Kukan International Corporation vs. Hon. Amor Reyes and Romeo M. Morales

G.R. No. 182729; September 29, 2010; per Velasco, Jr., J.

Facts

Romeo M. Morales doing businessunder the name RM Morales Trophies and Plaques was awarded a P5 million contract for the supply andinstallation of signages in a building constructed in Makati. Morales complied with his contractual obligations but he was paid only the amount of P1,976,371.07 leaving a balance of P1,412,130.09. He filed a case against Kukan, Inc., for sum of money withthe RTC of Manila. Kukan Inc., stopped participating inthe proceedings in, hence, it was declared in default and Morales presented his evidence ex parte against petitioner and a decision was rendered in favour of the latter. during the execution,the sheriff levied the personal properties found at the office of Kukan, Inc. Claiming it owned the properties levied, Kukan International Corporation filed an affidavit of third Party Claim. Morales filed an omnibus Motion praying to apply the principle of piercing theveil of corporate entity. He alleged that Kankun, Inc.and KIC are one and the same corporation.

Issue

Whether or not the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

Ruling

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. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

Piercing the veil of corporate entity applies to determination of liability not of jurisdiction.

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 corporation.