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Piercing The Corporate Veil
Piercing The Corporate Veil
Facts:
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.
In the case at bar, both information sheets were filed by the same Virgilio O. Casiño 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 circumstance, it cannot be said that the property levied upon by the sheriff
were not of respondents. 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.
EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL
PLANT, vs. COURT OF INDUSTRIAL RELATIONS
Facts:
A complaint for unfair labor practice was filed by herein private respondent Allied
Workers' Association, respondent Demetrio Garlitos 10 respondent workers against
herein petitioners on account of the dismissal of respondent workers from petitioner
Claparols Steel and Nail Plant.
Respondent Court rendered its decision finding Mr. Claparols guilty of union busting and
of having "dismissed said complainants because of their union activities.
CIR ordered to pay the bakcwages of the respondents based on the re-computation.
Issue:
Whether or not the doctrine of piercing of the corporate veil may be applied in this case.
Ruling:
Yes. Petitioners did not dispute the fact that the Claparols Steel and Nail Plant (which
ceased ops on June 30) was succeeded by the Claparols Steel Corporation effective July 1
1957 up to December 7, 1962. It’s very clear that Claparols Steel was a continuation and
successor of the 1st entity, and its emergence was skillfully timed to avoid the financial liability
that attached to its predecessor. 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. According to the court, this “avoiding-the-liability” scheme is very patent,
considering that 90% of the subscribed shares of stock of Claparols Steel was owned by
Claparols himself. It is very obvious that the 2 nd corporation seeks the protective shield of a
corporate fiction whose veil in this case should be pierced as it was deliberately and maliciously
designed to evade its financial obligations to its employees.
In Yutivo Sons v CTA, SC held that 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. In Liddel v CIR, the SC also held that where a corporation is a dummy and serves no
business purpose and is intended only as a blind, the corporate fiction may be ignored. In CIR
v Norton and Harrison, the Court ruled that 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. The Court thus agreed with the CIR in ordering that back wages be
computed until December 7 1962, or the period when the successor Claparols Steel ceased
operations.