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Case digest · Piercing the corporate veil
Kukan International Corporation vs. Reyes
A new company appeared with a similar name and one common shareholder. Was it the same company that owed the debt?
Facts
1998
Romeo Morales won a contract to install signages in a Makati building for Kukan, Inc. The price was later reduced to about P3.39 million. Kukan, Inc. left about P1.41 million unpaid, and Morales sued.
2000
Kukan International Corporation (KIC) was incorporated in August 2000. From November 2000, Kukan, Inc. stopped appearing in court.
Execution
After Morales won, the sheriff levied on personal property found at what was supposed to be Kukan, Inc.’s office. KIC claimed the property as its own.
The motion to pierce
Michael Chan held 40% of both companies. Years later, a new trial judge granted Morales’s motion to pierce, declared Kukan, Inc. and KIC one and the same, and held KIC and Chan solidarily liable.
Issue
Can a corporation that was never impleaded or summoned be made to answer for a final judgment against another company by piercing the corporate veil?
Ruling
No. The veil was not pierced. The Court lifted the levy and ordered the property returned to KIC.
The judgment ordered only Kukan, Inc. to pay, so making KIC answer for it through a writ of execution would alter a final and executory decision. KIC was also never impleaded or summoned, and piercing the veil determines liability; it does not give a court jurisdiction it never acquired. A claim that KIC should bear Kukan, Inc.’s debt is a new cause of action that belongs in a separate complaint, not a motion filed after final judgment. On the merits, a 40% common shareholder, a similar name and a similar business were neither substantial identity of stockholders nor proof of fraud. Morales also did not seriously try to levy on Kukan, Inc.’s own property.
“…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.”
Doctrine
“Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality.” Where a successor company is involved, the Court looks for a first corporation that was dissolved, assets transferred to a second corporation to avoid the first one’s liability, and both owned and controlled by the same persons.
Compare: pierced
In Livesey vs. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014, the Court pierced the veil: the first company closed shortly after promising not to, and the same president ran the same business on the same floor under a new name.
Bar tip
In a piercing question, check two things in order. First, was the other corporation impleaded and summoned? If not, piercing cannot reach it. Second, is there proof of fraud, and not just common shareholders or a similar name?
Hear it explained
Piercing the Corporate Veil, Podcast Ep. 1, at 4:45
This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.