Kukan International Corporation v. Reyes
REITERATIONFacts
The Antecedents: Romeo M. Morales (Morales) filed a complaint for a sum of money against Kukan, Inc. for unpaid services in a signage project. Kukan, Inc. was awarded the contract for PhP 5 million, later reduced to PhP 3,388,502. Morales was paid PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93. Procedural History: Kukan, Inc. defaulted in the proceedings. The Regional Trial Court (RTC) rendered a decision in favor of Morales, ordering Kukan, Inc. to pay various sums. After the decision became final and executory, Morales moved for a writ of execution. Properties of Kukan International Corporation (KIC), incorporated in August 2000 (shortly after Kukan, Inc. stopped appearing in court), were levied. KIC filed a third-party claim, asserting its separate corporate identity. Morales filed an Omnibus Motion to pierce the veil of corporate fiction and hold KIC liable. The RTC initially denied this motion but later granted a subsequent motion to pierce the veil of corporate fiction, declaring Kukan, Inc. and KIC as one and the same entity and holding KIC jointly and severally liable. The Court of Appeals (CA) affirmed the RTC's orders. KIC filed a petition for review on certiorari. The Petition: KIC seeks to nullify the CA's decision, arguing that its constitutional right to due process was violated as it was not made a party to the original case and was never served summons. KIC also contends that the RTC orders modified a final and executory decision and that the procedure for piercing the veil of corporate fiction was not sanctioned by law or jurisprudence.
Issue(s)
Whether the trial court can execute a final and executory judgment against the property of Kukan International Corporation (KIC), a corporation not impleaded in the original case. Whether the trial court acquired jurisdiction over KIC. Whether the trial and appellate courts correctly applied the principle of piercing the veil of corporate fiction.
Ruling
The Supreme Court granted the petition, reversed and set aside the CA's decision and resolution, ordered the lifting of the levy on KIC's properties, and directed the RTC to execute its decision against Kukan, Inc.
Ratio Decidendi
On the issue of executing a final and executory judgment against KIC: The Court ruled in the negative. A final and executory judgment is immutable and unalterable, except for recognized exceptions like clerical errors. The dispositive portion of the RTC decision clearly directed Kukan, Inc. to pay the awards. Making KIC answerable for this judgment debt through a writ of execution constitutes an alteration or modification of the final decision, which is prohibited. A writ of execution must conform to the fallo of the judgment; one that exceeds the terms of the judgment is a nullity. Therefore, the execution against KIC's property was improper. On the issue of the RTC acquiring jurisdiction over KIC: The Court held that the RTC did not acquire jurisdiction over KIC. While voluntary appearance can be equivalent to service of summons, KIC consistently entered a "special but not voluntary appearance," asserting its separate legal personality from Kukan, Inc. in all its pleadings. The Court clarified that subsequent rulings, particularly La Naval Drug Corporation v. Court of Appeals, modified the view that any form of appearance constitutes voluntary submission. KIC's actions were aimed at resisting the RTC's jurisdiction over its person by asserting its distinct identity, not submitting to it. Thus, KIC did not waive its objection to the court's lack of jurisdiction. On the issue of piercing the veil of corporate fiction: The Court found that the RTC and CA erred in applying this principle. The principle of piercing the veil of corporate fiction is applied to determine established liability, not to confer jurisdiction over a party not impleaded. Jurisdiction must be acquired first before the corporate veil can be disregarded. Furthermore, piercing the veil requires clear and convincing proof that the corporate fiction was misused to commit fraud, illegality, or inequity. The Court found no such proof. Overlapping stock ownership (40% by Michael Chan in both corporations) and similarity of business activities, without more, are insufficient to disregard separate corporate personalities. There was no showing that Kukan, Inc. was dissolved and its assets transferred to KIC to avoid liability, nor was there proof of complete control or that KIC was a mere alter ego or dummy corporation. The RTC's reliance on Kukan, Inc.'s low paid-up capital was also misplaced, as it complied with statutory minimums and did not, by itself, indicate fraud.
Main Doctrine
The principle of piercing the veil of corporate fiction cannot be used to confer jurisdiction over a party not impleaded in a case, as jurisdiction must be acquired first before the corporate veil can be disregarded. Furthermore, a writ of execution must conform to the fallo of the judgment; an order of execution that varies the tenor of the judgment or exceeds its terms is a nullity.