Zaragoza vs Tan
GR. No. 225544
December 04, 2017
Ponente; Peralta, J
FACTS: Petitioner Rogel N. Zaragoza was the Area Sales Manager of Consolidated
Distillers of the Far East Incorporated (Condis) in the Bicol Region. He was dismissed
on December 3, 2007. On February 18, 2008, he filed an illegal dismissal case with
money claims against Condis, Winston Co and Dominador D. Hidalgo. The case of
illegal dismissal prosper and awarded damages against the company by the NLRC,
Meanwhile, petitioner had already received a total amount of P454,986.98 He then filed
a motion for issuance of alias writ of execution with notice of appearance, arguing that
he is likewise entitled to accrued salaries by reason of the order of reinstatement, which
as of December 3, 2012 amounted to P2,294,897.47. He prayed that respondent Tan,
as President of Condis, should be held personally liable for the awards; and that
respondent EDI should also be held jointly and solidarily liable with Condis for the
judgment award as the transfer of manufacturing business of the latter to the former
was done in bad faith in order to evade payment/satisfaction of their liabilities in the
labor case, applying the doctrine of piercing the veil of corporate fiction. Respondents
on the other hand contends that they were never made parties in the illegal dismissal
case filed by petitioner; that they were merely dragged into the proceedings when
petitioner filed a motion for issuance of alias writ of execution with notice of appearance;
that an order of execution can only be issued against a party and not against one who
did not have his day in court.
ISSUE: Whether or not respondent Tan as her capacity as President of the corporation
is liable to pay the monetary award to the petitioner despite the fact that she was not
impleaded in the labor case. Thus, applied the doctrine of piercing the veil of corporate
fiction against her?
RULING: NO, respondents were never impleaded in the illegal dismissal case, they
were never served with summons nor did they voluntarily appear in the arbitration level;
thus, the LA never acquired jurisdiction over them as to order the piercing of the veil of
corporate fiction, and to make them jointly and severally liable with Condis for the
judgment award to petitioner.
The Court already ruled in Kukan International Corporation v. Reyes that compliance
with the recognized modes of acquisition of jurisdiction cannot be dispensed with even
in piercing the veil of corporate fiction, to wit:
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.
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.
x x x" (Citations omitted)
From the preceding, it is therefore correct to say that the court must first and foremost
acquire jurisdiction over the parties; and only then would the parties be allowed to
present evidence for and/or against piercing the veil of corporate fiction. If the court has
no jurisdiction over the corporation, it follows that the court has no business in piercing
its veil of corporate fiction because such action offends the corporation's right to due
process.
"Jurisdiction over the defendant is acquired either upon a valid service of summons or
the defendant's voluntary appearance in court. When the defendant does not voluntarily
submit to the court's jurisdiction or when there is no valid service of summons, 'any
judgment of the court which has no jurisdiction over the person of the defendant is null
and void.'" "The defendant must be properly apprised of a pending action against him
and assured of the opportunity to present his defenses to the suit. Proper service of
summons is used to protect one's right to due process."[26]
In any event, it is an elementary and fundamental principle of corporation law that a
corporation is an artificial being invested by law with a personality separate and distinct
from its stockholders and from other corporations to which it may be connected. [27] A
corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the acts of the directors and officers as
the corporate agents are not their personal liability but the direct responsibility of the
corporation they represent.[28] 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.[29] This is the doctrine of piercing the veil of corporate fiction which applies only
when such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime,[30] 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.[31] To disregard the separate juridical personality of a corporation, the
wrongdoing must be established clearly and convincingly. It cannot be presumed
