Guillermo v Uson

G.R. no. 198967

March 7, 2016

Peralta, J:

Facts:
Respondent Crisanto Uson started as an accounting clerk on March 11, 1996 and was promoted
to the position of accounting supervisor in Royal Class Venture. On December 20, 2000, Uson
was dismissed from employment. Thereafter he filed a complaint for illegal dismissal against
Roval Class Venture in the NLRC.

Summons were issued and received but Royal Class Venture did not make an appearance in the
case.

The Labor arbiter rendered decision in favor of complainant Uson and ordering Royal Class
Venture to reinstatement, backwages, 13th month pay and damages. Royal Class Venture did not
file an appeal. Consequently, upon Uson’s motion a Writ of Executions were issued
subsenquently to implement the decision but the judgment was still unsatisfied.

Uson filed another Motion for Alias Writ of Execution and to Hold Directors and Officers of
Respondent Liable for the Decision and quoted from the sheriff’s return: a) that at RCVPI’s
address (to which the writs are being served) there is a new establishment named “ Joel and Sons
Corporation” which was a family corporation owned by the Guillermos, in which Jose
Emmanuel Guillermo, the President and General Manager of Royal Class Venture, is one of the
stockholders; b) that Jose received the writ using the nickname “Joey” concealing his real
identity and pretended to be the brother of Jose; c) that RCVPI has already been dissolved.

Labor Arbiter granted the motion filed by respondent and held herein petitioner Jose Emmanuel
Guillermo, in his personal capacity jointly and severally liable with the corporation and that there
is no denial of due process in holding them so even if the said officers were not parties of the
case when the judgment was rendered. Thus the Labor artbiter pierced the veil of corporate
fiction.

Guillermo filed, by way of special appearance, a Motion for Reconsideration to Set Aside the
order but the same was not granted. He contended that a) officers cannot be included as
judgement obligor in a labor case for the first time only after the decision of the Labor Arbiter
had become final and executory b) in piercing the veil of Royal Class Venture, he was allegedly
discriminated against when he alone was belatedly impleaded despite the existence of other
officers of Royal Class Venture; c)that the labor arbiter has no jurisdiction because the case is
one of an intra-corporate controversy, with the complainant Uson also claiming to be a
stockholder and director of the corporation.

Issues:
1. Whether or not an officer of a corporation may be included as judgement obligor in a labor case
for the first time only after the decision of the Labor Arbiter had become final and executory.
2. Whether or not the twin doctrines of “piercing the veil of corporate fiction” and personal liability
of company officers apply in labor cases.

Ruling:
1) Yes. In earlier labor cases of Claparols v CIR and A.C. Ransom labor Union-CCLU v NLRC,
the Court held that persons who were not originally impleaded in the case were, even during
execution, held to be solidarity liable with the employer corporation for the latter's unpaid
obligations to complainant-employees. Personal liability attaches only when, as enumerated by
the said Section 31 of the Corporation Code, there is a wilfull and knowing assent to patently
unlawful acts of the corporation, there is gross negligence or bad faith in directing the affairs of
the corporation, or there is a conflict of interest resulting in damages to the corporation. The
conferment of liability on officers for a corporation's obligations to labor is held to be an
exception to the general doctrine of separate personality of a corporation.

In Naguit v NLRC, the president of the corporation was found, for the first time on appeal, to be
solidarily liable to the dismissed employees. In Reynoso v CA, the veil of corporate fiction was
piereced at the stage of execution against a corporation not previously impleaded.

2) The veil of corporate fiction can be pierced, and responsible corporate directors and officers or
even a separate but related corporation, may be impleaded and held answerable solidarily in a
labor case, even after final judgment and on execution, so long as it is established that such
persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation,
or have resorted to fraud, bad faith or malice in doing so.

In the case at hand, respondent Uson’s sworn allegations stating that Guillermo was the
responsible officer in charge of running the company as well as the one who maliciously and
illegally dismissed Uson from employment was uncontroverted. Furthermore, it was Guillermo
himself, as President and General Manager of the company, who received the summons to the
case, and who also subsequently and without justifiable cause refused to receive all notices and
orders of the Labor Arbiter that followed. He, likewise, was shown to have a role in dissolving
the original obligor company in an obvious "scheme to avoid liability".

Hence, Petition denied.

 Kukan International Corporation v Reyes
G.R. No. 182729
September 29, 2010

Velasco, Jr, J:

Facts:
In March 1998, KUKAN, INC. conducted a bidding for the supply and installation of signages
in a building being constructed in Makati City originally amounting to 5 million and later
redueced to P3,388,502. Private respondent Romeo M. Morales won the bid and consequently,
was awarded the contract.

After complying with his contractual obligations, Morales was only paid the amount
P1,976,371.07, leaving a remaining balance of P1,412,130.93 which Kuka, Inc. refused to pay
despite demands. Hence, respondent filed a case before the RTC for a collection of sum of
money. Kukan, Inc. filed an answer with counterclaim. 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 befor the trial court..

In reaction to KIC’s 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 omnibus 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.

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 KIC’s MR in the assailed resolution.
Hence, the instant petition for review.

ISSUES:

1) Whether or not the trial court can, after adjudging KUKAN, INC. liable for a sum of money
in a final and executory judgment, execute such judgment debt against the property of
KUKAN INTERNATIONAL CORPORATION (KIC), a different entity.
2) Whether or not the RTC acquired jurisdiction over KIC.
3) Whether the RTC and the CA correctly applied the principle of pirecing the veil of corporate
fiction.

RULING:
1) No. In Carpio v. Doroja, the Court ruled that the deciding court has supervisory control
over the execution of its judgment. But in Timbal v tan, the SC held that the court’s
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
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.

2) 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 RTC’s jurisdiction
over its person. The challenge was subsumed in KIC’s primary assertion that it was not the
same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s
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 RTC’s jurisdiction of its person. It cannot
be overemphasized that KIC could not file before the RTC a motion to dismiss and its
attachments in the Civil Case, 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.

3) 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; 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 court’s 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.

The SC Aguedo Agbayani, a recognized authority on Commercial Law: “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.

The implication of the above comment is twofold: (1) the court must first acquire
jurisdiction over the corporation or corporations 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.

Hence, 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 case at bar , 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.

Hence, petition granted and decision reversed and set aside.