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PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) v. NLRC

FACTS:

The consolidated petitions in this case involve a dispute between the Pantranco Employees Association (PEA), Pantranco Retrenched Employees Association (PANREA), and the Philippine National Bank (PNB) regarding the liabilities and ownership of Pantranco North Express, Inc. (PNEI) properties.

In 1985, PNEI was sold to North Express Transport, Inc. (NETI) but was subsequently placed under sequestration by the Presidential Commission on Good Government (PCGG). The sequestration order was lifted in 1988, and PNEI was sold back to the private sector through the Asset Privatization Trust (APT). Eventually, PNEI ceased operations and former employees filed labor claims.

To satisfy the judgment awards, the sheriffs levied on the Pantranco properties owned by PNB-Madecor, a PNB subsidiary. PNB, PNB-Madecor, and Mega Prime Realty and Holdings, Inc. (Mega Prime) filed motions to quash and third-party claims arguing their interests in the properties. The Labor Arbiter ruled that PNB-Madecor owned the properties and lifted the levies, except for a specific amount. PNB's third-party claim was denied, and this decision was affirmed by the NLRC.

The former PNEI employees argue that PNB and PNB-Madecor should be held jointly and severally liable for their unpaid money claims as PNB directly benefited from PNEI's operations and had control over its funds. On the other hand, PNB asserts that it should not be held liable and that the separate legal entity of PNEI and PNB-Madecor should be maintained. The NLRC upheld the labor arbiter's decision, and the Court of Appeals affirmed this ruling, stating that the separate personalities of the corporations should be maintained.

Regarding the auction sale of a property covered by TCT No. 87884, PNB argues that the property is not owned by PNEI and that the promissory note held by PNB-Madecor, on which the Labor Arbiter's ruling was based, had already been garnished in favor of Gerardo C. Uy. PNB also claims that the properties in question were already levied and sold in another case involving PNB-Madecor and Gerardo C. Uy. Both parties filed petitions disputing the auction sale, but the Court held that both petitions must fail.

ISSUES:

  1. Whether the properties of PNB, PNB-Madecor, and Mega Prime can be attached to satisfy the unpaid labor claims against PNEI.

  2. Whether the separate personalities of PNB, PNB-Madecor, Mega Prime, and PNEI should be disregarded.

  3. Whether or not corporate officers can be held jointly and severally liable with the company for the payment of employee claims.

  4. Whether or not the doctrine of piercing the corporate veil applies to the case at hand.

  5. Whether the corporate veil of PNB-Madecor should be pierced.

  6. Whether PNB has the right to question the execution sale of the Pantranco properties.

RULING:

  1. The properties of PNB, PNB-Madecor, and Mega Prime cannot be attached to satisfy the unpaid labor claims against PNEI because the subject property is not owned by PNEI. The judgment debtor must own the property in order for it to be subject to execution. Additionally, a sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.

  2. The separate personalities of PNB, PNB-Madecor, Mega Prime, and PNEI should be maintained. Each corporation has its own separate and distinct personality, recognized by the court. The fact that PNB acquired PNEI does not automatically make PNB liable for the debts and liabilities of PNEI. Furthermore, there are no valid grounds or circumstances in this case to warrant piercing the corporate veil between PNB and PNEI, or between PNB and PNB-Madecor.

  3. Corporate officers cannot be held jointly and severally liable with the company for the payment of employee claims, as the doctrine of piercing the corporate veil does not apply in this case. The liability of corporate officers for the debts of the corporation is governed by Section 31 of the Corporation Code, and personal liability can only be imposed if there is malice, bad faith, or a specific provision of law making the corporate officer liable.

  4. The doctrine of piercing the corporate veil does not apply to the case, as there is no showing that the corporation was being used as a vehicle for the evasion of an existing obligation, to justify a wrong, protect fraud, or defend a crime. The burden lies on the petitioner to prove that the corporation was being used as a mere instrumentality or adjunct of another corporation, and absent any proof of a nexus apart from mere ownership, the petitioner has not provided a legal basis to reach the assets of corporations separate and distinct from the debtor corporation.

  5. The corporate veil of PNB-Madecor should not be pierced because there is no showing of the existence of the circumstances that would justify piercing. PNB-Madecor is a separate and distinct entity from its parent corporation, Mega Prime.

  6. PNB does not have the right to question the execution sale of the Pantranco properties because it does not have a present substantial interest in the subject properties. PNB's interest in Mega Prime's assets remains inchoate and has not yet ripened into a present substantial interest. The real party in interest is PNB-Madecor or its successor-in-interest, and they have the right to question the execution sale.

PRINCIPLES:

  • The power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. Properties not owned by the judgment debtor cannot be subject to execution.

  • A corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. This separate personality exists to prevent injustice and is recognized by law.

  • The separate personalities of corporations will be maintained, absent any valid reason to disregard them. The mere acquisition of a corporation does not automatically make the acquiring corporation liable for the debts and liabilities of the acquired corporation.

  • The corporate veil may be pierced in exceptional cases, but caution must be exercised. Any piercing of the corporate veil should be based on appropriately pleaded and proven facts, and should not be used to promote unfair objectives.

  • The liability of corporate officers for the debts of the corporation is governed by Section 31 of the Corporation Code, and personal liability can only be imposed if there is malice, bad faith, or a specific provision of law making the corporate officer liable.

  • The doctrine of piercing the corporate veil applies in cases of defeat of public convenience, fraud cases, or alter ego cases where the corporation is used as a mere instrumentality or adjunct of another corporation.

  • To establish the existence of alter ego or instrumentality, the following circumstances are considered: ownership of all or most of the capital stock, common directors or officers, financing of the subsidiary by the parent corporation, inadequate capitalization, payment of expenses or losses by the parent corporation, and the subsidiary having no business except with the parent corporation.

  • The corporate veil may be pierced when the separate corporate personality is used to perpetrate fraud, evade a statute, or when corporate fiction is used to defeat public convenience, justify wrongs, or protect fraud.

  • A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. The interest must be material, personal, and present substantial interest, as distinguished from a mere expectancy or future interest.