Business Organization II

Case Assignments III

1. Magsaysay Labrador vs. Court of Appeals 180 SCRA 256

2. Booc vs. Bantuas 354 SCRA 279
3. Jardine Davies Inc vs. JRB Realty Inc. 463 SCRA 555
4. General Credit Corp vs. Alsons Development & Investment Corp. 513 SCRA 225
5. Kukan International Corp. vs. Reyes 631 SCRA 596
6. Secosa vs. Heirs of Erwin Suarez Francisco 433 SCRA 273
7. PNB vs. Ritratto Group Inc. 362 SCRA 216
8. Concept Builders Inc. vs. NLRC 257 SCRA 149
9. Koppel (Phil) Inc vs. Yatco 77 Phil 496
10. Land Bank of the Philippines vs. Court of Appeals 364 SCRA 375
11. Arnold vs. Willets & Patterson Ltd. 44 Phil 634
12. Yutivo Sons Hardware vs. CTA 94 Phil 376
13. Lidell & Co. vs. CIR 2 SCRA 632
14. Mariano vs. Petron Corp. 610 SCRA 487
15. PNB vs. Hydro Resources Contractors Corp G.R. No. 167530 March 31, 2013
16. Prisma Construction & Development Corp vs. Menchavez GR No. 160545 March
9, 2010
17. Livesey vs. Binswanger Philippines Inc et al GR. No 177493 March 19, 2014

1. Magsaysay Labrador vs. Court of Appeals 180 SCRA 256

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA
MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY,
and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of
the Estate of the late Genaro F. Magsaysay respondents.

In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of
1
the Court of Appeals dated July l3, 1981, affirming that of the Court of First Instance of Zambales and
Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private
respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of Appeals
correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the
estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she
alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with
improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her
husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by
her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976
purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was
cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage
dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that
the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that
the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change
made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner
of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his
consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that
the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed
that the Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be
ordered to cancel TCT No. 22431 and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on
the ground that on June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in
SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of
such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that
they have a legal interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no
legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of
certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality
separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb the
findings of the lower court. The appellate court further stated that whatever claims the petitioners have
against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding,
such that with the denial of the motion for intervention, they are not left without any remedy or judicial
relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.

Petitioners anchor their right to intervene on the purported assignment made by the late Senator
of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20,
2
1978. Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of
litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853
3
(1927), petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of
SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of the
widow of their late brother for it concerns the only tangible asset of the corporation and that it appears
that they are more vitally interested in the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation
so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative
4
Marketing Association, Inc. v. Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the Rules of
Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter
in litigation, or in the success of either of the parties or an interest against both, or he must be so situated
as to be adversely affected by a distribution or other disposition of the property in the custody of the court
or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the
rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be
protected in a separate proceeding or not. Both requirements must concur as the first is not more
5
important than the second.
The interest which entitles a person to intervene in a suit between other parties must be in the
matter in litigation and of such direct and immediate character that the intervenor will either gain or lose
by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action
could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and
6
interminable. And this is not the policy of the law.
The words "an interest in the subject" mean a direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without the
7
establishment of which plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer
expectancy of a right in the management of the corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
8
sense the owners of corporate property, which is owned by the corporation as a distinct legal person.
Petitioners further contend that the availability of other remedies, as declared by the Court of
appeals, is totally immaterial to the availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the movant's interest may be
protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for
intervention. It is significant to note at this juncture that as per records, there are four pending cases
involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of
Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.",
involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in
Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida
Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the
purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the
name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among
other things that she be declared in her capacity as the surviving spouse and administratrix of the estate

of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion,
sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SP
No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to
9
Section 5, Rule 86, Revised Rules of Court. Petitioners' interests are no doubt amply protected in these
cases.
Neither do we lend credence to petitioners' argument that they are more interested in the
outcome of the case than the corporation-assignee, owing to the fact that the latter is willing to
compromise with widow-respondent and since a compromise involves the giving of reciprocal
concessions, the only conceivable concession the corporation may give is a total or partial relinquishment
10
of the corporate assets.
Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of
litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot claim the right
to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The
11
corporation did not keep books and records. Perforce, no transfer was ever recorded, much less
effected as to prejudice third parties. The transfer must be registered in the books of the corporation to
affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides,
thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation showing the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred
from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners. SO ORDERED.

2. Booc vs. Bantuas 354 SCRA 279

SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3,
ILIGAN CITY, respondent.

RESOLUTION
DE LEON, JR., J.:
An affidavit-complaint dated August 31, 1999 was filed before the Office of the Court
Administrator (OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court
(RTC), Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of Authority relative to
Civil Case No. 1718 entitled, "Felipe G. Javier, Jr. vs. Rufino Booc."
Complainant is the President of Five Star Marketing Corporation. On August 22, 1994 herein
respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 filed
a Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209
and owned by Five Star Marketing Corporation. Complainant alleged that respondent sheriff, at the
instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent
sheriff's knowledge that the property is owned by the corporation which was not a party to the civil case.
On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that it
was the owner of the property and Rufino Booc had no share or interest in the corporation. Hence, the
corporation demanded that respondent sheriff cancel the notice of levy, otherwise the corporation would
take the appropriate legal steps to protect its interest.
Respondent sheriff, however, did not heed the corporation's demand inasmuch as on August 20,
1999 the corporation received a "Notice of Sale on Execution of Real Property," dated August 11, 1999,
covering the subject property. Respondent sheriff scheduled the public auction on August 31, 1999.
Consequently, the corporation, to protect its rights and interests, was compelled to file an action for
Quieting of Title with the RTC, Branch 4 of Iligan City.
Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he
filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and
participation of Rufino Booc in the parcel of land owned by Five Star Marketing Corporation. Respondent
sheriff claimed that Rufino Booc is the owner of around 200 shares of stock in said corporation according
to a document issued by the Securities and Exchange Commission.
Respondent sheriff stressed that the levy was made on the share, rights and/or interest and
participation which Rufino Booc, as President and stockholder, may have in the parcel of land owned by
Five Star Marketing Corporation. Claiming that he was only acting pursuant to his duties as sheriff,
respondent cited Section 15, Rule 39 of the Rules of Court which states that
x x x The officer must enforce an execution of a money judgment by levying on all the property,
real and personal of every name and nature whatsoever, and which may be disposed of for value
of the judgment debtor not exempt from execution.
Real property stocks, shares, debts, credits, and other personal property, or any interest in either
real or personal property, may be levied upon in like manner and with like effect as under a writ of
execution.
Respondent sheriff said that while complainant Salvador Booc made a demand for the
cancellation of levy made, the former deemed it wise to have the judgment satisfied in accordance with
Section 39 of the Rules of Court Respondent sheriff added that the trial court where the case for Quieting
of Title filed by the corporation was pending ordered the auction sale of the shares of stock of Rufino
Booc. The corporation allegedly never questioned said order of the RTC.
Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his
brother Sheikding Booc. Respondent sheriff submitted as an exhibit an affidavit executed by Sheikding

Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc,
the latter simulated a transfer of his shares of stock in Five Star Marketing Corporation so that the
1
property may not be levied upon.
Complainant, in his reply to respondent sheriffs comment belied the latter's allegation that the
corporation never questioned the auction sale. Complainant averred that contrary to the respondent
sheriff's assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiff's
counsel manifested that the respondent sheriff would only auction Rufino Booc's shares of stock in the
corporation and not the subject property.
The OCA found respondent sheriff liable for the charges filed against him, stating that respondent
sheriff acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara had
already warned him that the public auction should pertain only to shares of stock owned by Rufino Booc
in Five Star Marketing Corporation. Respondent sheriff, however, in violation of the order issued by Judge
Mangotara and in disregard of the manifestation filed by plaintiffs counsel that the sale should involve
only the shares of stock, proceeded to auction the subject property. The OCA, thus, made the
recommendation that:
1) The instant case be RE-DOCKETED as a regular administrative matter; and
2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos
(P10,000.00) for conducting the auction sale in violation of the terms of the order issued by Acting
Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a commission of the
same or similar acts in the future shall be dealt with more severely.
A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the
subject property as well as in the certificate of sale, did not fail to mention that what was being levied
upon and sold was whatever shares, rights, interests and participation Rufino Booc, as president and
stockholder in Five Star Marketing Corporation may have on subject property. Respondent sheriff,
however, overstepped his authority when he disregarded the distinct and separate personality of the
corporation from that of Rufino Booc as stockholder of the corporation by levying on the property of the
corporation. Respondent sheriff should not have made the levy based on mere conjecture that since
Rufino Booc is a stockholder and officer of the corporation, then he might have an interest or share in the
subject property.
It is settled that a corporation is clothed with a personality separate and distinct from that of its
stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the case
2
of Del Rosario vs. Bascar, Jr, we imposed the fine of P5,000.00 on respondent sheriff Bascar for
"allocating unto himself the power of the court to 'pierce the veil of corporate entity' and improvidently
assuming that since complainant Esperanza del Rosario is the treasurer of Miradel Development
Corporation, they are one and the same." In the said case we reiterated the principle that the mere fact
that one is a president of the corporation does not render the property he owns or possesses the property
of the corporation since the president, as an individual, and the corporation are separate entities.
Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when
he levied the property of Five Star Marketing Corporation. The fact, however, that respondent sheriff, in
levying said property, had stated in the notice of levy as well as in the certificate of sale that what was
being levied upon and sold was whatever rights, shares interest and/or participation Rufino Booc, as
stockholder and president in the corporation, may have on the subject property, shows that respondent
sheriff's conduct was impelled partly by ignorance of Corporation Law and partly by mere
overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial court's
order. Hence, we deem that the penalty of a fine of Five Thousand Pesos (P5,000.00) to be imposed on
respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City, Branch 3, is
hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a
repetition of the same or similar acts in the future will be dealt with more severely. SO ORDERED.

3. Jardine Davies Inc vs. JRB Realty Inc. 463 SCRA 555
JARDINE DAVIES, INC., Petitioner, versus JRB REALTY, INC., Respondent.
July 15, 2005 G.R. No. 151438

DECISION
[1]

Before us is a petition for review of the Decision of the Court of Appeals (CA) in CA-G.R. CV
No. 54201 affirming in toto that of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specific
performance; and the Resolution dated January 11, 2002 denying the motion for reconsideration thereof.
The facts are as follows:
In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on
its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was
needed for the Blanco Law Firm housed at the second floor of the building. On March 13, 1980, the
respondents Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G.
Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders
Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling price
[2]
of P99,586.00. Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each to
[3]
deliver 30,000 kcal or 120,000 BTUH were installed by Aircon. When the units with rotary compressors
were installed, they could not deliver the desired cooling temperature. Despite several adjustments and
corrective measures, the respondent conceded that Fedders Air Conditioning USAs technology for rotary
compressors for big capacity conditioners like those installed at the Blanco Center had not yet been
perfected. The parties thereby agreed to replace the units with reciprocating/semi-hermetic compressors
[4]
instead. In a Letter dated March 26, 1981, Aircon stated that it would be replacing the units currently
installed with new ones using rotary compressors, at the earliest possible time. Regrettably, however, it
could not specify a date when delivery could be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the
units, inclusive of parts and services. In October 1987, the respondent learned, through newspaper
[5]
ads, that Maxim Industrial and Merchandising Corporation (Maxim, for short) was the new and exclusive
licensee of Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale,
installation and maintenance of Fedders air conditioners. The respondent requested that Maxim honor
the obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription was
fast approaching, to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an
action for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders Air
Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies,
[6]
Inc.
The latter was impleaded as defendant, considering that Aircon was a subsidiary of the
petitioner. The respondent prayed that judgment be rendered, as follows:
1. Ordering the defendants to jointly and severally at their account and expense deliver, install
and place in operation two brand new units of each 10-tons capacity Fedders unitary packaged air
conditioners with Fedders USAs technology perfected rotary compressors to always deliver 30,000 kcal
or 120,000 BTUH to the second floor of the Blanco Center building at 119 Alfaro St., Salcedo Village,
Makati, Metro Manila;
2. Ordering defendants to jointly and severally reimburse plaintiff not only the
st
th
sums of P415,118.95 for unsaved electricity from 21 October 1981 to 7 January
th
1990 andP99,287.77 for repair costs of the two service units from 7 March 1987 to
th
11 January 1990, with legal interest thereon from the filing of this Complaint until fully
reimbursed, but also like unsaved electricity costs and like repair costs therefrom until
Prayer No. 1 above shall have been complied with;

3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00

attorneys fees and other costs of litigation, as well as exemplary damages in an
amount not less than or equal to Prayer 2 above; and
4. Granting plaintiff such other and further relief as shall be just and equitable
[7]
in the premises.
Of the four defendants, only the petitioner filed its Answer. The court did not acquire
jurisdiction over Aircon because the latter ceased operations, as its corporate life
[8]
ended on December 31, 1986. Upon motion, defendants Fedders Air Conditioning
[9]
USA and Maxim were declared in default.
On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering defendants Jardine
Davies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial and
Merchandising Corporation, jointly and severally:
1.

To deliver, install and place into operation the two (2) brand new
units of Fedders unitary packaged airconditioning units each of 10 tons
capacity with rotary compressors to deliver 30,000 kcal or 120,000
BTUH to the second floor of the Blanco Center building, or to pay
plaintiff the current price for two such units;

2.

To reimburse plaintiff the amount of P556,551.55 as and for the

unsaved electricity bills from October 21, 1981 up to April 30, 1995;
and another amount of P185,951.67 as and for repair costs;

3.

To pay plaintiff P50,000.00 as and for attorneys fees; and

4.

Cost of suit.

[10]

The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding
it liable because it was not a party to the contract between JRB Realty, Inc. and Aircon, and
that it had a personality separate and distinct from that of Aircon.
On March 23, 2000, the CA affirmed the trial courts ruling in toto; hence, this petition.
The petitioner raises the following assignment of errors:
I.

II.

III.

IV.

V.
VI.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR

THE ALLEGED CONTRACTUAL BREACH OF AIRCON SOLELY BECAUSE
THE LATTER WAS FORMERLY JARDINES SUBSIDIARY.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT
DECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2)
AIRCONDITIONING UNITS TO JRB AS HAVING BEEN SUBSTANTIALLY
COMPLIED WITH IN GOOD FAITH.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT
DECLARING JRBS CAUSES OF ACTION AS HAVING BEEN BARRED BY
LACHES.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN
FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY
EXPENSES.
THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAY
ATTORNEYS FEES.
THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO
[11]
JARDINE FOR DAMAGES.

It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, are
accorded high respect, even finality at times. However, considering that the factual findings of the CA
and the RTC were based on speculation and conjectures, unsupported by substantial evidence, the Court
finds that the instant case falls under one of the excepted instances. There is, thus, a need to correct the
error.
The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus:
Plaintiffs documentary evidence shows that at the time it contracted with
Aircon on March 13, 1980 (Exhibit D) and on the date the revised agreement was
reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase A
subsidiary of Jardine Davies, Inc. was printed on Aircons letterhead of its March 13,
1980 contract with plaintiff (Exhibit D-1), as well as the Aircons letterhead of Jardines
Director and Senior Vice-President A.G. Morrison and Aircons President in his March
26, 1981 letter to plaintiff (Exhibit J-2) confirming the revised agreement. Aircons
newspaper ads of April 12 and 26, 1981 and a press release on August 30, 1982
(Exhibits E, F and L) also show that defendant Jardine publicly represented Aircon
to be its subsidiary.
Records from the Securities and Exchange Commission (SEC) also reveal that
as per Jardines December 31, 1986 and 1985 Financial Statements that The
company acts as general manager of its subsidiaries (Exhibit P). Jardines
Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed Aircon
as its subsidiary by owning 94.35% of Aircon (Exhibit P-1). Also, Aircons reportorial
General Information Sheet as of April 1980 and April 1981 filed with the SEC show that
Jardine was 94.34% owner of Aircon (Exhibits Q and R) and that out of seven
members of the Board of Directors of Aircon, four (4) are also of Jardine.
Defendant Jardines witness, Atty. Fe delos Santos-Quiaoit admitted that
defendant Aircon, renamed Aircon & Refrigeration Industries, Inc. is one of the
subsidiaries of Jardine Davies (TSN, September 22, 1995, p. 12). She also testified
that Jardine nominated, elected, and appointed the controlling majority of the Board of
Directors and the highest officers of Aircon (Ibid, pp. 10,13-14).
The foregoing circumstances provide justifiable basis for this Court to disregard
the fiction of corporate entity and treat defendant Aircon as part of the instrumentality of
[12]
co-defendant Jardine.
The respondent court arrived at the same conclusion basing its ruling on the following
documents, to wit:
(a)

Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty.
J.R. Blanco (Exh. J);
(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);
(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing
Aircon as one of its subsidiaries (Exh. P);
(f)

Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh.

S);
(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).

[13]

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and
trial courts conveniently held the petitioner liable for the alleged omissions of Aircon,
considering that the latter was its instrumentality or corporate alter ego. The petitioner is now
before us, reiterating its defense of separateness, and the fact that it is not a party to the
contract.

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a corporation is an artificial
being invested by law with a personality separate and distinct from its stockholders and from other
corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful
purpose, the law will regard it as an association of persons or in case of two corporations, merge them
[14]
into one, when this corporate legal entity is used as a cloak for fraud or illegality.
This is the doctrine of
piercing the veil of corporate fiction which applies only when such corporate fiction is used to defeat
[15]
public convenience, justify wrong, protect fraud or defend crime. The rationale behind piercing a
corporations identity is to remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
[16]
undertaking certain proscribed activities.
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that
[17]
Aircons corporate legal existence can just be disregarded. InVelarde v. Lopez, Inc., the Court
categorically held that a subsidiary has an independent and separate juridical personality, distinct from
that of its parent company; hence, any claim or suit against the latter does not bind the former, and vice
versa. In applying the doctrine, the following requisites must be established: (1) control, not merely
majority or complete stock control; (2) such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in
contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately
[18]
cause the injury or unjust loss complained of.
The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircons
majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be
gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement
[19]
exists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner.
[20]

Jardine Davies, Inc., incorporated as early as June 28, 1946, is primarily a financial and trading
company. Its Articles of Incorporation states among many others that the purposes for which the said
corporation was formed, are as follows:
(a) To carry on the business of merchants, commission merchants, brokers,
factors, manufacturers, and agents;
(b) Upon complying with the requirements of law applicable thereto, to act as
agents of companies and underwriters doing and engaging in any and all kinds of
[21]
insurance business.
On the other hand, Aircon, incorporated on December 27, 1952,
Articles of Incorporation states that its purpose is mainly -

[22]

is a manufacturing firm. Its

To carry on the business of manufacturers of commercial and household appliances

and accessories of any form, particularly to manufacture, purchase, sell or deal in air
conditioning and refrigeration products of every class and description as well as
accessories and parts thereof, or other kindred articles; and to erect, or buy, lease,
manage, or otherwise acquire manufactories, warehouses, and depots for
manufacturing, assemblage, repair and storing, buying, selling, and dealing in the
[23]
aforesaid appliances, accessories and products.
The existence of interlocking directors, corporate officers and shareholders, which the
respondent court considered, is not enough justification to pierce the veil of corporate
[24]
fiction, in the absence of fraud or other public policy considerations.
But even when
there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of
corporate fiction applies only when such fiction is used to defeat public convenience,
[25]
justify wrong, protect fraud or defend crime.
To warrant resort to this extraordinary
remedy, there must be proof that the corporation is being used as a cloak or cover for
[26]
fraud or illegality, or to work injustice.
Any piercing of the corporate veil has to be
[27]
done with caution. The wrongdoing must be clearly and convincingly established. It
[28]
cannot just be presumed.

In the instant case, there is no evidence that Aircon was formed or utilized with the intention of
defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the acts
of Aircon in this case. Aircon, as a manufacturing firm of air conditioners, complied with its obligation of
providing two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to its
contract with the respondent. Unfortunately, the performance of the air conditioning units did not satisfy
[29]
the respondent despite several adjustments and corrective measures. In a Letter dated October 22,
1980, the respondent even conceded that Fedders Air Conditioning USA has not yet perhaps perfected
its technology of rotary compressors, and agreed to change the compressors with the semi-hermetic type.
Thus, Aircon substituted the units with serviceable ones which delivered the cooling temperature needed
for the law office. After enjoying ten (10) years of its cooling power, respondent cannot now complain
about the performance of these units, nor can it demand a replacement thereof.
Moreover, it was reversible error to award the respondent the amount of P556,551.55
representing the alleged 30% unsaved electricity costs and P185,951.67 as maintenance cost without
showing any basis for such award. To justify a grant of actual or compensatory damages, it is necessary
to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence
[30]
obtainable by the injured party, the actual amount of loss. The respondent merely based its cause of
action on Aircons alleged representation that Fedders air conditioners with rotary compressors can save
as much as 30% on electricity compared to other brands. Offered in evidence were newspaper
advertisements published on April 12 and 26, 1981. The respondent then recorded its electricity
consumption from October 21, 1981 up to April 3, 1995 and computed 30% thereof, which amounted
to P556,551.55. The Court rules that this amount is highly speculative and merely hypothetical, and for
which the petitioner can not be held accountable.
First. The respondent merely relied on the newspaper advertisements showing the Fedders
window-type air conditioners, which are far different from the big capacity air conditioning units installed at
Blanco Center.
Second. After such print advertisements, the respondent informed Aircon that it was going to
install an electric meter to register its electric consumption so as to determine the electric costs not saved
by the presently installed units with semi-hermetic compressors. Contrary to the allegations of the
respondent that this was in pursuance to their Revised Agreement, no proof was adduced that Aircon
agreed to the respondents proposition. It was a unilateral act on the part of the respondent, which Aircon
did not oblige or commit itself to pay.
Third. Needless to state, the amounts computed are mere estimates representing the
respondents self-serving claim of unsaved electricity cost, which is too speculative and conjectural to
merit consideration. No other proofs, reports or bases of comparison showing that Fedders Air
Conditioning USA could indeed cut down electricity cost by 30% were adduced.
Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. The
[31]
respondent merely submitted a schedule prepared by the respondents accountant, listing the alleged
repair costs from March 1987 up to June 1994. Such evidence is self-serving and can not also be given
probative weight, considering that there are no proofs of receipts, vouchers, etc., which would
substantiate the amounts paid for such services. Absent any more convincing proof, the Court finds that
the respondents claims are without basis, and cannot, therefore, be awarded.
We sustain the petitioners separateness from that of Aircon in this case. It bears stressing that
the petitioner was never a party to the contract. Privity of contracts take effect only between parties, their
[32]
successors-in-interest, heirs and assigns.
The petitioner, which has a separate and distinct legal
personality from that of Aircon, cannot, therefore, be held liable.
IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of
Appeals, affirming the decision of the Regional Trial Court is REVERSED and SET ASIDE. The
complaint of the respondent is DISMISSED. Costs against the respondent.
SO ORDERED.

4. General Credit Corp vs. Alsons Development & Investment Corp. 513
SCRA 225
GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION),
Petitioner, vs. ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY
CORPORATION, Respondents.
DECISION
GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General Credit
Corporation, now known as Penta Capital Finance Corporation, seeks to annul and set aside the
1
2
Decision and Resolution dated April 11, 2002 and August 20, 2002, respectively, of the Court of Appeals
(CA) in CA-G.R. CV No. 31801,affirming the November 8, 1990 decision of the Regional Trial Court
(RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat instituted by the
herein respondent Alsons Development and Investment Corporation against the petitioner and
respondent CCC Equity Corporation.
The facts:
Shortly after its incorporation in 1957 as a finance and investment company, petitioner General Credit
Corporation (GCC, for short), then known as Commercial Credit Corporation (CCC), established CCC
3
franchise companies in different urban centers of the country. In furtherance of its business, GCC had,
as early as 1974, applied for and was able to secure license from the then Central Bank (CB) of the
Philippines and the Securities and Exchange Commission (SEC) to engage also in quasi-banking
4
activities. On the other hand, respondent CCC Equity Corporation (EQUITY, for brevity) was organized in
November 1994 by GCC for the purpose of, among other things, taking over the operations and
management of the various franchise companies. At a time material hereto, respondent Alsons
Development and Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha and
Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, for
convenience), each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC
Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million (P2,000,000.00)
Pesos, sold their shareholdings a total of 101,953 shares, more or less in the CCC franchise
companies to EQUITY.[5]On January 2, 1981, EQUITY issued ALSONS et al., a "bearer" promissory note
for P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with provisions for damages
6
and litigation costs in case of default.
Some four years later, the Alcantara family assigned its rights and interests over the bearer note to
7
ALSONS which thenceforth became the holder thereof. But even before the execution of the assignment
deal aforestated, letters of demand for interest payment were already sent to EQUITY, through its
President, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY no longer then
having assets or property to settle its obligation nor being extended financial support by GCC.
What happened next, as narrated in the assailed Decision of the CA, may be summarized, as follows:
1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the
8
bearer note aforementioned, filed a complaint for a sum of money against EQUITY and GCC.
The case, docketed as Civil Case No. 12707, was eventually raffled to Branch 58 of the court. As
stated in par. 4 of the complaint, GCC is being impleaded as party-defendant for any judgment
ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporate
fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC.
2. Answering with a cross-claim against GCC, EQUITY stated by way of special and affirmative
defenses that it (EQUITY):

a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations on
DOSRI (Directors, Officers, Stockholders and Related Interest) limitations, and that it
acted merely as intermediary or bridge for loan transactions and other dealings of GCC to
its franchises and the investing public; and
b) is solely dependent upon GCC for its funding requirements, to settle, among others,
equity purchases made by investors on the franchises; hence, GCC is solely and directly
liable to ALSONS, the former having failed to provide EQUITY the necessary funds to
meet its obligations to ALSONS.
3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from
EQUITY and alleging, in essence that the business relationships with each other were always at
arms length. And following the denial of its motion to dismiss ALSONS complaint, on the ground
of lack of jurisdiction and want of cause of action, GCC filed its Answer thereto and set up
affirmative defenses with counterclaim for exemplary damages and attorneys fees.
Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse witnesses,
were CB and GCC officers. Among other things, ALSONS evidence, which included the EQUITY-issued
"bearer" promissory note marked as Exhibit "K" and over sixty (60) other marked and subsequently
9
admitted documents, were to the effect that five (5) incorporators, each contributing P100,000.00 as the
initial paid up capital of the company, organized EQUITY to manage, as it did manage, various GCC
franchises through management contracts. Before EQUITYs incorporation, however, GCC was already
into the financing business as it was in fact managing and operating various CCC franchises. Presented
in evidence, too, was the September 29, 1982 letter-reply of one G. Villanueva, then GCC President, to
EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties, part of the
proceeds of which the Alcantaras wanted applied to liquidate the promissory note in question. In said
letter, Mr. Villanueva explained that the GCC Board denied the Alcantaras request to be paid out of such
proceeds, but nonetheless authorized EQUITY to pay them interest out of EQUITYs operation income, in
10
preference over what was due GCC.
Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS witnesses,
inclusive of the documentary exhibits testified to by each of them, as its evidence.
For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of
separateness and presented documentary evidence detailing the organizational structures of both GCC
and EQUITY. And in a bid to negate the notion that it was conducting its business illegally, GCC
presented CB and SEC-issued licenses authoring it to engage in financing and quasi-banking activities. It
also adduced evidence to prove that it was never a party to any of the actionable documents ALSONS
and its predecessors-in-interest had in their possession and that the November 27, 1985 deed of
assignment of rights over the promissory note was unenforceable.
Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC and
considering the legal consequences and implications of such relationship, came out with its decision on
November 8, 1990, rendering judgment for ALSONS, to wit:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of plaintiff
[ALSONS] and against the defendants [EQUITY and GCC] who are hereby ordered, jointly and severally,
to pay plaintiff:
1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest due thereon
at the rate of eighteen percent (18%) annually computed from Jan. 2, 1981 until the obligation is
fully paid;
2. liquidated damages due thereon equivalent to three percent (3%) monthly computed from
January 2, 1982 until the obligation is fully paid;
3. attorneys fees in an amount equivalent to twenty four percent (24%) of the total obligation due;
and
4. the costs of suit.
IT IS SO ORDERED. (Words in brackets added.)

Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R. CV
No. 31801, ascribing to the trial court the commission of the following errors:
1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY and
GCC;
2. In not holding that EQUITY and GCC are distinct and separate corporate entities;
3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and
4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY.
On April 11, 2002, the appellate court rendered the herein assailed Decision,
court, thus:

11

affirming that of the trial

WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in Civil
Case No. 12707 is hereby AFFIRMED.
SO ORDERED.
In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions were
12
denied by the CA in its equally assailed Resolution of August 20, 2002.
Hence, GCCs present recourse anchored on the following arguments, issues and/or submissions:
1. The motion for oral argument with motion for reconsideration and its supplement were
perfunctorily denied by the CA without justifiable basis;
2. There is absolutely no basis for piercing the veil of corporate fiction;
3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer subject
of the collection suit is but a simulated document and/or refers to another party. Moreover, the
subject promissory note is not admissible in evidence because it has not been duly authenticated
and it is an altered document;
4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is conclusive on
the sellers, and by the patrol evidence rule, the alleged fact of its non-payment cannot be introduced
in evidenced; and
5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice.
The petition and the arguments and/or issues holding it together are without merit. The desired reversal of
the assailed decision and resolution of the appellate court is accordingly DENIED.
Instead of raising distinctly formulated questions of law, as is expected of one seeking a review under
13
Rule 45 of the Rules of Court of a final CA judgment, petitioner GCC starts off by voicing
disappointment over the "perfunctory" denial by the CA of its twin motions for reconsideration and oral
argument. Petitioner, to be sure, cannot plausibly expect a reversal action premised on the cursory way
its motions were denied, if such indeed were the case. Such manner of denial, while perhaps far from
ideal, is not even a recognized ground for appeal by certiorari, unless a denial of due process ensues,
which is not the case here. And lest it be overlooked, the CA prefaced its assailed denial resolution with
the clause: "[F]inding no reversible error committed to warrant the modification and/or reversal of the April
11, 2002 Decision," suggesting that the appellate court gave the petitioners motion for reconsideration
the attention it deserved. At the very least, the petitioner was duly apprised of the reasons why
reconsideration could not be favorably considered. An extended resolution was not really necessary to
dispose of the motion for reconsideration in question.
Petitioners lament about being deprived of procedural due process owing to the denial of its motion for
oral argument is simply specious. Under the CA Internal Rules, the appellate court may tap any of the
three (3) alternatives therein provided to aid the court in resolving appealed cases before it. It may rely on
available records alone, require the submission of memoranda or set the case for oral argument. The
option the Internal Rules thus gives the CA necessarily suggests that the appellate court may, at its
sound discretion, dispense with a tedious oral argument exercise. Rule VI, Section 6 of the 2002 Internal
Rules of the CA, provides:

SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of the
respondents comment on the petition, the Court [of Appeals] may dismiss the petition if it finds the
same to be patently without merit , otherwise, it shall give due course to it.
xxx xxx xxx
If the petition is given due course, the Court may consider the case submitted for decision or require the
parties to submit their memorandum or set the case for oral argument. xxx. After the oral argument or
upon submission of the memoranda the case shall be deemed submitted for decision.
In the case at bench, records reveal that the appellate court, in line with the prescription of its own rules,
required the parties to just submit, as they did, their respective memoranda to properly ventilate their
separate causes. Under this scenario, the petitioner cannot be validly heard, having been deprived of due
process.
Just like the first, the last three (3) arguments set forth in the petition will not carry the day for the
petitioner. In relation therewith, the Court notes that these arguments and the issues behind them were
not raised before the trial court. This appellate maneuver cannot be allowed. For, well-settled is the rule
14
that issues or grounds not raised below cannot be resolved on review in higher courts. Springing
surprises on the opposing party is antithetical to the sporting idea of fair play, justice and due process;
hence, the proscription against a party shifting from one theory at the trial court to a new and different
theory in the appellate level. On the same rationale, points of law, theories, issues not brought to the
attention of the lower court or, in fine, not interposed during the trial cannot be raised for the first time on
15
appeal.
There are, to be sure, exceptions to the rule respecting what may be raised for the first time on appeal.
16
Lack of jurisdiction over when the issues raised present a matter of public policy comes immediately to
mind. None of the well-recognized exceptions obtain in this case, however.
Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court and the
CA, based on the evidence adduced, adjudged the petitioner and respondent EQUITY jointly and
severally liable to pay what respondent ALSONS is entitled to under the "bearer" promissory note. The
judgment argues against the notion of the note being simulated or altered or that respondent ALSONS
has no standing to sue on the note, not being the payee of the "bearer" note. For, the declaration of
liability not only presupposes the duly established authenticity and due execution of the promissory note
over which ALSONS, as the holder in due course thereof, has interest, but also the untenability of the
petitioners counterclaim for attorneys fees and exemplary damages against ALSONS. At bottom, the
petitioner predicated such counter-claim on the postulate that respondent ALSONS had no cause of
action, the supposed promissory note being, according to the petitioner, either a simulated or an altered
document.
In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial court was
that the bearer promissory note (Exh. "K") was a genuine and authentic instrument payable to the holder
thereof. This factual determination, as a matter of long and sound appellate practice, deserves great
17
weight and shall not be disturbed on appeal, save for the most compelling reasons, such as when that
determination is clearly without evidentiary support or when grave abuse of discretion has been
18
committed. This is as it should be since the Court, in petitions for review of CA decisions under Rule 45
of the Rules of Court, usually limits its inquiry only to questions of law. Stated otherwise, it is not the
function of the Court to analyze and weigh all over again the evidence or premises supportive of the
19
factual holdings of lower courts.
As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of the
CA that the P2 Million promissory note in question was authentic and was issued at the first instance to
respondent ALSONS and the Alcantara family for the amount stated on its face, must be affirmed. It
should be stressed in this regard that even the issuing entity, i.e., respondent EQUITY, never challenged
the genuineness and due execution of the note.
This brings us to the remaining but core issue tendered in this case and aptly raised by the petitioner, to
wit: whether there is absolutely no basis for piercing GCCs veil of corporate identity.

A corporation is an artificial being vested by law with a personality distinct and separate from those of the
20
21
persons composing it as well as from that of any other entity to which it may be related. The first
consequence of the doctrine of legal entity of the separate personality of the corporation is that a
corporation may not be made to answer for acts and liabilities of its stockholders or those of legal entities
22
to which it may be connected or vice versa.
The notion of separate personality, however, may be disregarded under the doctrine "piercing the veil of
corporate fiction" as in fact the court will often look at the corporation as a mere collection of individuals
or an aggregation of persons undertaking business as a group, disregarding the separate juridical
personality of the corporation unifying the group. Another formulation of this doctrine is that when two (2)
business enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are
23
distinct entities and treat them as identical or one and the same.
Whether the separate personality of the corporation should be pierced hinges on obtaining facts,
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution,
albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in
24
the interest of justice. After all, the concept of corporate entity was not meant to promote unfair
objectives.
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers
25
and isolates the corporation from any other legal entity to which it may be related, is allowed. These are:
26
1) defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an
27
existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud,
28
or defend a crime; or 3) 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
29
corporation.
The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis for
such action. When the appellate court spoke of a justifying factor, the reference was to what the trial court
said in its decision, namely: the existence of "certain circumstances [which], taken together, gave rise to
the ineluctable conclusion that [respondent] EQUITY is but an instrumentality or adjunct of [petitioner]
GCC."
The Court agrees with the disposition of the appellate court on the application of the piercing doctrine to
the transaction subject of this case. Per the Courts count, the trial court enumerated no less than 20
documented circumstances and transactions, which, taken as a package, indeed strongly supported the
conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of
petitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioners corporate
existence as to ALSONS claim in question. Foremost of what the trial court referred to as "certain
circumstances" are the commonality of directors, officers and stockholders and even sharing of office
between petitioner GCC and respondent EQUITY; certain financing and management arrangements
between the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not
control wielded by the petitioner over the finances, business policies and practices of respondent
EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules. For a
perspective, the following are some relevant excerpts from the trial courts decision setting forth in some
detail the tipping circumstances adverted to therein:
It must be noted that as characterized by their business relationship, [respondent] EQUITY and
[petitioner] GCC had common directors and/or officers as well as stockholders. This is revealed by the
proceedings recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al., where it
was established, thru the testimony of EQUITYs own President that more than 90% of the
stockholders of EQUITY were also stockholders of GCC .. Disclosed likewise is the fact that when
[EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise companies, practically
the entire proceeds thereof were surrendered to GCC, and not received by EQUITY (EXHIBIT "RR") xxx.
It was likewise shown by a preponderance of evidence that not only had GCC financed EQUITY and
that the latter was heavily indebted to the former but EQUITY was, in fact, a wholly owned subsidiary of

GCC. Thus, as affirmed by EQUITYs President, the funds invested by EQUITY in the CCC
franchise companies actually came from CCC Phils. or GCC (Exhibit "Y-5"). that, as disclosed by the
Auditors report for 1982, past due receivables alone of GCC exceeded P101,000,000.00 mostly to GCC
affiliates especially CCC EQUITY. ; that [CBs] Report of Examination dated July 14, 1977 shows that
EQUITY which has a paid-up capital of only P500,000.00 was the biggest borrower of GCC with a total
loan of P6.70 Million .
xxx xxx xxx
It has likewise been amply substantiated by [respondent ALSONS] evidence that not only did GCC
cause the incorporation of EQUITY, but, the latter had grossly inadequate capital for the pursuit of its
line of business to the extent that its business affairs were considered as GCCs own business
endeavors. xxx.
xxx xxx xxx
ALSONS has likewise shown that the bonuses of the officers and directors of EQUITY was based on
its total financial performance together with all its affiliates both firms were sharing one and the same
office when both were still operational and that the directors and executives of EQUITY never acted
independently but took their orders from GCC.
The evidence has also indubitably established that EQUITY was organized by GCC for the purpose
of circumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by the Advance
Report on the result of Central Banks Operations Examination conducted on GCC as of March 31,
1977 (EXHIBITS "FFF" etc.), the latter violated [CB] rules and regulations by : (a) using as a conduit its
non-quasi bank affiliates . (b) issuing without recourse facilities to enable GCC to extend credit to
affiliates like EQUITY which go beyond the single borrowers limit without the need of showing
outstanding balance in the book of accounts. (Emphasis over words in brackets added.)
It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two (2)
courts below applied the piercing doctrine, stand, for the most part, undisputed. Among these is, to
reiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as an instrumentality
or adjunct of GCC. With the view we take of this case, GCC did not adduce any evidence, let alone rebut
the testimonies and documents presented by ALSONS, to establish the prevailing circumstances
adverted to that provided the justifying occasion to pierce the veil of corporate fiction between GCC and
EQUITY. We quote the trial court:
Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been
that of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable applicability in
the case at bar; and, it having been satisfactorily and indubitably shown that the said relationships had
been used to perform certain functions not characterized with legitimacy, this Court feels amply
justified to "pierce the veil of corporate entity" and disregard the separate existence of the percent (sic)
and subsidiary the latter having been so controlled by the parent that its separate identity is hardly
discernible thus becoming a mere instrumentality or alter ego of the former. Consequently, as the parent
corporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of its subsidiary
[respondent] EQUITY - most especially if the latter (who had anyhow acknowledged its liability to
ALSONS) maybe (sic) without sufficient property with which to settle its obligations. For, after all, GCC
was the entity which initiated and benefited immensely from the fraudulent scheme perpetrated in
violation of the law. (Words in parenthesis in the original; emphasis and bracketed words added).
Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to assume
the legitimate financial obligation of a cash-strapped subsidiary corporation which it virtually controlled to
such a degree that the latter became its instrument or agent. The facts, as found by the courts a quo, and
the applicable law call for this kind of disposition. Or else, the Court would be allowing the wrong use of
the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the Court of
Appeals are accordingly AFFIRMED.
Costs against the petitioner. SO ORDERED.

5. Kukan International Corp. vs. Reyes 631 SCRA 596

KUKAN INTERNATIONAL CORPORATION, Petitioner,

G.R. No. 182729

- versus -

Promulgated:

HON. AMOR REYES, in her capacity as Presiding Judge of

the Regional Trial Court of Manila, Branch 21, and ROMEO M.
MORALES, doing business under the name and style RM
Morales Trophies and Plaques, Respondents.

September 29, 2010

DECISION
The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23,
[1]
[2]
2008 Decision and the April 16, 2008 Resolution rendered by the Court of Appeals (CA) in CA-G.R.
SP No. 100152.
[3]

[4]

The assailed CA decision affirmed the March 12, 2007 and June 7, 2007 Orders of the Regional
Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing
business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders,
the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporation
and declared them to be one and the same entity. Accordingly, the RTC held Kukan International
Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the
[5]
judgment award decreed in a Decision dated November 28, 2002 in favor of Morales and against
Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of
signages in a building being constructed in Makati City. Morales tendered the winning bid and was
awarded the PhP 5 million contract. Some of the items in the project award were later excluded resulting
in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his
contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of
PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed
[6]
a Complaint with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No.
99-93173 and eventually raffled to Branch 17 of the court.
Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued.
However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings
before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales
to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan,
Inc., disposing as follows:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil
Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of
the plaintiff, ordering Kukan, Inc.:
1.

to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN
HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per
annum from February 17, 1999 until full payment;

2.

to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3.

to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable

attorneys fees; and

4.

to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX
CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED.

[7]

After the above decision became final and executory, Morales moved for and secured a writ of
[8]
execution against Kukan, Inc. The sheriff then levied upon various personal properties found at what
was supposed to be Kukan, Inc.s office at Unit 2205,
88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and
that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit
of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had
stopped participating in Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30,
2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be
issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the
possession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposed
[9]
Morales motion. By Order of May 29, 2003 as reiterated in a subsequent order, the court denied the
omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true
relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4,
2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan,
Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order
[10]
dated May 24, 2005.
Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually
granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor
Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate
Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by
Order dated March 12, 2007, granted the motion, the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby
declares as follows:
1. defendant Kukan, Inc. and newly created Kukan International Corp.
as one and the same corporation;
2. the levy made on the properties of Kukan International Corp. is
hereby valid;
3. Kukan International Corp. and Michael Chan are jointly and severally
liable to pay the amount awarded to plaintiff pursuant to the decision
of November [28], 2002 which has long been final and executory.
SO ORDERED.
From the above order, KIC moved but was denied reconsideration in another Order dated June 7,
2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007
RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which
states:
WHEREFORE, premises considered, the petition is hereby DENIED and the
assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both
AFFIRMED. No costs.

SO ORDERED.

[11]

The CA later denied KICs motion for reconsideration in the assailed resolution.
Hence, the instant petition for review, with the following issues KIC raises for the Courts
consideration:
1.

There is no legal basis for the [CA] to resolve and declare that petitioners
Constitutional Right to Due Process was not violated by the public respondent in
rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring
petitioner to be liable for the judgment obligations of the corporation Kukan, Inc. to
private respondent as petitioner is a stranger to the case and was never made a
party in the case before the trial court nor was it ever served a summons and a copy
of the complaint.

2.

There is no legal basis for the [CA] to resolve and declare that the Orders dated
March 12, 2007 and June 7, 2007 rendered by public respondent declaring the
petitioner liable to the judgment obligations of the corporation Kukan, Inc. to private
respondent are valid as said orders of the public respondent modify and/or amend
the trial courts final and executory decision rendered on November 28, 2002.

3.

There is no legal basis for the [CA] to resolve and declare that the Orders dated
March 12, 2007 and June 7, 2007 rendered by public respondent declaring the
petitioner [KIC] and the corporation Kukan, Inc. as one and the same, and,
therefore, the Veil of Corporate Fiction between them be pierced as the procedure
undertaken by public respondent which the [CA] upheld is not sanctioned by the
Rules of Court and/or established jurisprudence enunciated by this Honorable
[12]
Supreme Court.

In gist, the issues to be resolved boil down to the question of, first, whether the trial court can,
after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second,
whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts
correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court

The petition is meritorious.
First Issue: Against Whom Can a Final and Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the trial court can, after
adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such
judgment debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,
execution of its judgment:

[13]

the Court ruled that the deciding court has supervisory control over the

A case in which an execution has been issued is regarded as still pending so that
all proceedings on the execution are proceedings in the suit. There is no question that
the court which rendered the judgment has a general supervisory control over its process
of execution, and this power carries with it the right to determine every question of fact
and law which may be involved in the execution.
[14]

We reiterated the above holding in Javier v. Court of Appeals in this wise: The said branch has a
general supervisory control over its processes in the execution of its judgment with a right to determine
every question of fact and law which may be involved in the execution.
The courts supervisory control does not, however, extend as to authorize the alteration or
amendment of a final and executory decision, save for certain recognized exceptions, among which is the

correction of clerical errors. Else, the court violates the principle of finality of judgment and its
[15]
immutability, concepts which the Court, in Tan v. Timbal, defined:
As we held in Industrial Management International Development Corporation vs.
NLRC:
It is an elementary principle of procedure that the resolution of the court in a
given issue as embodied in the dispositive part of a decision or order is the
controlling factor as to settlement of rights of the parties. Once a decision or
order becomes final and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter or amend it. It
thereby becomes immutable and unalterable and any amendment or
alteration which substantially affects a final and executory judgment is null
and void for lack of jurisdiction, including the entire proceedings held for
that purpose. An order of execution which varies the tenor of the judgment
or exceeds the terms thereof is a nullity. (Emphasis supplied.)

Republic v. Tango

[16]

expounded on the same principle and its exceptions:

Deeply ingrained in our jurisprudence is the principle that a decision that has
acquired finality becomes immutable and unalterable. As such, it may no longer be
modified in any respect even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the court that rendered it or by
the highest court of the land. x x x
The doctrine of finality of judgment is grounded on the fundamental principle of
public policy and sound practice that, at the risk of occasional error, the judgment of
courts and the award of quasi-judicial agencies must become final on some definite date
fixed by law. The only exceptions to the general rule are the correction of clerical errors,
the so-called nunc pro tunc entries which cause no prejudice to any party, void
judgments, and whenever circumstances transpire after the finality of the decision which
render its execution unjust and inequitable. None of the exceptions obtains here to merit
the review sought. (Emphasis added.)
So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the
execution of its final decision in a manner as would amount to its prohibited alteration or modification?
We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil

Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of
the plaintiff, ordering Kukan, Inc.:
1.

to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND

SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal
interest at 12% per annum from February 17, 1999 until full payment;

2.

to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral

damages;

3.

to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as

reasonable attorneys fees; and

4.

to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS

and SIX CENTAVOS (P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision, an instance of granting
relief not contemplated in the decision sought to be executed. And the change does not fall under any of
the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a
writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the
[17]
terms of the judgment is a nullity.
Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an
examination of the other issues raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court authorized against KIC and its
property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone
served with summons. In other words, did the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the
jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a)
[18]
[19]
the Affidavit of Third-Party Claim; (b) the Comment and Opposition to Plaintiffs Omnibus Motion; (c)
[20]
the Motion for Reconsideration of the RTC Order dated March 12, 2007; and (d) the Motion for Leave
[21]
to Admit Reply.
The CA, citing Section 20, Rule 14 of the Rules of Court, stated that the procedural
rule on service of summons can be waived by voluntary submission to the courts jurisdiction through any
[22]
form of appearance by the party or its counsel.
We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14
of the Rules in concluding that the trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.
over the parties in a civil case:

[23]

explains how courts acquire jurisdiction

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On
the other hand, jurisdiction over the defendants in a civil case is acquired either
through the service of summons upon them or through their voluntary appearance
in court and their submission to its authority. (Emphasis supplied.)
[24]

In the fairly recent Palma v. Galvez, the Court reiterated its holding in Orion Security
Corporation, stating: [I]n civil cases, the trial court acquires jurisdiction over the person of the defendant
either by the service of summons or by the latters voluntary appearance and submission to the authority
of the former.
The courts jurisdiction over a party-defendant resulting from his voluntary submission to its
authority is provided under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. The defendants voluntary appearance in
the actions shall be equivalent to service of summons. The inclusion in a motion to
dismiss of other grounds aside from lack of jurisdiction over the person of the defendant
shall not be deemed a voluntary appearance.
To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as
[25]
voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd. and De Midgely v.
[26]
Ferandos.
Republic and De Midgely, however, have already been modified if not altogether
[27]
[28]
superseded by La Naval Drug Corporation v. Court of Appeals, wherein the Court essentially ruled
and elucidated on the current view in our jurisdiction, to wit: [A] special appearance before the court
challenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other
groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his
[29]
person; and such is not constitutive of a voluntary submission to the jurisdiction of the court.

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is
conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned
its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in
KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and
Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its special but not voluntary
appearance alleging therein that it was a different entity and has a separate legal personality from
Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively
resisting all along the RTCs jurisdiction of its person. It cannot be overemphasized that KIC could not file
before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because
KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim
through its affidavits, comments, and motions filed by special appearance before the RTC that it is
separate and distinct from Kukan, Inc.
[30]

Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the
courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself
to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the
scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for
relief consistent with that position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and appellate courts correctly
applied the principle of piercing the veil of corporate entitycalled also as disregarding the fiction of a
separate juridical personality of a corporationto support a conclusion that Kukan, Inc. and KIC are but
one and the same corporation with respect to the contract award referred to at the outset. This principle
finds its context on the postulate that a corporation is an artificial being invested with a personality
separate and distinct from those of the stockholders and from other corporations to which it may be
[31]
connected or related.
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations
[32]
Commission, the Court revisited the subject principle of piercing the veil of corporate fiction and wrote:
Under the doctrine of piercing the veil of corporate fiction, the court looks at the
corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third parties, disregard the
legal fiction that two corporations are distinct entities and treat them as identical
or as one and the same.
Whether the separate personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or proved. However, any piercing of
the corporate veil has to be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when necessary in the interest of
justice. x x x (Emphasis supplied.)
The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an
association of persons or, in case of two corporations, merge them into one, when
its corporate legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction. The doctrine applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the 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.

To disregard the separate juridical personality of a corporation, the

wrongdoing must be established clearly and convincingly. It cannot be
[33]
presumed. (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due
process when, in the execution of its November 28, 2002 Decision, the court authorized the issuance of
the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC has never been a party to the underlying
suit. As a counterpoint, Morales argues that KICs specific concern on due process and on the validity of
the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that
KIC and Kukan, Inc. are indeed one and the same corporation.
Morales contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically applied
[34]
only to determine established liability; it is not available to confer on the court a jurisdiction it has not
acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not
impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In
that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings
taken against that corporation and its property would infringe on its right to due process. Aguedo
Agbayani, a recognized authority on Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction
comes to play only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be applied, based on
the evidence presented, it is imperative that the court must first have jurisdiction over the
[35]
corporation. x x x (Emphasis supplied.)
The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over
the corporation or corporations involved before its or their separate personalities are disregarded; and (2)
the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause
of action duly commenced involving parties duly brought under the authority of the court by way of service
of summons or what passes as such service.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of
the time and manner of raising the principle in question, it is undisputed that no full-blown trial involving
KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple
and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not acquire
jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties
and veritably hauled to court, not thru the usual process of service of summons, but by mere motion of a
party with whom it has no privity of contract and after the decision in the main case had already become
final and executory. As to the propriety of a plea for the application of the principle by mere motion, the
following excerpts are instructive:
Generally, a motion is appropriate only in the absence of remedies by
regular pleadings, and is not available to settle important questions of law, or to
dispose of the merits of the case. A motion is usually a proceeding incidental to
an action, but it may be a wholly distinct or independent proceeding. A motion in this
sense is not within this discussion even though the relief demanded is denominated an
order.
A motion generally relates to procedure and is often resorted to in order to
correct errors which have crept in along the line of the principal actions
progress. Generally, where there is a procedural defect in a proceeding and no method
under statute or rule of court by which it may be called to the attention of the court, a
motion is an appropriate remedy. In many jurisdictions, the motion has replaced the

common-law pleas testing the sufficiency of the pleadings, and various common-law
writs, such as writ of error coram nobis and audita querela. In some cases, a motion may
be one of several remedies available. For example, in some jurisdictions, a motion to
vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.
supplied.)

[36]

(Emphasis

The bottom line issue of whether Morales can proceed against KIC for the judgment debt
of Kukan, Inc.assuming hypothetically that he can, applying the piercing the corporate veil principle
resolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose.

Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC
liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct
personality of another corporation, KIC. In net effect, Morales adverted motion to pierce the veil of
corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment
debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of
action should be properly ventilated in another complaint and subsequent trial where the doctrine of
piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing
the claim of Morales and the corresponding liability of KIC for Kukan Inc.s indebtedness could hardly be
the subject, under the premises, of a mere motion interposed after the principal action against Kukan, Inc.
alone had peremptorily been terminated. After all, a complaint is one where the plaintiff alleges causes of
action.
In any event, the principle of piercing the veil of corporate fiction finds no application to the instant
case.
As a general rule, courts should be wary of lifting the corporate veil between corporations, however
[37]
related. Philippine National Bank v. Andrada Electric Engineering Company explains why:
A corporation is an artificial being created by operation of law. x x x It has a
personality separate and distinct from the persons composing it, as well as from any
other legal entity to which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality
or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate veil should
be done with caution. A court should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an
erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid
inclusion of corporate assets as part of the estate of the decedent, to escape liability
arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives or to cover up an otherwise blatant violation of the
prohibition against forum-shopping. Only in these and similar instances may the veil
be pierced and disregarded. (Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and
convincing proof that the separate and distinct personality of the corporation was purposefully employed
to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure,
[38]
the Court has, on numerous occasions, applied the principle where a corporation is dissolved and its

assets are transferred to another to avoid a financial liability of the first corporation with the result that the
second corporation should be considered a continuation and successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction of two corporations, there
was a confluence of the following factors:
1.

A first corporation is dissolved;

2.

The assets of the first corporation is transferred to a second corporation to avoid a

financial liability of the first corporation; and

3.

Both corporations are owned and controlled by the same persons such that the
second corporation should be considered as a continuation and successor of the first
corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc.
from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of
the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the
following premises and arguments:
While it is true that a corporation has a separate and distinct personality from its
stockholder, director and officers, the law expressly provides for an exception. When
Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of
the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install
interior signages in the Enterprise Center he (Michael Chan, Managing Director of
defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its
obligation/account, thus implying bad faith on his part and fraud in contracting the
obligation. Michael Chan neither returned the interior signages nor tendered payment to
the plaintiff. This circumstance may warrant the piercing of the veil of corporation
fiction. Having been guilty of bad faith in the management of corporate matters the
corporate trustee, director or officer may be held personally liable. x x x
Since fraud is a state of mind, it need not be proved by direct evidence but may
be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the
signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the
confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National
appearing in the Articles of Incorporation and signature of Michael Chan also a British
National appearing in the Articles of Incorporation [of] Kukan International Corp. give the
impression that they are one and the same person, that Michael Chan and Chan Kai Kit
are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40%
of the stocks; that Kukan International Corp. is practically doing the same kind of
[39]
business as that of Kukan, Inc. (Emphasis supplied.)
As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of
Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both
corporations, obviously oblivious that overlapping stock ownership is a common business
phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy
on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single
stockholder or by another corporation of a substantial block of shares of a corporation does not, standing
[40]
alone, provide sufficient justification for disregarding the separate corporate personality. For this ground
to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and
KICs finances, policies, and business practices; he used such control to commit fraud; and the control
was the proximate cause of the financial loss complained of by Morales. The absence of any of the
[41]
elements prevents the piercing of the corporate veil. And indeed, the records do not show the presence
of these elements.
On the other hand, the CA held:

In the present case, the facts disclose that Kukan, Inc. entered into a contractual
obligation x x x worth more than three million pesos although it had only Php5,000.00
paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to
appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of
Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the
outstanding stocks, while he formerly held the same amount of stocks in Kukan
Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed
fraudulent representation by awarding to the private respondent the contract with
full knowledge that it was not in a position to comply with the obligation it had
assumed because of inadequate paid-up capital. It bears stressing that shareholders
should in good faith put at the risk of the business, unencumbered capital reasonably
adequate for its prospective liabilities. The capital should not be illusory or trifling
compared with the business to be done and the risk of loss.

Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc.

Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business
enterprises. The emergence of the former was cleverly timed with the hasty withdrawal
of the latter during the trial to avoid the financial liability that was eventually suffered by
the latter. The two companies have a related business purpose. Considering these
circumstances, the obvious conclusion is that the creation of Kukan International
Corporation served as a device to evade the obligation incurred by Kukan, Inc. and
yet profit from the goodwill attained by the name Kukan by continuing to engage
[42]
in the same line of business with the same list of clients. (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the
business activities in which both corporations are engaged as a jumping board to its conclusion that the
creation of KIC served as a device to evade the obligation incurred by Kukan, Inc. The appellate court,
however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders defrauded
Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of
KIC was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious
attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that
Kukan, Inc. tried to avoid liability or had no property against which to proceed.
Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001
General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does
not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this
Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate GIS
for five (5) consecutive years that non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital
of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up
capital is merely seed money to start a corporation or a business entity. As in this case, it merely
represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP
5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and longterm obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a
business concern, for the best test is the working capital which consists of the liquid assets of a given
business relating to the nature of the business concern.
Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a
[43]
badge of fraud, for it is in compliance with Sec. 13 of the Corporation Code, which only requires a
minimum paid-up capital of PhP 5,000.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled
as they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a.
Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance,
standing alone, is insufficient to establish identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.

[44]

It would not avail Morales any to rely on General Credit Corporation v. Alsons Development
[45]
and Investment Corporation.
General Credit Corporation is factually not on all fours with the instant
case. There, the common stockholders of the corporations represented 90% of the outstanding capital
stock of the companies, unlike here where Michael Chan merely represents 40% of the outstanding
capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was
adduced to support the finding that the funds of the second corporation came from the first. Finally, there
was proof in General Credit Corporation of complete control, such that one corporation was a mere
dummy or alter ego of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the
principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the name
Michael Chan, the similarity of business activities engaged in, and incidentally the word Kukan
appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these
circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those
who seek to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on
the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to
have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed
and operated to defraud him. Morales has not to us discharged his burden.
WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April
16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy
placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and the
personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21
is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with
reasonable dispatch.
SO ORDERED.