LUSITO PADILLA vs.
COURT OF APPEALS
FACTS:
SRI (Susana Realty, Inc.) sold to LRTA (Light Rail Transit
Authority) several parcels of land located in Pasay thru
deed of absolute sale.
The deed provides that the SRI has a right of first refusal
to develop the property sold should the LRTA decide to
lease or assign the right to develop the property.
Thereafter, LRTA and PHOENIX OMEGA (Phoenix Omega
Development and Management Corporation) entered into
a COMMERCIAL STALL CONCESSION AGREEMENT wherein
the Phoenix Omega was authorized to construct and
develop commercial stalls on the property bought from
SRI. (90 sqm)
SRI opposed the agreement violation of the deed of
sale.
A TRIPARTITE agreement was concluded by the parties
whereby SRI agreed to honor the terms of the concession
contract and lease the adjacent property to Phoenix
Omega. The construction by Phoenix of commercial stalls
shall be subject to the SRIs approval of its plans and
specifications.
Afterwhich, Phoenix Omega assigned its rights and
interests over the property leased unto its sister
company, PKA Development and Management
Corporation (PKA).
The Deed of Assignment was signed by:
1. EDUARDO GATCHALIAN in his capacity as
President of Phoenix Omega
2. LUISITO PADILLA (petitioner) in his capacity as
President and GM of PKA
Contract of Lease was then executed between PKA and
SRI.
SRI sold remaining property to a third party.
AMENDED Contract of Lease
*SRI
*PKA represented by Padilla as Pres and GM of PKA
*Phoenix Omega represented by Padilla as Chairman of
BOD, not a party to the original contract
Substitute the sold property with 2 parcels of land also
belonging to SRI.
PKA was required by DPWH to correct defects in the
construction. Hence, it forwarded amended plans to SRI
for approval.
However, SRI refused to approve the amended plans
despite repeated requests. This prompted PKA to file an
ACTION FOR RESCISSION OF CONTRACT OF LEASE against
SRI.
SRI alleged that it was PKA which violated the terms of
the contract. RTC rendered judgment in favour of SRI,
rescinding and terminating the Contract of Lease,
restoring possession of leased premises to SRI.
Properties were restored to SRI but the monetary award
was left unsatisfied.
An alias writ was issued against Phoenix Omega and
Lusito Padilla on the ground that PKA and Phoenix Omega
are one and the same.
Petitioners Luisito Padilla and Phoenix Omega filed a
MOTION FOR ANNULMENT OF THE ALIAS WRIT alleging
that the orders were confiscatory since they were never
parties to the case filed by PKA against SRI.
The petitioners content that the Corporate Veil should not
be pierced since the court must first acquire jurisdiction
over the corporation.
ISSUE:
Whether or not the trial court had jurisdiction over
petitioners, to justify the issuance of an alias writ of
execution against their properties.
RULING:
A court acquires jurisdiction over a person through either
a valid service of summons or the person's voluntary
appearance in court. A court must necessarily have
jurisdiction over a party for the latter to be bound by a
court decision.
In the present case, trial court never acquired
jurisdiction over petitioners. Neither of the
petitioners was even impleaded, as a party to the
case. (Only SRI)
Without the trial court having acquired jurisdiction over
petitioners, the latter could not be bound by the decision
of the court. Execution can only be issued against a party
and not against one who was not accorded his day in
court. To levy upon their properties to satisfy a judgment
in a case in which they were not even parties is not only
inappropriate; it most certainly is deprivation of property
without due process of law.
Luisito Padilla participated in the proceedings as
general manager of PKA and not in any other
capacity. The fact that at the same time he was the
chairman of the board of Phoenix-Omega cannot
equate to participation by Phoenix- Omega in the
same proceedings. Phoenix-Omega was not a party
to the case and so could not have taken part
therein.
The general rule is that a corporation is clothed with a
personality separate and distinct from the persons
composing it. It may not be held liable for the obligations
of the persons composing it, and neither can its
stockholders be held liable for its obligations.
This veil of corporate fiction may only be disregarded in
cases where the corporate vehicle is being used to defeat
public convenience, justify wrong, protect fraud, or
defend crime.
PKA and Phoenix-Omega are admittedly sister companies,
and may be sharing personnel and resources, but it was
not alleged and proven that their separate corporate
personalities are being used to defeat public
convenience, justify wrong, protect fraud, or defend
crime.
"For the separate juridical personality of a corporation to
be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed."
The CA cannot order the seizure of petitioners' properties
without violating their constitutionally enshrined right to
due process, merely to compensate private respondent.
MCCONNEL vs. COURT OF APPEALS
FACTS:
PARK RITE CO, INC domestic corporation organized in
1947 with a capital stock of 1,500 shares.
The original incorporators were McConnel, Cocharane,
Rodriguez, Dario and Ordrecio.
and in the same room at 507 Wilson Building. This is further
shown by the fact that the funds of the corporation were kept by
Cirilo Paredes in his own name. The corporation itself had no
visible assets.
As the corporation is a mere instrumentality of the of the individual
stockholders, the latter must individually answer for the corporate
obligations.
While the mere ownership of all or nearly all of the capital
stock of a corporation is a mere business conduit of the
stockholder, that conclusion is amply justified where it is
shown, as in the case before us, that the operations of
the corporation were so merged with those of the
stockholders as to be practically indistinguishable from
them. To hold the latter liable for the corporation's
obligations is not to ignore the corporation's separate
entity, but merely to apply the established principle that
such entity cannot be invoked or used for purposes that
could not have been intended by the law that created
that separate personality.

Cirilo Paredes and Ursula Tolentino purchased 1496

shares on August 1947.
The corporation leased from Rafael Rosales a vacant lot
on Juan Luna Street which it used for parking motor
vehicles for consideration. However, during the operation
of its business, it used not only the leased property but
also the adjacent property belonging to herein
respondent, De Los Reyes and husband Sabino Padilla.
Respondents demanded payment for the use and
occupation but the Corporation disclaimed liability and
blamed the original incorporators. Hence, respondent
filed a complaint for FORCIBLE ENTRY.
The petitioners-appellants insist that the Court could have
no jurisdiction over an action to enforce a judgment
within five (5) years from its rendition, since the Rules of
Court provide for enforcement by mere motion during
those five years. The error of this stand is apparent,
because the second action, originally begun in the Court
of First Instance, was not an action to enforce the
judgment of the Municipal Court, but an action to have
non-parties to the judgment held responsible for its
payment.

Judgment was rendered ordering the Corporation to pay.

However, it was found out that the corporation has no
assets.
The stockholders Cirilo Paredes and Ursula Tolentino were
ordered to pay the unsatisfied balance of the judgment,
jointly and severally.

ISSUE:
Whether the individual stockholders maybe held liable for
obligations contracted by the corporation.

RULING:

The court answered in the AFFIRMATIVE, whenever

circumstances have shown that the corporate entity is
being used as an alter ego or business conduit for the
sole benefit of the stockholders, or else to defeat public
convenience, justify wrong, protect fraud, or defend
crime.

The corporation was a mere alter ego or business conduit

of the defendants Cirilo Paredes and Ursula Tolentino, and
before them the defendants M. McConnel, W. P.
Cochrane, and Ricardo Rodriguez. The evidence clearly
shows that these persons completely dominated and
controlled the corporation and that the functions of the
corporation were solely for their benefits.

That the corporation was a mere extension of their personality is

shown by the fact that the office of Cirilo Paredes and that of Park
Rite Co., Inc. were located in the same building, in the same floor