045 CLAPAROLS STEEL AND NAIL PLANT V CIR, ALLIED WORKERS ASSOCIATION, DEMETRIO GARLITOS, and 9 other workers

July 31, 1975, GR No. L-30822 TOPIC: Piercing the Corporate Veil; Evasion of Liability/ Obligation to Employees PONTENTE: MAKASIAR, J.

AUTHOR: (Keith Meridores) Claparols Steel and Nail Plant was dissolved and subsequently, Claparols Steel Corporation was formed. Eduardo Claparol thought that by dissolving the old corporation, its liabilities in paying back wages would also be gone. Note: theres a separate issue on computation of back wages in the case, but well not touch on that here.

FACTS 1. On Aug. 6, 1957, a complaint for unfair labor practice was filed by the Allied Workers Association and Demetrio Garlitos, et. Al against Claparols Steel and Nail Plant (Claparols) 2. The Court of Industrial Relations (CIR) ruled in respondents favor; it declared Claparols guilty of union busting and illegal dismissal due to participation of respondents in union activities. The CIR ordered the reinstatement and payment of back wages. 3. The respondents filed a motion for execution of the decision. The CIR granted the motion for execution of the order. 4. Several attempts were made by the respondents (accompanied by the Chief of Police of Talisay, Negros Occ) to be reinstated to their work but Claparols (through its accountant, Francisco Cusi) refused alleging that there was no order from Eduardo Claparols. 5. Records show that Claparols was already dissolved on June 30, 1957; and Claparols Steel Corporation succeeded it on July 1, 1957. The latter also eventually stopped operation on Dec. 7, 1962. 6. Petitioners filed an opposition contending that it could not personally reinstate respondent workers alleging that under the circumstances presently engulfing the company, and assuming the workers are entitled to back wages, it was only limited to 3 months since Claparols stopped operations in 1962. ISSUE: Whether or not Claparols Steel and Nail Plant was one the same with Claparols Steel Corporation? HELD: Yes. The latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor. RATIO: 1. 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 petitioners. 2. It is very clear that the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. 3. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. 4. 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. CASE LAW/ DOCTRINE: The case cited several past cases of the SC conveying the message: 1. 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 or persons, or, in the case of two corporations, will merge them into one. (Yutivo and Sons Hardware Co. v Court of Tax Appeals) 1961. 2. Where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored. (Liddel and Co, Inc. v Collector of Internal Revenue) 1961. 3. where a corporation is merely an adjunct, business conduit or alter ego of another corporation, the fiction of separate and distinct corporate entities should be disregarded. (Commissioner of Internal Revenue v Norton and Harrison Co.) 1964.