SHOEMART, INC., PETITIONER, VS. NATIONAL LABOR RELATIONS COM­MISSION AND MORIS INDUSTRIES WORKERS UNION, RESPONDENTS.

Two main questions are raised in these consolidated
petitions. The first is whether the
Labor Arbiter’s refusal to allow one party to resume and complete
cross-examination of a vital witness — and another party, even to commence
cross-examination of the same witness — constitutes a denial of due
process. The second is whether a
corporation may be held liable for acts of unfair labor practice and illegal
dismissal of employees of a “sister corporation,” engaged in a
different line of business, on the theory that the latter is the former’s alter
ego or business conduit.

One of the corporations involved is Moris Industries, Inc.
(MORIS, for short), a private corporation engaged in the manufacture of leather
products, e.g., bags, belts, etc. It had
in its employ seventy-three (73) workers, fifty-six (56) of whom are members of
a labor organization known as Moris Industries Workers Union (UNION, for
short).

On June 7, 1985 the UNION affiliated itself with the Philippine
Association of Free Labor Unions (PAFLU). On June 15, 1985, the UNION, through PAFLU, sent a letter to MORIS
informing it of the UNION’s existence, and inviting the latter to enter into
negotiations for a collective bargaining agreement (CBA). MORIS’s reaction was as swift as it was
unexpected. Within two days, it
suddenly closed shop and ceased operations, claiming that such a closure had
become inevitable because of business reverses.

On June 20, 1985, the UNION (PAFLU) filed a complaint for unfair
labor practice against MORIS. A week
later, it commenced another case against MORIS, this time for recovery of wage
differentials and other monetary benefits (emergency cost of living allowance
[ECOLA], sick leave, vacation leave benefits, etc.).

Shoemart, Inc., the other corporation involved in these cases,
was impleaded by the UNION in both cases, together with the former’s president,
Mr. Henry Sy, on the stated theory that Shoemart, Inc. (hereafter, simply
SHOEMART) and MORIS were one and the same juridical entity.

During the pendency of the two cases, the UNION disaffiliated
itself from PAFLU and registered itself as an independent labor organization. The two cases were consolidated on motion of the UNION. The parties then submitted position papers.

SHOEMART’s position paper set up the claim inter alia that
its corporate personality was separate and distinct from that of MORIS, and
there was no employer-employee relationship between it and the UNION’s members.

At the hearing on the merits on July 7, 1986, before Labor
Arbiter Romulo Lopez, cross-examination was allowed and was begun by MORIS’
counsel of the UNION’s witness, Cresencio Edic, based on the latter’s
affidavit. Edic’s affidavit (as
summarized by respondent Commission in its Decision promulgated on July 10,
1989) was substantially to the effect that:

”
* * he was first employed as sample maker, by the people who owned
SM. His job was to make samples to be
displayed on the window and only those which appealed to the customers were
mass produced. When he was promoted to
over-all supervisor, the factory was transferred to its present location and
from then on, this production division was incorporated separately and has
undergone many changes in name, yet all throughout, the known owners of the
factory remain the same.”

Cross-examination of witness Edic was, however, not completed by
counsel for MORIS. The cases were
postponed a number of times and transferred from one labor arbiter to the other
on account of the reorganization of the Department of Labor and Employment in
the aftermath of the 1986 Revolution.

On August 13, 1986, SHOEMART and Henry Sy, Sr. moved to dismiss
the complaint against them on the ground of lack of jurisdiction, there being
no employment relationship between SHOEMART and the UNION members, MORIS’
employees. On February 18, 1987, MORIS
moved that trial continue for cross-examination and further presentation of
evidence. Other pleadings and motions
were filed by the parties, the last being the UNION’s manifestation and motion
dated July 8, 1987 that the consolidated cases be resolved on the basis of the
position papers and pleadings already on record.

The motions were eventually acted on by Labor Arbiter Cornelio
Linsangan, the fourth arbiter to handle the case. By Order dated July 13, 1987 he denied SHOEMART’s (and Henry
Sy’s) motion to dismiss for being “without merit,” and because, at
any rate, it could “be better discussed and resolved together with the
merits of the complaint itself.” As to the UNION’s motion, Arbiter
Linsangan ruled in the same order that although he had ascertained, “after
painstakingly going over the records, that the case can be decided already
based on the several pleadings filed * *,” the parties should nevertheless
be granted time (fifteen [15] days) “within which to file their last pleadings” after which “the
case shall be considered submitted already for resolution.”^[1]

SHOEMART (and Henry Sy, Sr.) filed in this Court on October 29, 1987 a special action of certiorari to annul the Order of Labor Arbiter Linsangan,^[2]
and in the proceedings before the latter, a Manifestation and Motion to Defer Proceedings pending resolution of
their certiorari action.^[3]

At this time however, Arbiter Linsangan had already rendered a
decision (dated October 26, 1987) in favor of the UNION, holding both MORIS and
SHOEMART “equally liable” to the complaining UNION.^[4]
The dispositive portion of the judgment reads as follows:

“WHEREFORE, judgment is hereby rendered declaring respondent
Moris Industries, Inc. guilty of unfair labor practice as charged.

The respondents are hereby ordered to pay complainants (a total of
P365,150.52 for fifty-six [56] employees the amounts due them as discussed
above.

Further, the respondents are ordered to pay each complainant the
sum of P10,000.00 by way of damages.”

The Linsangan decision declared
“that indeed Moris Industries was but a conduit of SM Shoe Mart,
Inc.,” it appearing that the “payrolls used by the former bear the
letterhead of the latter,” and that “Moris Industries is a family
corporation of the Sy’s, * * the same family that owns and controls SM Shoe
Mart, Incorporated **.”^[5]

Both SHOEMART (and Henry Sy, Sr.) and MORIS appealed to the NLRC
on or about November 11, 1987.^[6]

Subsequently, SHOEMART’s
(and Henry Sy’s) certiorari action above mentioned (G.R. No. 80312) was
dismissed by this Court, by Resolution dated April 6, 1988, for being
premature in view of the appeal filed with the NLRC.

On July 10, 1989, the
respondent NLRC rendered its decision on the consolidated cases, affirming the
decision of the Labor Arbiter with modification.^[7] It disposed of the cases as follows:

“WHEREFORE, premises considered, the appeals of respondents
are hereby dismissed and the decision of Labor Arbiter Cornelio Linsangan is
hereby modified in that, members of complainant union have the option to
choose, in lieu of separation pay, reinstatement to their former positions,
without loss of seniority rights; and the award of 13th month pay to comprise
three (3) years instead of one (1) year. Furthermore, the award of damages is hereby reduced to Three Thousand
Pesos (P3,000.00) for each worker. The
rest of the Labor Arbiter’s decision is affirmed in all other respects.

“SO ORDERED.”

SHOEMART and the UNION respectively moved for reconsideration and
clarification. The motions were
resolved by a Resolution dated October 30, 1989, disposing as follows:

“WHEREFORE, premises considered, our decision dated July 19,
1989 is modified in that, respondents are ordered to pay members of complainant
union, in addition to the previous awards, the equivalent of two (2) years as
backwages, regardless of whether the employees elect to be reinstated or opt to
receive separation pay; plus attorney’s fees at the rate of 10% of the total
award; with the further clarification that the award of 13th month pay shall be
for the period of three (3) years. The
Corporate Auditing Examiner is directed to make the necessary computation.

The motion for reconsideration of respondents is hereby dismissed
for lack of merit.”

Before this Court now are two petitions seeking, on different
bases, modification of the NLRC decision of July 10, 1989, as modified by its
Resolution of October 30, 1989. One,
docketed as G.R. Nos. 90795-96, was filed by SHOEMART; the other, docketed as
G.R. Nos. 91125-26, was filed by MORIS UNION. The cases were raffled to the First and Third Divisions respectively of
this Court. The First Division granted
SHOEMART’s prayer for a restraining order, upon a bond of P600,000.00, by
Resolution dated November 27, 1989.^[8] After
an exchange of pleadings by the parties, the Third Division issued a Resolution
dated January 31, 1990, consolidating the two petitions.^[9]

MORIS did not appeal. The
modified judgment thus became final and executory, and its liability for unfair
labor practice and for illegal dismissal of its employees, represented by the
UNION, thus became incontestable.

The basic question involved in these appeals is whether or not
the respondent NLRC gravely abused its discretion in (1) holding, on the one
hand, SHOEMART “equally liable” with MORIS for unfair labor practice,
illegal termination of employment and non-payment of mandated benefits to the
latter’s employees; and, on the other, (2) conceding to the UNION monetary
awards less than those claimed by it.

SHOEMART contends that although in “the summary procedure
adopted in labor cases ** the case is decided based on position paper,”
Labor Arbiters nevertheless have discretion to “themselves conduct trial
on the merits when there are intricate questions of facts that need to be
resolved;” and this is why the Union “presented Cresencio Edic, whose
direct testimony was concluded” and whose cross-examination was begun but
not finished by MORIS’ counsel. According to SHOEMART, MORIS was unable to
resume and conclude its cross-examination of Edic — and SHOEMART itself
“totally failed to cross-examine the said witness” — because the
Labor Arbiter (Linsangan) to whom the cases were finally assigned, in his Order
dated July 10, 1987, declared that the cases could already be decided on the
pleadings already presented, as well as on the “last pleadings” that
the parties might additionally file within the period granted to them: fifteen (15) days from notice. SHOEMART posits that both it and MORIS were
thereby denied due process, specially considering the crucial character of the testimony of the witness, Edic.

The argument cannot be
sustained. Whatever merit it might have
in the context of ordinary civil actions, where the rules of evidence apply
with more or less strictness, disappears when adduced in connection with
proceedings before Labor Arbiters and the National Labor Relations Commission;
for in said proceedings, the law is explicit that “the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the
(law’s) spirit and intention that the Commission and its members and the Labor
arbiters shall use every and all reasonable means to ascertain the facts in
each case speedily and objectively and without regard to technicalities of law
or procedure, all in the interest of due process.”^[10] Indeed,
it is not the Rules of Court enacted by the Supreme Court but rather the
regulations promulgated by the National Labor Relations Commission which govern
“the hearing and disposition of cases before it and its regional branches
**.” The “Revised Rules of Court of the Philippines and prevailing
jurisprudence,” the law says, may be applied to labor cases only under
quite stringent limits, i.e., “in the absence of any applicable provision
(in the Rules of the Commission), and in order to effectuate the objectives of
the Labor Code **, in the interest of expeditious labor justice and whenever
practicable and convenient, by analogy or in a suppletory character and
effect.”^[11] Under these rules, the proceedings before a
Labor Arbiter are “non-litigious in nature” in which, “subject
to the requirements of due process, the technicalities of law and procedure and
the rules obtaining in the courts of law ** (do not) strictly apply;”^[12] “trial-type” hearings are not
required; cases may be decided on the basis of verified position papers
submitted by the parties, accompanied by the affidavits of their witnesses and
such other authentic documents as are relevant.^[13] Such a procedure has been sanctioned by this
Court as not violative of due process.^[14]

Now, whether or not a “formal trial or hearing” should
be had is a matter lying in the discretion of the Labor Arbiter.^[15]
The Arbiter may opt to hold a hearing, e.g., where the affidavits “being
actually hearsay and untested by cross-examination, are not enough to satisfy
the quantum of proof required by law, especially where the statements of the
affiants are controverted **.”^[16]

In this case, the first Labor Arbiter who took cognizance of the
cases (Arbiter Romulo Lopez) evidently believed a hearing with
cross-examination of witnesses would be of help in the determination of the
merits of the cases. His view was not
shared by the Labor Arbiter to whom the cases were ultimately assigned (Arbiter
Cornelio Linsangan) who opined that after a thoroughgoing review of the
records, “the case can be decided already based on the several pleadings
filed * *.” The Arbiter nevertheless gave the parties fifteen [15] days
“within which to file their last pleadings,” i.e., submit additional
evidence and arguments, after which “the case shall be considered
submitted already for resolution.”

MORIS and SHOEMART were thus given ample opportunity to be heard,
to adduce evidence in support of their version of the material factual
occurrences and controvert the UNION’s proofs, including the affidavit of
Crescencio Edic. They both submitted
position papers with supporting affidavits and documents; they presented
arguments in support of their submissions through various pleadings and
motions. Both MORIS and SHOEMART additionally
pleaded their causes on appeal before the National Labor Relations Commission.

Under the circumstances, a claim of denial of due process on
SHOEMART’s part is completely unavailing. The essence of due process is that a party be afforded a reasonable
opportunity to be heard and to submit any evidence he may have in support of
his defense.^[17]
What is vital, in other words, is not the opportunity to cross-examine a
particular witness, but the opportunity to be heard of which, as already
stated, SHOEMART has extensively availed.

SHOEMART next impugns the public respondents’ act of
“piercing the veil of corporate fiction” as regards MORIS —
separately registered as a juridical entity — and pronouncing it to be a
“mere conduit” of SHOEMART, and “equally liable” upon the
former’s liabilities to its employees.^[18] The
respondent Commission’s conclusions on this point were drawn from the following
facts, which it deemed to have been adequately established by the complainant
UNION’s evidence, to wit:^[19]

“1. In his affidavit, Mr. (Cresencio) Edic
testified that he was first employed as sample maker, by the people who owned
SM. His job was to make samples to be
displayed on the window and only those which appealed to the customers were
mass produced. When he was promoted to
over-all supervisor, the factory was transferred to its present location and
from then on, this production division was incorporated separately and has
undergone many changes in name, yet all throughout, the known owners of the
factory remain the same;

2. An
examination of the Incorporation papers of SM Shoe Mart and Moris Manufacturing
show (sic) that except for Elizabeth Sy — all other five (5)
incorporators and directors of Moris Industries are major stockholders of SM
Shoe Mart as of July 20, 1985;

3. The SM Shoe Mart is the exclusive buyer of
all of Moris’ products;

4. Both are housed in one building and Moris for many years has been using
the payrolls of SM Shoe Mart. SM glibly
excuses this fact by alleging that this was done without its knowledge. We, however, considering the close
relationship of the parties, find this incredible.”

The Court fails to discern any indication in the record that
these factual conclusions were reached by the respondent NLRC whimsically or
capriciously. In truth, the respondent
Commission is shown to have considered and analyzed the pertinent proofs of the
complainant UNION in relation to the defenses set up by the private
respondents. Even if it be theorized
that there is room for some divergence of views regarding the objective
validity of said conclusions, they may not be nullified and set aside on the
theory that they had been rendered with grave abuse of discretion.

Much the same thing may be said respecting the reliefs complained
of by the UNION as being less than those to which they are rightfully
entitled. The Court perceives no
whimsicality or capriciousness in the manner by which the NLRC arrived at its
conclusions on the matter and will therefore decline to nullify or set them aside.

The only other question left for resolution is whether or not,
upon the facts obtaining in the cases at bar, the employees of MORIS have the
right to be “reinstated” or absorbed into the pool of employees of
SHOEMART.

No claim is made that SHOEMART is other than a marketing company,
or has ever engaged in manufacturing leather goods or products, or any other
commodities. It seems undisputed, too,
that MORIS has not been in operation for several years; its business is
non-existent; it is a dead company, to all intents and purposes. It is a defunct company at this time,
whatever might have been the original cause or motivation for its initial
closure and cessation of operations. Its stockholders and officers have caused its extinguishment: a reality that cannot but be
acknowledged. Under the circumstances,
reinstatement of the employees to MORIS is no longer possible. Compulsion of
the stockholders and officers to reopen for business is not a rational
option. Some other sanction must be
found.

Neither may SHOEMART be compelled to open a manufacturing company
to engage in the same line of business as MORIS in order to accommodate the
latter’s former employees, numbering some seventy or so, or to absorb these
seventy workers latter into its own business, considering the obvious
difference and diversity in skills, experience and orientation, etc. between
its employees and those of MORIS.

No reasonable alternative thus presents itself except to require
the payment of separation pay in lieu of the reinstatement decreed by the
judgment of the respondent Commission. That liability may in the premises properly and justly be imposed on
SHOEMART, as well as on MORIS and on the latter’s president or executive head,^[20]
jointly and severally.

WHEREFORE, the petitions for certiorari are
DENIED. The Decision of the respondent
Commission of July 10, 1989, as modified by its Resolution of October 30, 1989,
is AFFIRMED but further modified in that in lieu of the option of reinstatement
or separation pay granted to the members of complainant union in addition to
the other reliefs therein set out, they shall have the right only to separation
pay, which shall be demandable from and payable by SM Shoemart, Inc., Moris
Industries, Inc. and the latter’s President, petitioner Henry T. Sy, Sr.,
jointly and severally. The temporary
restraining order of November 27, 1989 is LIFTED AND SET ASIDE without
prejudice to the enforcement of the liability against the bond posted in
connection therewith.

SO ORDERED.

Padilla, Regalado, Nocon, and
Puno, JJ., concur.

^[1]
Annex C, Rollo of G.R. Nos. 90795-96, pp. 38-29

^[2]
Docketed as G.R. No. 80312 (Annex E, petition)

^[3]
Annex F, Petition in G.R. Nos. 90795-96, Rollo, pp. 57-58

^[4]
Annex G, Petition in G.R. Nos. 90795-96, Rollo, pp. 59 et seq.

^[5]
Rollo of G.R. Nos. 90795-96, pp. 60-68.

^[6]
Annex D, Petition in G.R. Nos. 90795-96, Rollo, pp. 40 et seq.

^[7]
Annex A, Petition in G.R. 90795-96

^[8]
Rollo, p. 90

^[9]
G.R. No. 91125-26, Rollo, p. 85

^[10]
ART. 221, Labor Code, as amended

^[11]
New Rules of Procedure of the National Labor Relations Commission, Aug. 31,
1990, eff. “fifteen (15) days after their publication in two (2)
newspapers of general circulation:” SEC. 3, Rule I

^[12]
Id.: SEC. 7, Rule V

^[13]
Id.: SEC. 3, Rule V

^[14]
Commando Security Agency v. NLRC, et al., 211 SCRA 645 (1992), citing
Sections 2 and 3 of the Revised Rules of the NLRC; Manila Resource Development
Corp. v. NLRC, et al., 213 SCRA 296 (1992), citing Yap v.
Inciong, 186 SCRA 664 (1990) which, in turn, cites B. Sta. Rita & Co., Inc.
v. Arroyo and NLRC, 168 SCRA 581 (1988); Coca Cola Bottlers Phils. v.
NLRC, et al., 180 SCRA 195 (1989), citing Remerco Garment Manufacturing v.
Minister of Labor & Employment, et al., 135 SCRA 165 (1985), Manila Doctors
Hospital v. NLRC, et al., 135 SCRA 262 (1985), and Asia World Publishing
House, Inc. v. Ople, 152 SCRA 219 (1987), citing ART. 221, Labor Code;
Blue Bar Coconut Philippines, Inc. v. Minister of Labor, 174 SCRA 25
(1989); Cebu Institute of Technology v. Minister of Labor, 113 SCRA 257
(1982)

^[15]
Id.: SEC. 4, Rule V

^[16]
Coca-Cola Bottlers Philippines, Inc. v. NLRC, 180 SCRA 195, 202

^[17]
Rapid Manpower Consultants, Inc. v. NLRC, et al., G.R. No. 88683, Oct.
18, 1990

^[18]
The doctrine is explained in Cease, et al. v. Court of Appeals, et al.,
93 SCRA 483, invoked by respondent NLRC (rollo, pp. 27-28): “A rich store of jurisprudence has
established the rule known as the doctrine of disregarding or piercing the veil
of corporate fiction. Generally, a corporation is invested by law with a
personality separate and distinct from that of the persons composing it as well
as from that of any other legal entity to which it may be related. By virtue of this attribute, a corporation
may not, generally, be made to answer for acts or liabilities of its stockholders
or those of the legal entities to which it may be connected, and vice
versa. This separate and distinct
personality is, however, merely a fiction created by law for convenience and to
promote the ends of justice (Laguna Transport Company vs. Social
Security System, L-1406, April 28, 1960; La Campana Factory, Inc. vs.
Kaisahan ng mga Manggagawa sa La Campana, L-5677, May 25, 1953). For this reason, it may not be used or
invoked for ends subversive of the policy and purpose behind its creation
(Emiliano Cano Enterprises, Inc. vs. CIR, L-20501, February 26, 1965) or
which could not have been intended by law to which its owes its being (McConnel
vs. Court of Appeals, L-10510, March 17, 1961, 1 SCRA 722). This is particularly true where the fiction
is used to defeat public convenience, justify wrong, protect fraud, defend
crime (Yutivo Sons Hardware vs. Court of Tax Appeals, L-13203, January
28, 1961, 1 SCRA 160), confuse legitimate legal or judicial issues (R.F. Sugay
& Co. vs. Reyes, L-20451, December 28, 1964), perpetrate deception
or otherwise circumvent the law (Gregorio Araneta, Inc. vs. Tuazon de
Paterno, L-2886, August 22, 1952, 49 O.G. 721). This is likewise true where the corporate entity is being used as
an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity (McConnel vs. Court of
Appeals, supra; Commissioner of Internal Revenue vs. Norton
Harrison Co., L-7618, Augst 31, 1964).

In any of these cases, the notion
of corporate entity will be pierced or disregarded, and the corporation will be
treated merely as an association of persons or, where there are two
corporations, they will be merged as one, the one being merely regarded as part
or instrumentality of the other (Koppel [Phil.] Inc. vs. Yatco, 77 Phil.
496; Yutivo Sons Hardware Company vs. Court of Tax Appeals, supra).”

^[19]
Rollo, pp. 28-29

^[20]
A.C. Ransom Labor Union-CCLU v. NLRC, 42 SCRA 269; Chua v. NLRC,
182 SCRA 353; Gudez v. NLRC, 183 SCRA 644; Maglutac v. NLRC, 189
SCRA 767