Concept Builders Inc. vs.

National Labor Relations Commission

257 SCRA 149

TOPIC: Doctrine of Piercing the Corporate Veil

Facts: Petitioner Concept Builders Inc., a domestic corporation is engaged in the

construction business. Private respondents were employed by said company as
laborers, carpenters, and niggers. Private respondents were served with 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. However, at the
time of the termination of private respondents’ employment, the project in which they
were hired had not yet been finished and completed. Petitioner had to engage the
services of the subcontractors whose workers performed the functions of private
respondents. Aggrieved, private respondents filed a complaint for illegal dismissal,
unfair labor practices and non-payment of their holiday pay, overtime pay, and 13th
month pay against petitioners. The labor arbiter rendered decision in favor of the private
respondents. When the same became final and executory, a writ of execution was
issued; however, the same was refused by the security guard on duty on the ground
that the petitioners no longer occupied the premises.

Issue: Whether or not the alias writ of execution can be issued against the sister
company of the petitioners, HPPI.

Held: Yes. It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it may
be connected. But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or is used as a device to defeat labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.

The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and in circumstances lay 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 names of keeping corporate books and records
4 Methods of conducting the business.

Where one corporation is so organized and controlled and its affairs are conducted so
that, it is in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate
entity of the instrumentality may be disregarded. The control necessary to invoke the rule
is not majority or even completes 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 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 on exercise 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.
3 The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any of these elements prevents “piercing the corporate veil” of the
corporation. 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.

TOPIC: LYCEUM OF THE PHILIPPINES VS. CA 219 SCRA 610

Facts: Petitioner had sometime commenced before in the SEC a complaint against
Lyceum of Baguio, to require it to change its corporate name and to adopt another name
not similar or identical with that of petitioner. SEC decided in favor of petitioner. Lyceum
of Baguio filed petition for certiorari but was denied for lack of merit.

Armed with the resolution of the Court, petitioner instituted before the SEC to compel private
respondents, which are also educational institutions, to delete word “Lyceum” from their
corporate names and permanently to enjoin them from using such as part of their respective
names.

Hearing officer sustained the claim of petitioner and held that the word “Lyceum” was capable
of appropriation and that petitioner had acquired an enforceable right to the use of that word.

In an appeal, the decision was reversed by the SEC En Banc. They held that the word “Lyceum”
to have become identified with petitioner as to render use thereof of other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general
public.
5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En
Banc.

Held: Under the corporation code, no corporate name may be allowed by the SEC if the
proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. The policy behind this provision is to avoid fraud upon the public,
which would have the occasion to deal with the entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of administration and supervision over corporations.

The corporate names of private respondents are not identical or deceptively or confusingly
similar to that of petitioner’s. Confusion and deception has been precluded by the appending of
geographic names to the word “Lyceum”. Furthermore, the word “Lyceum” has become
associated in time with schools and other institutions providing public lectures, concerts, and
public discussions. Thus, it generally refers to a school or an institution of learning.

Petitioner claims that the word has acquired a secondary meaning in relation to petitioner with
the result that the word, although originally generic, has become appropriable by petitioner to the
exclusion of other institutions. The doctrine of secondary meaning is a principle used in
trademark law but has been extended to corporate names since the right to use a corporate name
to the exclusion of others is based upon the same principle, which underlies the right to use a
particular trademark or trade name.

Under this doctrine, a word or phrase originally incapable of exclusive appropriation with
reference to an article in the market, because geographical or otherwise descriptive might
nevertheless have been used for so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of purchasing public, the word or phrase has come to
mean that the article was his produce. The doctrine cannot be made to apply where the evidence
didn't prove that the business has continued for so long a time that it has become of consequence
and acquired good will of considerable value such that its articles and produce have acquired a
well-known reputation, and confusion will result by the use of the disputed name.

TOPIC: Madrigal and Co. VS. Zamora, 151 SCRA 355

Facts: Madrigal & Company, Inc. (MCI) manages the business of another corporation, Rizal
Cement Co., Inc. (RCC). In 1973, a labor union in MCI sought the renewal of the collective
bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and an
additional P100 monthly allowance. MCI refused to negotiate. Later, MCI reduced its authorized
capital stocks. It then wrote a letter to the Department of Labor averring that it is incurring losses
and so it will enforce a retrenchment program. The letter is however unsupported by documents
and so the Department of Labor ignored it. However, MCI went on to dismiss several employees
who led the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor
arbiter ruled in favor of the labor union. The issue reached the Office of the President. The then
Presidential Assistant for Legal Affairs, Ronaldo Zamora, denied MCI’s appel.

On appeal, MCI insists that it is incurring losses; that as such, it has to reduce its
capitalization; that the profits it is earning are cash dividends from RCC; that under the
law, dividends are the absolute property of a stockholder like MCI and cannot be
compelled to share it with creditors (like the employees).
ISSUE: Whether or not the dividends in this case, as understood by MCI, cannot be made
available to meet its employee’s economic demands.

HELD: No. As found by the labor arbiter, MCI is in fact making significant profits. MCI’s
reduction of its capitalization is simply a scheme to avoid negotiations with the labor union.
It is therefore correct for the arbiter to order MCI to comply with the union’s demands.
It is true that cash dividends are the absolute property of the stockholders and cannot be
made available for disposition to a corporation’s creditors. However, this should be
viewed in context. This is only true in the case of corporation distributing dividends to its
stockholders. If this is the case (if the dividends are still with the corporation, in this case
RCC), then creditors cannot touch such dividends. But if the stockholder already receives
the dividends, then it becomes a profit on the part of the stockholder hence its creditors
(like the employees) can make some demands out of it. In this case, MCI is a stockholder
of RCC. While RCC still has not distributed the dividends, creditors cannot demand it
because such dividends are owned by stockholders like MCI. But when MCI already
receives the dividends, then MCI’s creditors can already demand share from the
dividends because such dividends are already the profits of the stockholder/MCI. So in
this case, the employees can demand their share from said profits (not strictly viewed as
dividends now) by way of salary increase.