GR 182729; (September, 2010) (Digest)
G.R. No. 182729 ; September 29, 2010
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
Private respondent Romeo Morales won a contract from Kukan, Inc. to supply signages. After partial performance, a balance of over PhP 1.4 million remained unpaid. Morales filed a collection suit against Kukan, Inc., which, after initially participating, stopped appearing in court. The trial court rendered a final and executory judgment in favor of Morales. During execution, the sheriff levied properties found at Kukan, Inc.’s listed office address. Petitioner Kukan International Corporation (KIC) filed a third-party claim, asserting ownership of the levied properties and claiming to be a separate entity from the judgment debtor, Kukan, Inc. KIC was incorporated in August 2000, shortly after Kukan, Inc. ceased participating in the lawsuit.
ISSUE
Whether the Regional Trial Court correctly pierced the veil of corporate fiction to hold Kukan International Corporation liable for the judgment debt of Kukan, Inc., despite KIC not being a party to the original suit.
RULING
Yes, the Supreme Court affirmed the rulings of the lower courts. The legal logic for piercing the corporate veil was firmly established. The principle is applied to prevent the separate corporate personality from being used as a shield to perpetrate fraud, defeat public convenience, or justify a wrong. The Court found that KIC was a mere alter ego of Kukan, Inc., created precisely to evade the existing liability to Morales. The timing of KIC’s incorporation—right after Kukan, Inc. abandoned its defense—was highly suspect. Furthermore, both corporations shared the same business address and were controlled by the same individual, Michael Chan. This unity of interest and ownership rendered the separate corporate identities a fiction. Consequently, KIC could be held liable for the judgment against Kukan, Inc. The Court also ruled that the RTC’s order piercing the veil in the execution stage was proper, as it was a necessary incident to enforce a final judgment and did not violate KIC’s right to due process, as it was afforded the opportunity to be heard on the motion.