within the reglementary period,
with the warning that failure to comply would result in the dismissal of the Motion. However,
before this Order could be released, TESCO filed with this Court, on February 22, 1968, The
present petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to
enjoin the Sheriff from levying and selling its properties at public auction.

On February 29, 1968, this Court required respondents to answer the Petition but denied
Injunction. 11 TESCO'S Urgent Motion dated April 2, 1968, for the issuance of a temporary
restraining order to enjoin the Sheriff from proceeding with the auction sale of its properties was
denied in our Resolution dated May 8, 1968.

TESCO asserts:

I. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority
to render the award (Annex 'D', Petition) against your petitioner there being no employer-
employee relationship between it and the deceased Gatus;

II. That petitioner can never be estopped from questioning the jurisdiction of respondent
commission especially considering that jurisdiction is never conferred by the acts or omission of
the parties;

III. That this Honorable Court has jurisdiction to nullify the award of respondent commission.

TESCO takes the position that the Commission has no jurisdiction to render a valid award in this
suit as there was no employer-employee relationship between them, the deceased having been
an employee of UMACOR and not of TESCO. In support of this contention, petitioner submitted
photostat copies of the payroll of UMACOR for the periods May 16-31, 1967 and June 1-15, 1967
12 showing the name of the deceased as one of the three employees listed under the Purchasing
Department of UMACOR. It also presented a photostat copy of a check of UMACOR payable to
the deceased representing his salary for the period June 14 to July 13, 1967. 13

Both public and private respondents contend, on the other hand, that TESCO is estopped from
claiming lack of employer employee relationship.

To start with, a few basic principles should be re-stated the existence of employer-employee
relationship is the jurisdictional foundation for recovery of compensation under the Workmen's
Compensation Law. 14 The lack of employer-employee relationship, however, is a matter of
defense that the employer should properly raise in the proceedings below. The determination of
this relationship involves a finding of fact, which is conclusive and binding and not subject to
review by this Court. 15

Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner
denied, for the first time, the employer-employee relationship. In fact, in its letter dated October
27, 1967 to the Acting Referee, in its request for extension of time to file Motion for
Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in
its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review,"
petitioner represented and defended itself as the employer of the deceased. Nowhere in said
documents did it allege that it was not the employer. Petitioner even admitted that TESCO and
UMACOR are sister companies operating under one single management and housed in the same
building. Although respect for the corporate personality as such, is the general rule, there are
exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the same
is made as a shield to confuse the legitimate issues.

While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial
at this stage that it is the employer of the deceased is obviously an afterthought, a devise to
defeat the law and evade its obligations. 17 This denial also constitutes a change of theory on
appeal which is not allowed in this jurisdiction. 18 Moreover, issues not raised before the
Workmen's Compensation Commission cannot be raised for the first time on appeal. 19 For that
matter, a factual question may not be raised for the first time on appeal to the Supreme Court.

This certiorari proceeding must also be held to have been prematurely brought. Before a petition
for certiorari can be instituted, all remedies available in the trial Court must be exhausted first.
21 certiorari cannot be resorted to when the remedy of appeal is present. 22 What is sought to
be annulled is the award made by the Referee. However, TESCO did not pursue the remedies
available to it under Rules 23, 24 and 25 of the Rules of the Workmen's Compensation
Commission, namely, an appeal from the award of the Referee, within fifteen days from notice,
to the Commission; a petition for reconsideration of the latter's resolution, if adverse, to the
Commission en banc; and within ten days from receipt of an unfavorable decision by the latter,
an appeal to this Court. As petitioner had not utilized these remedies available to it, certiorari
win not he, it being prematurely filed. As this Court ruled in the case of Manila Jockey Club, Inc.
vs. Del Rosario, 2 SCRA 462 (1961).

An aggrieved party by the decision of a Commissioner should seek a reconsideration of the


decision by the Commission en banc. If the decision is adverse to him, he may appeal to the
Supreme Court. An appeal brought to the Supreme Court without first resorting to the remedy
referred to is premature and may be dismissed.

Although this rule admits of exceptions, as where public welfare and the advancement of public
policy so dictate, the broader interests of justice so require, or where the Orders complained of
were found to be completely null and void or that the appeal was not considered the appropriate
remedy, 23 the case at bar does not fan within any of these exceptions. WHEREFORE, this Petition
is hereby dismissed.

CONCEPT BUILDERS, INC., petitioner,


vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe;
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

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 corporation's 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.
This special civil action ostensibly raises the question of whether the National Labor Relations
Commission committed grave abuse of discretion when it issued a "break-open order" to the
sheriff to be enforced against personal property found in the premises of petitioner's sister
company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters and riggers.

On November, 1981, 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 found it to be, the fact, however, that at the time of the termination of private
respondent's employment, 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.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against
petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate
private respondents and to pay them back wages equivalent to one year or three hundred
working days.

On November 27, 1985, the 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.2
On October 16, 1986, the NLRC Research and Information Department made the finding that
private respondents' back wages amounted to P199,800.00.

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute
the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of
sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the
amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the
sheriff to collect from herein petitioner the sum of P117,414.76, representing 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.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second
alias writ of execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress
report, dated November 2, 1989:

1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila,
claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had
levied upon.4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter
petitioner's premises so that he could proceed with the public auction sale of the aforesaid
personal properties on November 7, 1989.

On November 6, 1989, 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.
In support of their claim against HPPI, private respondents presented duly certified copies of the
General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities
Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted
by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner revealed the following:

1. Breakdown of Subscribed Capital


Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00

2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member

3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office

355 Maysan Road


Valenzuela, Metro Manila.

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital


Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member

3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary

4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a
break-open order, contending that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion
for break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order
of the Labor Arbiter, 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 moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated December 3, 1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner further
contends, that the doctrine of piercing the corporate veil should not have been applied, in this
case, in the absence of any showing that it created HPPI in order to evade its liability to private
respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete
and iron pipes, a business which is distinct and separate from petitioner's construction business.
Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same
President and the same set of officers and subscribers.

We find petitioner's contention to be unmeritorious.


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.8 But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice.9 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,10 this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced.11 This is true likewise when the corporation
is merely an adjunct, a business conduit or an alter ego of another corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, 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.

The SEC en banc explained the "instrumentality rule" which the courts have applied in
disregarding the separate juridical personality of corporations as follows:

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 instances, 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
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.

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.14

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.15

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.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had the same
president, the same board of directors, the same corporate officers, and substantially the same
subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and
the third-party claimant shared the same address and/or premises. Under this circumstances,
(sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had
the occasion to rule:

Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next
day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not
disputed by petitioner. It is very clear that the latter corporation was a continuation and
successor of the first entity . . . . Both predecessors and successor were owned and controlled by
petitioner Eduardo Claparols and there was no break in the succession and continuity of the same
business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the
subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was
owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and
Nail plant were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject
of the execution, private respondents had no other recourse but to apply for a break-open order
after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in
consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides
that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept, the
judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open
order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and
hearing were complied with. Petitioner and the third-party claimant were given the opportunity
to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open
order issued by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
agencies supported by substantial evidence are binding on this Court and are entitled to great
respect, in the absence of showing of grave abuse of a discretion.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners,


vs.
THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO
PADILLA, respondents.

Jesus B. Santos and Cornelio Antiquera for petitioners.


Teodoro Padilla for respondents.

The issue before us in the correctness of the decision of the Court of Appeals that, under the
circumstances of record, there was justification for disregarding the corporate entity of the Park
Rite Co., Inc., and holding its controlling stockholders personally responsible for a judgment
against the corporation.

The Court of Appeals found that the Park Rite Co., Inc., a Philippine corporation, was originally
organized on or about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. The
corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street
(Manila) which it used for parking motor vehicles for a consideration.

It turned out that in operating its parking business, the corporation occupied and used not only
the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees
Padilla, without the owners' knowledge and consent. When the latter discovered the truth
around October of 1947, they demanded payment for the use and occupation of the lot.

The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had
purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original
incorporators, McConnel, Rodriguez and Cochrane. Whereupon, the lot owners filed against it a
complaint for forcible entry in the Municipal Court of Manila on 7 October 1947 (Civil Case No.
4031).

Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc. to
pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot.
Restitution not having been made until 31 January 1948, the entire judgment amounted to
P11,732.50. Upon execution, the corporation was found without any assets other than P550.00
deposited in Court. After their application to the judgment credit, there remained a balance of
P11,182.50 outstanding and unsatisfied.

The judgment creditors then filed suit in the Court of First Instance of Manila against the
corporation and its past and present stockholders, to recover from them, jointly and severally,
the unsatisfied balance of the judgment, plus legal interest and costs. The Court of First Instance
denied recovery; but on appeal, the Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that
the corporation was a mere alter ego or business conduit of the principal stockholders that
controlled it for their own benefit, and adjudged them responsible for the amounts demanded
by the lot owners, as follows:

WHEREFORE, premises considered, the decision appealed from is reversed. Defendants-


appellees Cirilo Paredes and Ursula Tolentino are hereby declared liable to the plaintiffs-
appellants for the rentals due on the lot in question from August 22, 1947 to January 31, 1948 at
the rate of P1,235.00 a month, with legal interest thereon from the time of the filing of the
complaint. Deducting the P550.00 which was paid at the time when the corporation was already
acquired by the said defendants-appellees Cirilo Paredes and Ursula Tolentino, they are hereby
ordered to pay to plaintiffs-appellants Dominga de los Reyes and Sabino Padilla the sum of
P6,036.66 with legal interest therein from the time of the filing of the complaint until fully paid.

Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants


Dominga de los Reyes and Sabino Padilla the sum of P1,742.64 with legal interest thereon from
the time of the filing of the complaint and until it is fully paid. In addition thereto the defendants-
appellees Cirilo Paredes, Ursula Tolentino and Ricardo Rodriguez shall pay the costs
proportionately in both instances.
IT IS SO ORDERED.

Cirilo Paredes and Ursula Tolentino then resorted to this court. We granted certiorari.

On the main issue whether the individual stockholders maybe held liable for obligations
contracted by the corporation, this Court has already answered the question in the affirmative
wherever circumstances have shown that the corporate entity is being used as an alter ego or
business conduit for the sole benefit of the stockholders, or else to defeat public convenience,
justify wrong, protect fraud, or defend crime (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496; Arnold vs.
Willits and Patterson, 44 Phil. 364).

The Court of Appeals has made express findings to the following effect:

There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon
the plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and
without paying the reasonable rentals for the occupation of said lot. There is also no doubt in our
mind that the corporation was a mere alter ego or business conduit of the defendants Cirilo
Paredes and Ursula Tolentino, and before them the defendants M. McConnel, W. P. Cochrane,
and Ricardo Rodriguez. The evidence clearly shows that these persons completely dominated and
controlled the corporation and that the functions of the corporation were solely for their
benefits.

When it was originally organized on or about April 15, 1947, the original incorporators were M.
McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a
capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane
each owned 500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is
obvious that the shares of the last two named persons were merely qualifying shares. Then or
about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496
shares of the said corporation and the remaining four shares were acquired by Bienvenido J.
Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is
obvious that the last four shares bought by these four persons were merely qualifying shares and
that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the
so-called Park Rite Co., Inc. That the corporation was a mere extension of their personality is
shown by the fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in
the same building, in the same floor and in the same room at 507 Wilson Building. This is
further shown by the fact that the funds of the corporation were kept by Cirilo Paredes in his own
name (p. 14, November 8, 1950, T.S.N.) The corporation itself had no visible assets, as correctly
found by the trial court, except perhaps the toll house, the wire fence around the lot and the
signs thereon. It was for this reason that the judgment against it could not be fully satisfied.
(Emphasis supplied).

The facts thus found can not be varied by us, and conclusively show that the corporation is a
mere instrumentality of the individual stockholder's, hence the latter must individually answer
for the corporate obligations. While the mere ownership of all or nearly all of the capital stock of
a corporation is a mere business conduit of the stockholder, that conclusion is amply justified
where it is shown, as in the case before us, that the operations of the corporation were so merged
with those of the stockholders as to be practically indistinguishable from them. To hold the latter
liable for the corporation's obligations is not to ignore the corporation's separate entity, but
merely to apply the established principle that such entity can not be invoked or used for purposes
that could not have been intended by the law that created that separate personality.

The petitioners-appellants insist that the Court could have no jurisdiction over an action to
enforce a judgment within five (5) years from its rendition, since the Rules of Court provide for
enforcement by mere motion during those five years. The error of this stand is apparent, because
the second action, originally begun in the Court of First Instance, was not an action to enforce
the judgment of the Municipal Court, but an action to have non-parties to the judgment held
responsible for its payment.

Finding no error in the judgment appealed from, the same is hereby affirmed, with costs against
petitioners-appellants Cirilo Paredes and Ursula Tolentino.