Heirs of Pajarillo v. Court of Appeals
REITERATIONFacts
The Antecedents: Panfilo V. Pajarillo (Panfilo) was the sole proprietor of 'PVP Liner,' a bus operation in Metro Manila. Private respondents were employed as drivers and conductors. Respondents alleged that Panfilo made illegal deductions from their commissions (e.g., washing fees, terminal fees) and failed to pay Emergency Cost of Living Allowance (ECOLA), 13th month pay, and other benefits. Upon forming a union, 'Samahan ng mga Manggagawa ng Panfilo V. Pajarillo,' Panfilo and his relatives allegedly coerced employees into signing trust documents or blank resignation letters. Those who refused were barred from working or dismissed without due process. Panfilo subsequently transformed his sole proprietorship into a family corporation, 'P.V. Pajarillo Liner Inc.,' involving his children as incorporators and officers, while maintaining the same business address and trade name. Procedural History: In 1987 and 1988, respondents filed complaints for Unfair Labor Practice (ULP), illegal deductions, illegal dismissal, and labor standard violations. Panfilo died in 1991 during the pendency of the cases. Labor Arbiter (LA) Manuel Asuncion initially dismissed the complaints. On appeal, the National Labor Relations Commission (NLRC) reversed the LA, ordering 'PVP Liner Inc.' to reinstate the employees and pay backwages and benefits. However, the NLRC later issued orders remanding the case to determine if 'PVP Liner Inc.' was properly impleaded and if summons was validly served. The Court of Appeals (CA) nullified the remand orders and reinstated the NLRC's original decision finding illegal dismissal. The Petition: The Heirs of Panfilo filed a Petition for Review on Certiorari under Rule 45, arguing that 'PVP Liner Inc.' was a non-existent entity at the time the complaints were filed in 1987, as the corporation was only registered in 1990. They contended that the NLRC never acquired jurisdiction over the corporation, that service of summons on a secretary was invalid, and that the corporate veil should not have been pierced because the corporation was a separate entity from Panfilo's sole proprietorship.
Issue(s)
Whether the petitioners are estopped from challenging the jurisdiction of the Labor Arbiter and the NLRC over 'PVP Liner Inc.' Whether there was valid service of summons upon the corporation. Whether the corporate veil of P.V. Pajarillo Liner Inc. should be pierced to hold it liable for the obligations of Panfilo's sole proprietorship. Whether the private respondents were illegally dismissed.
Ruling
The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals' decision with MODIFICATIONS. The Court ruled that: (1) Petitioners are estopped from questioning jurisdiction; (2) Summons was validly served; (3) Piercing the corporate veil was proper as the corporation was a mere successor of the sole proprietorship; and (4) Private respondents were illegally dismissed, though those who executed valid quitclaims are precluded from further recovery.
Ratio Decidendi
On Issue 1: The Court held that petitioners are barred by estoppel from questioning the inclusion of 'PVP Liner Inc.' as a party-respondent. Panfilo, through counsel, actively participated in all proceedings, filed position papers, and even moved for the consolidation of cases without once objecting to the jurisdiction over the corporation. It is a settled rule that active participation in a case, coupled with a failure to object to jurisdiction, is tantamount to an invocation of that jurisdiction. A party cannot submit a case for decision and only attack the court's jurisdiction when the resulting judgment is unfavorable. On Issue 2: The service of summons was valid under the NLRC Revised Rules of Procedure. Records show that summons was received by Irene G. Pajarillo, who was identified by Panfilo's own son, Abel Pajarillo, as a secretary of the company. Under the NLRC rules then in effect, service by registered mail is complete upon receipt by the addressee or his agent. As an employee and secretary at the business address, Irene was a proper agent to receive the summons, and the return of service constitutes prima facie proof of the facts indicated therein. On Issue 3: The Court justified piercing the corporate veil because P.V. Pajarillo Liner Inc. was a mere continuation and successor of Panfilo's sole proprietorship. The evidence showed that after being charged with labor violations, Panfilo transformed his business into a family corporation with the same address, the same trade name ('PVP Liner'), and the same family members as stockholders. The son, Abel, admitted that the license to operate was simply transferred from his father to the corporation. This surreptitious transformation was clearly an attempt to evade labor liabilities, necessitating the treatment of the sole proprietorship and the corporation as one and the same entity. On Issue 4: The findings of the NLRC and CA regarding illegal dismissal were sustained as they were supported by substantial evidence. The respondents were dismissed for their union activities without the requisite substantive and procedural due process. However, the Court modified the award by excluding eighteen (18) respondents who had executed voluntary and valid Quitclaims/Releases. The Court found no evidence of deceit or coercion in the execution of these quitclaims, and the considerations received were deemed reasonable and not grossly disproportionate to the computed claims.
Main Doctrine
The doctrine of piercing the corporate veil applies when a corporation is used as a shield to evade labor obligations or where the corporation is a mere adjunct, business conduit, or alter ego of another entity or person. In labor jurisprudence, if a sole proprietorship is converted into a family corporation with the same business address, name, and assets during the pendency of labor disputes, the corporation is deemed a successor-in-interest. Consequently, the separate personality is disregarded to ensure that the employees' claims for illegal dismissal and unpaid benefits are satisfied by the successor entity.