KUKAN INTERNATIONAL CORPORATION, Petitioner, vs. HON.

AMOR REYES
G.R. No. 182729, September 29, 2010
Topic: Piercing the Corporate Veil

Ponente: VELASCO, JR., J.:

DOCTRINE:
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 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.

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.

FACTS:
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. Morales was not paid the full amount leaving a balance which Kukan, Inc. refused to pay
despite demands. Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of
money. He obtained a court decision in his favor and against Kukan, Inc. When the Sheriff
implemented the writ of execution, it allegedly levied on the properties of Kukan International
Corporation (KIC). KIC claims that such implementation was improper since it was not even a
party to the case and it is a different corporation as compared to Kukan, Inc.

RTC sustained the acts of the Sheriff and maintained that the levied properties should be held
liable for the judgment and the corporate veil should be pierced because Kukan Inc and KIC are
one and the same. petitioner KIC maintains that the RTC violated its right to due process when it
authorized the issuance of the writ against KIC for Kukan, Incs judgment debt, albeit KIC has
never been a party to the underlying suit.

ISSUE: Whether or not piercing the veil of corporate fiction was proper? NO.

RUILING:
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 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.

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 the civil case
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.

Morales adverted motion to pierce the veil of corporate fiction 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.

In any event, the principle of piercing the veil of corporate fiction finds no application to the instant
case.
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. Note that 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.

DISPOSITIVE PORTION:
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.