KUKAN INTERNATIONAL CORPORATION, Petitioner, vs 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.
FACTS
Sometime in March 1998, Kukan, Inc. conducted a bidding worth
Php 5M (reduced to PhP 3,388,502) for the supply and
installation of signages in a building being constructed in Makati
City which was won by Morales.
Despite his compliance, 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.
Morales filed a Complaint with the RTC against Kukan, Inc. for a
sum of money. 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.
After the above decision became final and executory, Morales
moved for and secured a writ of 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.
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In reaction to KICs claim, Morales interposed an Omnibus
Motion dated April 30, 2003, praying, and 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 Morales motion. The court denied the
omibus motion.
In a bid to establish the link between KIC and Kukan, Inc.,
Morales filed a Motion for Examination of Judgment Debtors
dated May 4, 2005 which 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
court.
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. 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 but on
January 23, 2008, the CA denied the petition and affirmed the
assailed Orders. The CA later denied KICs MR in the assailed
resolution.
Hence, the instant petition for review.

ISSUES
A. whether the trial court can, after the judgment against Kukan,
Inc. has attained finality, execute it against the property of KIC;
B. whether the trial court acquired jurisdiction over KIC;
C. whether the trial and appellate courts correctly applied, under
the premises, the principle of piercing the veil of corporate fiction.
DECISION
A. No.
In Carpio v. Doroja,[13] the Court ruled that the deciding
court has supervisory control over the execution of its judgment:
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.
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 immutability.
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
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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 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.
B. No.
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.
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.
C. No.
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;[34] 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 corporation.[35] 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
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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.
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, 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.
was threatened with stoppage, when its owner, the First
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.
Ong Yong V. Tiu (2003)
G.R. No. 144476 April 8, 2003
Lessons Applicable: Pre-incorporation Subscription (Corporate
Law)
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FACTS:
1994: construction of the Masagana Citimall in Pasay City
Landlink Asia Development Corporation (FLADC), owned by
the Tius, became heavily indebted to the Philippine National
Bank (PNB) for P190M
To save the 2 lots where the mall was being built
from foreclosure, the Tius invited Ong Yong, Juanita Tan
Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia
Ong Alonzo (the Ongs), to invest in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed to
maintain equal shareholdings in FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in addition to
their already existing subscription of 450,200 shares
Tius: nominate the Vice-President and the Treasurer plus 5
directors
Ongs nominate the President, the Secretary and 6 directors
(including the chairman) to the board of directors of FLADC
and right to manage and operate the mall.
Tius: contribute to FLADC a 4-storey building P20M (for 200K
shares) and 2 parcels of land P30M (for 300K shares) and
P49.8M (for 49,800 shares)
Ongs: paid P190M to settle the mortgage indebtedness of
FLADC to PNB (P100M in cash for their subscription to 1M
shares)
February 23, 1996: Tius rescinded the Pre-Subscription
Agreement
 February 27, 1996: Tius filed at the Securities and Exchange
Commission (SEC) seeking confirmation of their rescission of
the Pre-Subscription Agreement
SEC: confirmed recission of Tius
Ongs filed reconsideration that their P70M was not a
premium on capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not
have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was
best to separate the two groups by rescinding the Pre-
Subscription Agreement, returning the original investment of
the Ongs and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the
remedy
HELD: YES. Ongs granted.
did not justify the rescission of the contract
providing appropriate offices for David S. Tiu and Cely Y. Tiu
as Vice-President and Treasurer, respectively, had no
bearing on their obligations under the Pre-Subscription
Agreement since the obligation pertained to FLADC itself
failure of the Ongs to credit shares of stock in favor of the
Tius for their property contributions also pertained to the
corporation and not to the Ongs
the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190
million
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law requires that the breach of contract should be so
"substantial or fundamental" as to defeat the primary
objective of the parties in making the agreement
since the cash and other contributions now sought to be
returned already belong to FLADC, an innocent third party,
said remedy may no longer be availed of under the law.
Any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be formed shall
be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a
purchase or some other contract
allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to
reduce the authorized capital stock,24 (2) purchase of
redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings,25 and (3)
dissolution and eventual liquidation of the corporation.
They want this Court to make a corporate decision for
FLADC.
The Ongs' shortcomings were far from serious and certainly
less than substantial; they were in fact remediable and
correctable under the law. It would be totally against all rules
of justice, fairness and equity to deprive the Ongs of their
interests on petty and tenuous grounds.
Alhambra Cigar & Cigarette Manufacturing Company, Inc. vs
Securities and Exchange Commission
24 SCRA 269 Business Organization Corporation Law
Corporate Lifespan
On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing
Company, Inc. was incorporated. Its lifespan was for 50 years so
on January 15, 1962, it expired. Thereafter, its Board authorized
its liquidation. Under the prevailing law, Alhambra has 3 years to
liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was
enacted. It amended Section 18 of the Corporation Law; it
empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of
incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non-
extendible term of such corporations was fifty years.
Alhambra now amended its articles of incorporation to extend its
lifespan for another 50 years. The Securities and Exchange
Commission (SEC) denied the amended articles of incorporation.
ISSUE: Whether or not a corporation under liquidation may still
amend its articles of incorporation to extend its lifespan.
HELD: No. Alhambra cannot avail of the new law because it has
already expired at the time of its passage. When a corporation is
liquidating pursuant to the statutory period of three years to
liquidate, it is only allowed to continue for the purpose of final
closure of its business and no other purposes. In fact, within that
period, the corporation is enjoined from continuing the business
for which it was established. Hence, Alhambras board cannot
validly amend its articles of incorporation to extend its lifespan.
PNB VS CFI PASIG (G.R. NO. 63201 MAY 27, 1992)
Philippine National Bank vs Court of First Instance of Pasig, Rizal
Branch XXI
G.R. No. 63201 May 27, 1992
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Facts: Private respondents are the registered owners of three
parcels of land in Pasig, Metro Manila covered by OCT No. 853,
TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal. On
March 1, 1954, private respondents entered into a contract of
lease with Philippine Blooming Mills, Co., Inc., (PBM) whereby the
latter shall lease the aforementioned parcels of land as factory
site. PBM was duly organized and incorporated on January 19,
1952 with a corporate term of twenty-five (25) years. This
leasehold right of PBM covering the parcels of land was duly
annotated at the back of the above stated certificates of title as
Entry No. 9367/T-No. 32843. The contract of lease provides that
the term of the lease is for twenty years beginning from the date
of the contract and is extendable for another term of twenty years
at the option of the LESSEE should its term of existence be
extended in accordance with law.. The contract also states that
the lessee agrees to use the property as factory site and for that
purpose to construct whatever buildings or improvements may be
necessary or convenient and/or . . . for any purpose it may deem
fit; and before the termination of the lease to remove all such
buildings and improvements. In accordance with the contract,
PBM introduced on the land, buildings, machineries and other
useful improvements. These constructions and improvements
were registered with the Registry of Deeds of Rizal and annotated
at the back of the respondents certificates of title as Entry No.
85213/T-No. 43338. On October 11, 1963, PBM executed in favor
of Philippine National Bank (PNB), petitioner herein, a deed of
assignment, conveying and transferring all its rights and interests
under the contract of lease which it executed with private
respondents. The assignment was for and in consideration of the
loans granted by PNB to PBM. The deed of assignment was
registered and annotated at the back of the private respondents
certificates of title as Entry No. 85215/TNo. 32843. On November
6, 1963 and December 23, 1963 respectively, PBM executed in
favor of PNB a real estate mortgage for a loan of P100,000.00 and
an addendum to real estate mortgage for another loan of
P1,590,000.00, covering all the improvements constructed by
PBM on the leased premises. These mortgages were registered
and annotated at the back of respondents certificates as Entry No.
85214/T-No. 43338 and Entry No. 870971/T-No. 32843,
respectively. On October 7, 1981, private respondents filed a
motion in the same proceedings which was given a different case
number to wit, LRC Case No. R-2744, because of the payment of
filing fees for the motion. The motion sought to cancel the
annotations on respondents certificates of title pertaining to the
assignment by PBM to PNB of the formers leasehold rights,
inclusion of improvements and the real estate mortgages made by
PBM in favor of PNB, on the ground that the contract of lease
entered into between PBM and respondents-movants had already
expired by the failure of PBM and/or its assignee to exercise the
option to renew the second 20-year lease commencing on March
1, 1974 and also by the failure of PBM to extend its corporate
existence in accordance with law. The motion also states that
since PBM failed to remove its improvements on the leased
premises before the expiration of the contract of lease, such
improvements shall accrue to respondents as owners of the land.
Issue: Whether or not the corporate life of PBM was extended by
the continuance of the lease and subsequent registration of the
title to the improvements under its name.
Held: No. The contract of lease expressly provides that the term
of the lease shall be twenty years from the execution of the
contract but can be extended for another period of twenty years at
the option of the lessee should the corporate term be extended in
accordance with law. Clearly, the option of the lessee to extend
the lease for another period of twenty years can be exercised only
if the lessee as corporation renews or extends its corporate term
of existence in accordance with the Corporation Code which is the
applicable law. Contracts are to be interpreted according to their
literal meaning and should not be interpreted beyond their obvious
intendment. Thus, in the instant case, the initial term of the
contract of lease which commenced on March 1, 1954 ended on
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March 1, 1974. PBM as lessee continued to occupy the leased
premises beyond that date with the acquiescence and consent of
the respondents as lessor. Records show however, that PBM as
a corporation had a corporate life of only twenty-five (25) years
which ended an January 19, 1977. It should be noted however that
PBM allowed its corporate term to expire without complying with
the requirements provided by law for the extension of its corporate
term of existence.
Section 11 of Corporation Code provides that a corporation shall
exist for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is
extended. Upon the expiration of the period fixed in the articles of
incorporation in the absence of compliance with the legal
requisites for the extension of the period, the corporation ceases
to exist and is dissolved ipso facto. When the period of corporate
life expires, the corporation ceases to be a body corporate for the
purpose of continuing the business for which it was organized. But
it shall nevertheless be continued as a body corporate for three
years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and
enabling it gradually to settle and close its affairs, to dispose of
and convey its property and to divide its assets. There is no need
for the institution of a proceeding for quo warranto to determine
the time or date of the dissolution of a corporation because the
period of corporate existence is provided in the articles of
incorporation. When such period expires and without any
extension having been made pursuant to law, the corporation is
dissolved automatically insofar as the continuation of its business
is concerned. The quo warranto proceeding under Rule 66 of the
Rules of Court, as amended, may be instituted by the Solicitor
General only for the involuntary dissolution of a corporation on the
following grounds: a) when the corporation has offended against
a provision of an Act for its creation or renewal; b) when it has
forfeited its privileges and franchises by non-user; c) when it has
committed or omitted an act which amounts to a surrender of its
corporate rights, privileges or franchises; d) when it has mis-used
a right, privilege or franchise conferred upon it by law, or when it
has exercised a right, privilege or franchise in contravention of law.
Hence, there is no need for the SEC to make an involuntary
dissolution of a corporation whose corporate term had ended
because its articles of incorporation had in effect expired by its
own limitation.
Considering the foregoing in relation to the contract of lease
between the parties herein, when PBMs corporate life ended on
January 19, 1977 and its 3-year period for winding up and
liquidation expired on January 19, 1980, the option of extending
the lease was likewise terminated on January 19, 1977 because
PBM failed to renew or extend its corporate life in accordance with
law. From then on, the respondents can exercise their right to
terminate the lease pursuant to the stipulations in the contract.
SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SO
UTHERN PHILIPPINES, INC., and/orrepresented by
MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY,
FRANCISCO M. LUCENARA, DIONICESO. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT,
JESSIE T. ORBISO, LORETOPAEL and JOEL BACUBAS, petitioners
vs. NORTHEASTERN MINDANAO MISSION OF SEVENTH
DAYADVENTIST, INC., and/or represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT
and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN
MINDANAOMISSION, Respondents
G.R. No. 150416 July 21, 2006
FACTS: This case involves two supposed transfers of the lot
previously owned by the spouses Cosio. The first transfer was
a donation to petitioners alleged predecessors
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-in-interest in 1959 while the second transfer was through a
contract of sale to respondents in 1980. A TCT was later issued
in the name of respondents.
Claiming to be the alleged donees successors
-in-interest, petitioners filed a case for cancellation of title,
quieting of ownership and possession, declaratory relief and
reconveyance with prayer for preliminary injunction and damages
against respondents. Respondents, on the other hand, argued
that at the time of the donation
, petitioners predecessors
-in-interest has no juridical personality to accept the donation
because it was not yet incorporated. Moreover, petitioners were
not members of the local church then. The RTC upheld the sale
in favor of respondents, which was affirmed by the Court of
Appeals, on the ground that all the essential requisites of a
contract were present and it also applied the indefeasibility of
title.
ISSUE: Whether or not the donation was void.
HELD: Yes, the donation was void because the local church had
neither juridical personality nor capacity to accept such gift since
it was inexistent at the time it was made.
The Court denied petitioners contention that there exists a de
facto corporation.
While there existed the old Corporation Law (Act 1459), a law
under which the local church could have been organized,
petitioners admitted that they did not even attempt to incorporate
at that time nor the organization was registered at the Securities
and Exchange Commission. Hence, petitioners obviously could
not have claimed succession to an entity that never came to
exist. And since some of the representatives of petitioner
Seventh Day Adventist Conference Church of Southern
Philippines, Inc. were not even members of the local church then,
it necessarily follows that they could not even claim that the
donation was particularly for them.

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