PIERCING THE CORPORATE VEIL

Kukan International Corporation vs. Hon. Amor Reyes G.R. No. 182729 September
29, 2010

The third and main issue in this case is whether or not the trial and appellate courts
correctly applied the principle of piercing the veil of corporate entitycalled also as
disregarding the fiction of a separate juridical personality of a corporationto support a
conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to
the contract award referred to at the outset. This principle finds its context on the
postulate that a corporation is an artificial being invested with a personality separate and
distinct from those of the stockholders and from other corporations to which it may be
connected or related. (Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July
15, 2005)

In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations

Commission G.R. No. 170689, March 17, 2009, the Court revisited the subject principle
of piercing the veil of corporate fiction and wrote:

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the
corporation as a mere collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate juridical personality of
the corporation unifying the group. Another formulation of this doctrine is that
when two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and
treat them as identical or as one and the same.

Whether the separate personality of the corporation should be pierced hinges

on obtaining facts appropriately pleaded or proved. However, any piercing of
the corporate veil has to be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when necessary in the interest
of justice. x x x

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.
G.R. No. 155639, April 22, 2009:

While a corporation may exist for any lawful purpose, the law will regard it as an
association of persons or, in case of two corporations, merge them into one, when
its corporate legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction. The doctrine applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing

must be established clearly and convincingly. It cannot be presumed.33

PIERCING THE VEIL AND THE COOURTS JURISDICTION

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; (Heirs of the Late
Panfilo V. Pajarillo v. Court of Appeals, G.R. Nos. 155056-57, October 19, 2007)

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. (Kukan International Corporation vs. Hon. Amor Reyes G.R. No.
182729 September 29, 2010)

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. (3 A.
Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the
Philippines 18 (1991))

xxx

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.