GR 149748; (November, 2006) (Digest)
G.R. No. 149748; November 16, 2006
JANG LIM, ET AL., Petitioners, vs. THE COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION (FIFTH DIVISION), TIMEX SAWMILL AND/OR COTABATO TIMBERLAND CO., INC., ET AL., Respondents.
FACTS
Petitioners, former employees, secured a final and executory NLRC decision holding Cotabato Timberland Company, Inc. (CTCI) liable for monetary awards. To execute the judgment, the sheriff levied on parcels of land where CTCI’s plywood plant stood. However, these properties were already registered under Transfer Certificates of Title (TCTs) in the name of M&S Company, Inc., having been sold by CTCI via absolute deeds of sale dated March 23, 1999. This was about a month after the Supreme Court had promulgated its decision affirming the labor award. M&S, which had allegedly been out of business for seven years prior, moved to lift the levy, claiming ownership.
The Executive Labor Arbiter denied M&S’s motion, declaring the sales null and void for being simulated and in fraud of creditors. He found the timing highly suspicious and concluded M&S was a mere alter ego of CTCI, with intertwined operations and officers. The NLRC reversed this order, holding that the Labor Arbiter could not nullify the deeds of sale or determine ownership, as the properties were covered by Torrens titles and the issue of simulation was a question for the regular courts. The Court of Appeals affirmed the NLRC.
ISSUE
Whether the Executive Labor Arbiter, in execution proceedings, has the authority to pierce the corporate veil and declare deeds of sale fraudulent and simulated to satisfy a final labor judgment.
RULING
Yes, the Labor Arbiter possesses such authority. The Supreme Court partially granted the petition, reinstating the Labor Arbiter’s order for five of the six TCTs. The Court clarified that a writ of execution must be implemented strictly against the judgment debtor’s property. However, when a third party claims the levied property, the sheriff is not duty-bound to proceed unless the judgment creditor posts an indemnity bond. The Labor Arbiter, in resolving such third-party claims, has the ancillary power to determine questions of ownership arising from the execution to ensure its efficacy.
The Court ruled that the Labor Arbiter correctly pierced the corporate veil between CTCI and M&S. The indicia of fraud were compelling: the sale was executed a month after the final Supreme Court decision; M&S had been inactive for years; and the companies shared the same business address and officers. These circumstances supported the finding of a simulated sale to defraud the winning employees. The Torrens system does not protect fraudulent transfers. However, for the one property registered to M&S years before the labor case was filed, the levy was correctly lifted, as no fraud in that specific transfer was proven. Thus, execution could proceed against the properties fraudulently transferred post-judgment.