Kukan International Corporation v. Reyes (2010) – 6.
After the above decision became final and
Velasco, J. executory, Morales moved for and secured a writ of Petitioner: Kukan International Corporation execution against Kukan, Inc. Respondents: Hon. Amor Reyes and Romeo M. o The sheriff then levied upon various Morales, doing business under the name and Style of personal properties found at what was RM Morales, Trophies, and Plaques supposed to be Kukan Inc.’s office at Unit Concept: The Corporate Entity 2205, 88 Corporate Center, Salcedo Digest maker: Kat Village, Makati City. 7. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Brief Facts: Romeo M. Morales doing business Inc., Kukan International Corporation (KIC) filed an under the name RM Morales Trophies and Plaques Affidavit of Third-Party Claim. was awarded a P5 million contract for the supply and o Notably, KIC was incorporated in August installation of signages in a building constructed in 2000, or shortly after Kukan, Inc. had Makati. Morales complied with his contractual stopped participating in Civil Case No. 99- obligations but he was paid only the amount of 93173. P1,976,371.07 leaving a balance ofP1,412,130.93. He 8. In reaction to the third party claim, Morales filed a case against Kukan, Inc., for sum of money with interposed an Omnibus Motion dated April 30, the RTC of Manila. Kukan Inc., stopped participating in 2003. In it, Morales prayed, applying the principle the proceedings in November 2000, hence, it was of piercing the veil of corporate fiction, that declared in default and Morales presented his evidence an order be issued for the satisfaction of the ex-parte against petitioner and a decision was judgment debt of Kukan, Inc. with the properties rendered in favour of the latter. During the execution, under the name or in the possession of KIC, it the sheriff levied the personal properties found at the being alleged that both corporations are but one office of Kukan, Inc. Claiming it owned the properties and the same entity. The court denied the omnibus levied, Kukan International Corporation (KIC) filed an motion. Affidavit of Third Party Claim. Morales filed an Omnibus 9. In a bid to establish the link between KIC and Motion praying to apply the principle of piercing the Kukan, Inc., and thus determine the true veil of corporate entity. He alleged that Kankun, Inc. relationship between the two, Morales filed a and KIC are one and the same corporation. Motion for Examination of Judgment Debtors. In this motion Morales sought that subponae be Doctrine: Piercing the veil of corporate entity applies issued against the primary stockholders of Kukan, to determination of liability not of jurisdiction. This is so Inc., among them Michael Chan, a.k.a. Chan Kai Kit. because the doctrine of piercing the veil of This too was denied by the trial court. corporate fiction comes to play only during the 10. Morales then sought the inhibition of the presiding trial of the case after the court has already acquired judge, Eduardo B. Peralta, Jr., who eventually jurisdiction over the corporation. Hence, before granted the motion. The case was re-raffled to this doctrine can be applied, based on the evidence Branch 21, presided by public respondent Judge presented, it is imperative that the court must first Amor Reyes. have jurisdiction over the corporation. 11. Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction FACTS: to declare KIC as having no existence separate 1. Sometime in March 1998, Kukan, Inc. conducted a from Kukan, Inc. This time around, the RTC granted bidding for the supply and installation of signages the motion. in a building being constructed in Makati City. 12. From the above order, KIC moved but was denied 2. Morales tendered the winning bid and was awarded reconsideration. the P5 million contract. 13. KIC went to the CA on a petition for certiorari to o Some of the items in the project award nullify the aforesaid March 12 and June 7, 2007 RTC were later excluded resulting in the Orders. CA denied said petitioner. corresponding reduction of the contract price to PhP 3,388,502. ISSUES: o Despite his compliance with his contractual 1. WON the trial court can, after the judgment against undertakings, Morales was only paid the Kukan, Inc. has attained finality, execute it against the amount of PhP 1,976,371.07, leaving a property of KIC (NO) balance of PhP 1,412,130.93, which Kukan, 2. WON the trial court acquired jurisdiction over KIC Inc. refused to pay despite demands. (NO) 3. Morales filed a Complaint with the RTC against 3. WON the trial and appellate courts correctly applied, Kukan, Inc. for a sum of money. under the premises, the principle of piercing the veil of 4. Following the joinder of issues after Kukan, Inc. corporate fiction (NO) filed an answer with counterclaim, trial ensued. 4. WON Morales can proceed against KIC for the However, starting November 2000, Kukan, Inc. no judgment debt of Kukan, Inc. assuming hypothetically longer appeared and participated in the that he can, applying the piercing the corporate veil proceedings before the trial court, prompting the principle resolves itself into the question of whether a RTC to declare Kukan, Inc. in default and paving the mere motion is the appropriate vehicle for such way for Morales to present his evidence ex parte. purpose. 5. RTC rendered a Decision finding for Morales and against Kukan, Inc. RATIO: 1. The court which rendered the judgment has a the jurisdiction of the trial court owing to its filing general supervisory control over its process of of four pleadings adverted to earlier, namely: execution, and this power carries with it the (a) the Affidavit of Third-Party Claim; right to determine every question of fact and law (b) the Comment and Opposition to Plaintiffs which may be involved in the execution. The Omnibus Motion; courts supervisory control does not, however, (c) the Motion for Reconsideration of the RTC Order extend as to authorize the alteration or dated March 12, 2007;and amendment of a final and executory decision, (d) the Motion for Leave to Admit Reply. save for certain recognized exceptions, among The CA, citing Section 20, Rule 14 of the Rules of which is the correction of clerical errors. Else, Court, stated that the procedural rule on service of the court violates the principle of finality of summons can be waived by voluntary submission judgment and its immutability. to the courts jurisdiction through any form of - As we held in Industrial Management International appearance by the party or its counsel. Development Corporation vs. NLRC: It is an - In the instant case, KIC was not made a party- elementary principle of procedure that the defendant in Civil Case No. 99-93173. Even if it is resolution of the court in a given issue as conceded that it raised affirmative defenses embodied in the dispositive part of a decision or through its aforementioned pleadings, KIC never order is the controlling factor as to settlement of abandoned its challenge, however implicit, to the rights of the parties. Once a decision or order RTCs jurisdiction over its person. The challenge was becomes final and executory, it is removed from subsumed in KICs primary assertion that it was not the power or jurisdiction of the court which the same entity as Kukan, Inc. rendered it to further alter or amend it. It thereby - Pertinently, in its Comment and Opposition to becomes immutable and unalterable and any Plaintiffs Omnibus Motion dated May 20, 2003, KIC amendment or alteration which substantially entered its special but not voluntary affects a final and executory judgment is null and appearance alleging therein that it was a different void for lack of jurisdiction, including the entire entity and has a separate legal personality from proceedings held for that purpose. An order of Kukan, Inc. And KIC would consistently reiterate execution which varies the tenor of the judgment this assertion in all its pleadings, thus effectively or exceeds the terms thereof is a nullity. resisting the RTCs jurisdiction of its person. - In the case of Republic v Tango, the court held that: - KIC could not file before the RTC a motion to The doctrine of finality of judgment is grounded on dismiss and its attachments in Civil Case No. 99- the fundamental principle of public policy and 93173, precisely because KIC was neither sound practice that, at the risk of occasional error, impleaded nor served with summons. the judgment of courts and the award of quasi- Consequently, KIC could only assert and claim judicial agencies must become final on some through its affidavits, comments, and motions filed definite date fixed by law. The only exceptions to by special appearance before the RTC that it is the general rule are the correction of clerical separate and distinct from Kukan, Inc. errors, the so-called nunc pro tunc entries - Following La Naval Drug Corporation, KIC cannot be which cause no prejudice to any party, void deemed to have waived its objection to the courts judgments, and whenever circumstances lack of jurisdiction over its person. It would defy transpire after the finality of the decision logic to say that KIC unequivocally submitted itself which render its execution unjust and to the jurisdiction of the RTC when it strongly inequitable. asserted that it and Kukan, Inc. are different - The RTC decision, in unequivocal terms, directed entities. In the scheme of things obtaining, KIC had Kukan, Inc. to pay the aforementioned awards to no other option but to insist on its separate identity Morales. Thus, making KIC, thru the medium of a and plead for relief consistent with that position. writ of execution, answerable for the above judgment liability is a clear case of altering a 3. The principle of piercing the veil of corporate decision, an instance of granting relief not fiction, and the resulting treatment of two contemplated in the decision sought to be related corporations as one and the same executed. juridical person with respect to a given - The change does not fall under any of the transaction, is basically applied only to recognized exceptions to the doctrine of finality determine established liability; it is not available and immutability of judgment. It is a settled rule to confer on the court a jurisdiction it has not that a writ of execution must conform to the fallo of acquired, in the first place, over a party not the judgment; as an inevitable corollary, a writ impleaded in a case. beyond the terms of the judgment is a nullity. - A corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of 2. A special appearance before the court its corporate fiction. In that situation, the court has challenging its jurisdiction over the person not acquired jurisdiction over the corporation and, through a motion to dismiss even if the movant hence, any proceedings taken against that invokes other grounds is not tantamount to corporation and its property would infringe on its estoppel or a waiver by the movant of his right to due process. objection to jurisdiction over his person; and - According to Aguedo Agbayani, a recognized such is not constitutive of a voluntary authority on Commercial Law: submission to the jurisdiction of the court. Piercing the veil of corporate entity applies to - In the assailed decision, the appellate court determination of liability not of jurisdiction. deemed KIC to have voluntarily submitted itself to This is so because the doctrine of piercing the veil of corporate fiction comes to play only - In fine, to justify the piercing of the veil of during the trial of the case after the court has corporate fiction, it must be shown by clear and already acquired jurisdiction over the convincing proof that the separate and distinct corporation. Hence, before this doctrine can be personality of the corporation was purposefully applied, based on the evidence presented, it is imperative that the court must first have employed to evade a legitimate and binding jurisdiction over the corporation. commitment and perpetuate a fraud or like - The implication of the above comment is twofold: wrongdoings. (1) the court must first acquire jurisdiction over the - In those instances when the Court pierced the veil corporation or corporations involved before its or of corporate fiction of two corporations, there was their separate personalities are disregarded; and a confluence of the following factors: (2) the doctrine of piercing the veil of corporate 1. A first corporation is dissolved; 2. The assets of the first corporation is entity can only be raised during a full-blown trial transferred to a second corporation to avoid a over a cause of action duly commenced involving financial liability of the first corporation; and parties duly brought under the authority of the 3. Both corporations are owned and controlled court by way of service of summons or what passes by the same persons such that the second as such service. corporation should be considered as a - Anent the matter of the time and manner of raising continuation and successor of the first the principle in question, it is undisputed that no corporation. full-blown trial involving KIC was had when the RTC - In the instant case, however, the second and third disregarded the corporate veil of KIC. The reason factors are conspicuously absent. There is, for this actuality is simple and undisputed: KIC was therefore, no compelling justification for not impleaded in Civil Case No. 99-93173 and that disregarding the fiction of corporate entity the RTC did not acquire jurisdiction over it. It was separating Kukan, Inc. from KIC. In applying the dragged to the case after it reacted to the principle, both the RTC and the CA miserably failed improper execution of its properties and veritably to identify the presence of the abovementioned hauled to court, not thru the usual process of factors. service of summons, but by mere motion of a party - RTC brushed aside the separate corporate with whom it has no privity of contract and after existence of Kukan, Inc. and KIC on the main the decision in the main case had already become argument that Michael Chan owns 40% of the final and executory. common shares of both corporations, obviously - As a general rule, courts should be wary of lifting oblivious that overlapping stock ownership is a the corporate veil between corporations, however common business phenomenon. related. Philippine National Bank v. Andrada o It must be remembered, however, that KICs Electric Engineering Company explains why: properties were the ones seized upon levy “A corporation is an artificial being created by on execution and not that of Kukan, Inc. or operation of law. It has a personality separate of Michael Chan for that matter. and distinct from the persons composing it, as o Mere ownership by a single stockholder or well as from any other legal entity to which it by another corporation of a substantial may be related. This is basic. block of shares of a corporation does not, Equally well-settled is the principle that the standing alone, provide sufficient corporate mask may be removed or the justification for disregarding the separate corporate veil pierced when the corporation is corporate personality. just an alter ego of a person or of another o For this ground to hold sway in this case, corporation. For reasons of public policy and in there must be proof that Chan had control the interest of justice, the corporate veil will or complete dominion of Kukan and KICs justifiably be impaled only when it becomes a finances, policies, and business practices; shield for fraud, illegality or inequity committed he used such control to commit fraud; and against third persons. the control was the proximate cause of the Hence, any application of the doctrine of financial loss complained of by Morales. piercing the corporate veil should be done with - CA found the meager paid-up capitalization of caution. A court should be mindful of the milieu Kukan, Inc. and the similarity of the business where it is to be applied. It must be certain that activities in which both corporations are engaged the corporate fiction was misused to such an as a jumping board to its conclusion that the extent that injustice, fraud, or crime was creation of KIC served as a device to evade the committed against another, in disregard of its obligation incurred by Kukan, Inc. rights. The wrongdoing must be clearly and o The appellate court, however, left a gaping convincingly established; it cannot be hole by failing to demonstrate that Kukan, presumed. Otherwise, an injustice that was Inc. and its stockholders defrauded Morales never unintended may result from an erroneous application. o Judging from the records, no serious veil can, if appropriate, be applied, based on the attempt was made to levy on the evidence adduced. properties of Kukan, Inc. - Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.’s 4. Morales adverted motion to pierce the veil of indebtedness could hardly be the subject, under corporate fiction dated January 3, 2007 stated a the premises, of a mere motion interposed after new cause of action, i.e., for the liability of the principal action against Kukan, Inc. alone had judgment debtor Kukan, Inc. to be borne by KIC peremptorily been terminated. After all, a on the alleged identity of the two corporations. complaint is one where the plaintiff alleges causes This new cause of action should be properly of action. ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate DISPOSITIVE: the petition is hereby GRANTED.