Zaragoza vs Tan

GR. No. 225544

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. On March 3, 2009, the
Labor Arbiter (LA) issued his Decision[3] finding that petitioner was illegally dismissed. On
May 11, 2009, Condis filed its Manifestation[5] by way of compliance with the LA alleging
that petitioner can no longer be reinstated as his former sales position no longer existed
and there was no equivalent position to which he could be reinstated pending appeal as
the company was no longer engaged in the manufacturing, selling and marketing of
Emperador Brandy and other liquor products; and that the Services Agreement which
Condis entered with Emperador Distillers, Inc. (EDI), the company that bought the former,
to market, sell and make logistic services was also terminated on June 1, 2008.
Condis and Hidalgo appealed the LA decision to the National Labor Relations
Commission (NLRC). On April 13, 2010, the NLRC affirmed[6] with modification the LA
decision by deleting the award of nominal damages and reducing to P50,000.00 the
award of moral and exemplary damages. Their motion for reconsideration was denied in
a Resolution dated July 30, 2010. They filed a petition for certiorari with the CA which
issued its Decision[7] dated November 22, 2010, partly granting the petition. The CA
affirmed with modification the NLRC Decision and Resolution, and absolved Hidalgo of
liability and deleted the award of moral and exemplary damages. The CA denied the
motion for reconsideration in a Resolution[8] dated March 7, 2011.
Condis filed a petition for review with the Court, which denied it in a Resolution [9] dated
June 22, 2011. The motion for reconsideration was denied in a Resolution[10] dated
January 18, 2012. The Resolution became final and executory on March 30, 2012 and an
entry of judgment was made.
Meanwhile, petitioner had already received a total amount of P454,986.98. [11] He then
filed a motion[12] 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.
In adjudging respondents Katherine Tan and EDI to be jointly and severally liable with
Condis, the LA found that the execution of the Asset Purchase Agreement and the
termination of the Services Agreement were purposely done by Condis and respondent
EDI to defraud petitioner as shown by the following: While the January 16, 2007 Asset
Purchase Agreement was executed earlier than petitioner's dismissal on December 3,
2007, Condis was still operational for the period convenient to its purpose; the Asset
Purchase Agreement and the letter terminating the Services Agreement were signed by
Co as the Managing Director of EDI, and Co used to be Condis' Senior Vice-President
prior to its alleged cessation of operation; both companies were represented by one and
the same lawyer when they filed their respective Comment/Opposition; and Condis raised
the issue of cessation of operation and separate corporate personality only in the course
of the execution of the decision in the illegal dismissal case. Thus, the corporate fiction is
pierceable by reason of fraud.
In granting the petition, the NLRC found that respondents 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. The LA did not acquire jurisdiction over
the respondents, since they were neither summoned nor voluntarily appeared before the
LA, and not being impleaded in the case, respondent EDI cannot be subject to the LA's
process of piercing the veil of corporate fiction, and respondent Tan cannot also be
subject to the LA's process of determining bad faith which would make an officer
personally liable for the claims of a dismissed employee.

ISSUE: WHETHER OR NOT THE MONETARY AWARD IN FAVOR OF PETITIONER IN

RULLING: 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