Maricalum Mining vs Florentino, July 23, 2018*

DOCTRINE:
A subsidiary company's separate corporate personality may be disregarded only when the evidence shows that such separate personality was being used by its parent or holding corporation to perpetrate a fraud or evade an existing obligation. Concomitantly, employees of a corporation have no cause of action for labor-related claims against another unaffiliated corporation, which does not exercise control over them.
FACT:
On October 2, 1992, the National Government thru the Asset Privatization Trust (APT) executed a Purchase and Sale Agreement (PSA) with G Holdings, a domestic corporation primarily engaged in the business of owning and holding shares of stock of different companies. G Holding bought 90% of Maricalum Mining's shares and financial claims in the form of company notes. In exchange, the PSA obliged G Holdings to pay APT the amount of P673,161,280.00, with a down payment of P98,704,000.00 and with the balance divided into four tranches payable in installment over a period of ten years.7 Concomitantly, G Holdings also assumed Maricalum Mining's liabilities in the form of company notes. The said financial liabilities were converted into three (3) Promissory Notes (PNs) totaling P550,000,000.00 (P114,715,360.00, P186,550,560.00 and P248,734,080.00), which were secured by mortgages over some of Maricalum Mining's properties. These PNs obliged Maricalum Mining to pay G
Holdings the stipulated amount of P550,000,000.00
Upon the signing of the PSA and paying the stipulated down payment, G Holdings immediately took physical possession of Maricalum Mining's Sipalay Mining Complex, as well as its facilities, and took full control of the latter's management and operations. On January 26, 1999, the Sipalay General Hospital, Inc. (Sipalay Hospital) was duly incorporated to provide medical services and facilities to the general public. Afterwards, some of Maricalum Mining's employees retired and formed several manpower cooperatives In 2000, each of the said cooperatives executed identical sets of Memorandum of Agreement with Maricalum Mining wherein they undertook, among others, to provide the latter with a steady supply of workers, machinery and equipment for a monthly fee. On June 1, 2001, Maricalum Mining's Vice President and Resident Manager Jesus H. Bermejo wrote a Memorandum to the cooperatives informing them that Maricalum Mining has decided to stop its mining and milling operations effective July 1, 2001 in order to avert continuing losses brought about by the low metal prices and high cost of production. In July 2001, the properties of Maricalum Mining, which had been mortgaged to secure the PNs, were extrajudicially foreclosed and eventually sold to G Holdings as the highest bidder on December 3, 2001. On September 23, 2010, some of
Maricalum Mining's workers, including complainants, and some of Sipalay General Hospital's employees jointly filed a Complaint15 with the LA against G Holdings, its president, and officer-in-charge, and the cooperatives and its officers for illegal dismissal, underpayment and nonpayment of salaries, underpayment of overtime pay, underpayment of premium pay for holiday, nonpayment of separation pay, underpayment of holiday pay, nonpayment of service incentive leave pay, nonpayment of vacation and sick leave, nonpayment of 13th month pay, moral and exemplary damages, and attorneys fees. On December 2, 2010, complainants and CeMPC Chairman Alejandro H. Sitchon surprisingly filed his complaint for illegal dismissal and corresponding monetary claims with the LA against G Holdings, its officer--in-charge and CeMPC. Thereafter, the complaints were consolidated by the LA. After the hearings were concluded, complainants presented their Position Paper claiming that: they have not received any increase in wages since they were allegedly rehired; except for Sipalay Hospital's employees, they worked as an augmentation force to the security guards charged with securing Maricalum Mining's assets which were acquired by G Holdings; Maricalum Mining's assets have been exposed to pilferage by some of its rank-and-file employees whose claims for collective bargaining benefits were undergoing litigation; the Sipalay Hospital is purportedly "among the assets" of Maricalum Mining acquired by G Holdings; the payrolls for their wages were supposedly prepared by G Holdings' accounting department; since the second half of April 2007, they have not been paid their salary; and some of their services were dismissed without any due process
Based on these factual claims, complainants posited that: the manpower cooperatives were mere alter egos of G Holdings organized to subvert the "tenurial rights" of the complainants; G Holdings implemented a retrenchment scheme to dismiss the caretakers it hired before the foreclosure of Maricalum Mining's assets; and G Holdings was their employer because it allegedly had the power to hire, pay wages, control working methods and dismiss them. LA ruled in favor of complainants. It held that G Holdings is guilty of labor-only contracting with the manpower cooperatives thereby making all of them solidarily and directly liable to complainants. NLRC modified and ruled that it was Maricalum Mining-not G Holdings-who entered into service contracts by way of a Memorandum of Agreement with each of the manpower cooperatives. CA affirmed.

ISSUE: Whether G Holdings is liable (NO)

HELD
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: (a) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; (b) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or (c) 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. This principle is basically applied only to determine established liability. However, piercing of the veil of corporate fiction is frowned upon and must be done with caution. This is because a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. A parent or holding company is a corporation which owns or is organized to own a substantial portion of another company's voting shares of stock enough to control or influence the latter's management, policies or affairs thru election of the latter's board of directors or otherwise. However, the term "holding company" is customarily used interchangeably with the term "investment company" which, in turn, is defined by Section 4 (a) of Republic Act (R.A.) No. 262961 as "any issuer (corporation) which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities." In other words, a "holding company" is organized and is basically conducting its business by investing substantially in the equity securities of another company for the purposes of controlling their policies (as opposed to directly engaging in operating activities) and "holding" them in a conglomerate or umbrella structure along with other subsidiaries. Significantly, the holding company itself-being a separate entity-does not own the assets of and does not answer for the liabilities of the subsidiary or affiliate. The management of the subsidiary or affiliate still rests in the hands of its own board of directors and corporate officers. It is in keeping with the basic rule a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The corporate form was created to allow shareholders to invest without incurring personal liability for the acts of the corporation. While the veil of corporate fiction may be pierced under certain instances, mere ownership of a subsidiary does not justify the imposition of liability on the parent company. It must further appear that to recognize a parent and a subsidiary as separate entities would aid in the consummation of a wrong. Thus, a holding corporation has a separate corporate existence and is to be treated as a separate entity; unless the facts show that such separate corporate existence is a mere sham, or has
been used as an instrument for concealing the truth.69 Corporation by estoppel