Royale is a continuation or successor of Sceptre.
A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.45
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.46
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.47
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.48
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another corporation.49
In this regard, this Court finds cogent reason to reverse the CA’s findings. Evidence abound showing that Royale is a mere continuation or successor of Sceptre and fraudulent objectives are behind Royale’s incorporation and the petitioner’s subsequent employment therein. These are plainly suggested by events that the respondents do not dispute and which the CA, the NLRC and LA Gutierrez accept as fully substantiated but misappreciated as insufficient to warrant the use of the equitable weapon of piercing.
As correctly pointed out by the petitioner, it was Aida who exercised control and supervision over the affairs of both Sceptre and Royale. Contrary to the submissions of the respondents that Roso had been the only one in sole control of Sceptre’s finances and business affairs, Aida took over as early as 1999 when Roso assigned his license to operate Sceptre on May 3, 1999.50 As further proof of Aida’s acquisition of the rights as Sceptre’s sole proprietor, she caused the registration of the business name “Sceptre Security & Detective Agency” under her name with the DTI a few months after Roso abdicated his rights to Sceptre in her favor.51 As far as Royale is concerned, the respondents do not deny that she has a hand in its management and operation and possesses control and supervision of its employees, including the petitioner. As the petitioner correctly pointed out, that Aida was the one who decided to stop giving any assignments to the petitioner and summarily dismiss him is an eloquent testament of the power she wields insofar as Royale’s affairs are concerned. The presence of actual common control coupled with the misuse of the corporate form to perpetrate oppressive or manipulative conduct or evade performance of legal obligations is patent; Royale cannot hide behind its corporate fiction.
Aida’s control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction. There must be a showing that a fraudulent intent or illegal purpose is behind the exercise of such control to warrant the piercing of the corporate veil.52 However, the manner by which the petitioner was made to resign from Sceptre and how he became an employee of Royale suggest the perverted use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner tendered his resignation and that he applied at Royale at the instance of Karen and Cesar and on the impression they created that these were necessary for his continued employment. They orchestrated the petitioner’s resignation from Sceptre and subsequent employment at Royale, taking advantage of their ascendancy over the petitioner and the latter’s lack of knowledge of his rights and the consequences of his actions. Furthermore, that the petitioner was made to resign from Sceptre and apply with Royale only to be unceremoniously terminated shortly thereafter leads to the ineluctable conclusion that there was intent to violate the petitioner’s rights as an employee, particularly his right to security of tenure. The respondents’ scheme reeks of bad faith and fraud and compassionate justice dictates that Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction of a separate corporate personality for ends subversive of the policy and purpose behind its creation53or which could not have been intended by law to which it owed its being.54
For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole proprietorship. As ruled in Prince Transport, Inc., et al. v. Garcia, et al.,55 it is the act of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts, evade one’s obligations that the equitable piercing doctrine was formulated to address and prevent:
A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. In the present case, it may be true that Lubas is a single proprietorship and not a corporation. However, petitioners’ attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.56
Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994, Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they executed with Roso.57 Royale, shortly after its incorporation, started to hold office in the same property. These, the respondents failed to dispute.
The respondents do not likewise deny that Royale and Sceptre share the same officers and employees. Karen assumed the dual role of Sceptre’s Operation Manager and incorporator of Royale. With respect to the petitioner, even if he has already resigned from Sceptre and has been employed by Royale, he was still using the patches and agency cloths of Sceptre during his assignment at Highlight Metal.
Royale also claimed a right to the cash bond which the petitioner posted when he was still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have released the petitioner’s cash bond when he resigned and Royale would have required the petitioner to post a new cash bond in its favor.
Taking the foregoing in conjunction with Aida’s control over Sceptre’s and Royale’s business affairs, it is patent that Royale was a mere subterfuge for Aida. Since a sole proprietorship does not have a separate and distinct personality from that of the owner of the enterprise, the latter is personally liable. This is what she sought to avoid but cannot prosper.
Effectively, the petitioner cannot be deemed to have changed employers as Royale and Sceptre are one and the same. His separation pay should, thus, be computed from the date he was hired by Sceptre in April 1976 until the finality of this decision. Based on this Court’s ruling in Masagana Concrete Products, et al. v. NLRC, et al.,58 the intervening period between the day an employee was illegally dismissed and the day the decision finding him illegally dismissed becomes final and executory shall be considered in the computation of his separation pay as a period of “imputed” or “putative” service:
Separation pay, equivalent to one month's salary for every year of service, is awarded as an alternative to reinstatement when the latter is no longer an option. Separation pay is computed from the commencement of employment up to the time of termination, including the imputed service for which the employee is entitled to backwages, with the salary rate prevailing at the end of the period of putative service being the basis for computation.59