KUKAN INTERNATIONAL CORPORATION VS. HON.

AMOR REYES
G.R. NO. 182729, SEPTEMBER 29, 2010

FACTS:

Private respondent Romeo M. Morales doing business under the name RM

Morales Trophies and Plaques was awarded a P5 million contract for the supply
and installation of signages in a building constructed in Makati sometime in
March 1998. The contract price was later reduced to P3,388,502 because some
items were deleted from the contract. Morales complied with his contractual
obligations but he was paid only the amount of P1,976,371.07 leaving a balance
of P1,412,130.93. He filed a case against Kukan, Inc., for sum of money with the
RTC of Manila docketed as Civil Case No. 99-93173. Kukan Inc., stopped
participating in the proceedings in November 2000, hence, it was declared in
default and Morales presented his evidence ex-parte against petitioner.

On November 28, 2002, the RTC rendered a decision in favor of Morales

and against Kunkan, Inc. ordering the latter to pay the sum of P1,201,724.00
with legal interest of 12% per annum until fully paid; P50,000.00 as moral
damages,P20,000.00 as attorney's fees and P7,960.06 as litigation expenses. The
counterclaimfiled by Kunkan, Inc. was dismissed. The decision became final and
executory During the execution, the sheriff levied the personal properties found
at the office of Kukan, Inc.. Claiming it owned the properties levied, Kukan
International Corporation (KIC) fied an Affidavit of Third Party Claim. Morales
filed an Omnibus Motion praying to apply the principle of piercing the veil of
corporate entity. He alleged that Kankun, Inc. and KIC are one and the same
corporation His Motion was denied. On Motion of Morales the presiding Judge
of Branch 17 of RTC Manila inhibited himself from hearing the case. It was
raffled to Branch 21 which granted the Motion filed by Morales on March 12,
2007 and decreed that Kukan, Inc. and Kukan International Inc., as one and
the same corporation; that the levy made on the properties of KIC is valid; and
ordering Kunkan International Corp. and Michael Chan as jointly and severally
liable to pay the award pursuant to the Decision dated November 28, 2002. KIC
filed a Motion for Reconsideration which was denied.KIC brought the case to the
Court of Appeals which rendered the Decision n January 23, 2008 denying KIC's
petition. The CA also denied its Motion for Reconsideration in the Resolution
dated June 7, 2007.

Hence, this case.

ISSUE/S: One of the issues raised is whether or not the trial court and the
appellate court correctly applied the principle of piercing the veil of corporate
entity.

HELD: The Supreme Court ruled that the doctrine of piercing the veil of
corporate entity finds no application in this case.

According to the Supreme Court, the principle of piercing the veil of

corporate entity and the resulting treatment of two related corporation as one
and the same juridical person applies only to established liability and not to
confer jurisdiction. In this case, the Supreme Court ruled that KIC was not made
a party defendant in Civil Case No. 99-93173. It entered a special but not a
voluntary appearance in the trial court to assert that it was a separate entity and
has a separate legal personality from Kunkan, Inc. KIC was not impleaded nor
served with summons. Hence, it could only assert its claim through the
affidavits, comments and motions filed by special apperance before the RTC that
it is a separate juridical entity.

The Supreme stated that the doctrine of piercing the veil of corporate
entity comes to play during the trial of the case after the court has already
acquired jurisdiction over the corporation.

To justify the piercing of the veil of corporate fiction, it must be shown by

clear and convincing proof that the separate and distinct personality of the
corporation was purposely employed to evade a legitimate and binding
comittment and perpetuate a fraud or like a wrongdoings.

In those instances when the Court pierced the veil of corporate fiction of
two corporations, there was a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation

to avoid a financial liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such
that the second corporation should be considered as a continuation and
successor of the first corporation.

In this case, the second and third factors are conspicuously absent. There
is, therefore, no compelling justification for disregarding the fiction of corporate
entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC
and the CA miserably failed to identify the presence of the abovementioned
factors.

The High Court stated that neither should the level of paid-up capital of
Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in
compliance with Sec. 13 of the Corporation Code, which only requires a
minimum paid-up capital of PhP 5,000.

The suggestion that KIC is but a continuation and successor of Kukan, Inc.,
owned and controlled as they are by the same stockholders, stands without
factual basis. The fact that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
outstanding capital stock of both corporations standing alone, is insufficient to
establish identity. There must be at least a substantial identity of stockholders
for both corporations in order to consider this factor to be constitutive of
corporate identity.

Petition granted.
Republic Planters Bank vs. Agana Case Digest
Republic Planters Bank vs. Agana
[GR 51765, 3 March 1997]

Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a
loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F.
Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos
F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following
rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing
lots, at any time after 2 years from the date of issue at the option of the Corporation." On 31 January 1979,
RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a Motion to Dismiss 3 private respondents' Complaint on the
following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the
action was unenforceable under substantive law; and (3) that the action was barred by the statute of limitations
and/or laches. The bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979
to submit their respective memoranda after the submission of which the case would be deemed submitted for
resolution. On 7 September 1979, the trial court rendered the decision in favor of RFRDC and Robes; ordering
the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price, plus 1%
quarterly interest thereon until full payment. The bank filed the petition for certiorari with the Supreme Court,
essentially on pure questions of law.

Issue:
1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes.
2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a
matter of right without necessity of a prior declaration of dividend.
Held:

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The
redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel
or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word
"may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be
construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank
made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted
in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and
Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the
ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central
Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to
the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate
entity, may thus be considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance
of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before
dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as
dividends from net earnings or surplus only. In compelling the bank to redeem the shares and to pay the
corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear
mandate of the law.
G.R. No. L-23145, Nov. 29, 1968
o PRIVATE INTERNATIONAL LAW: Situs of Shares of Stock: domicile of the
corporation
o SUCCESSION: Ancillary Administration: The ancillary administration is
proper, whenever a person dies, leaving in a country other than that of his last
domicile, property to be administered in the nature of assets of the deceased
liable for his individual debts or to be distributed among his heirs.
o SUCCESSION: Probate: Probate court has authority to issue the order
enforcing the ancillary administrator’s right to the stock certificates when the
actual situs of the shares of stocks is in the Philippines.

FACTS:

Idonah Slade Perkins, an American citizen who died in New York City, left among
others, two stock certificates issued by Benguet Consolidated, a corporation
domiciled in the Philippines. As ancillary administrator of Perkins’ estate in the
Philippines, Tayag now wants to take possession of these stock certificates but
County Trust Company of New York, the domiciliary administrator, refused to part
with them. Thus, the probate court of the Philippines was forced to issue an order
declaring the stock certificates as lost and ordering Benguet Consolidated to
issue new stock certificates representing Perkins’ shares. Benguet Consolidated
appealed the order, arguing that the stock certificates are not lost as they are in
existence and currently in the possession of County Trust Company of New York.

ISSUE: Whether or not the order of the lower court is proper

HELD:

The appeal lacks merit.

Tayag, as ancillary administrator, has the power to gain control and possession of
all assets of the decedent within the jurisdiction of the Philippines

It is to be noted that the scope of the power of the ancillary administrator was, in
an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have
more than one administration of an estate. When a person dies intestate owning
property in the country of his domicile as well as in a foreign country,
administration is had in both countries. That which is granted in the jurisdiction of
decedent's last domicile is termed the principal administration, while any other
administration is termed the ancillary administration. The reason for the latter is
because a grant of administration does not ex proprio vigore have any effect
beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary
administration is proper, whenever a person dies, leaving in a country other than
that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs."

Probate court has authority to issue the order enforcing the ancillary
administrator’s right to the stock certificates when the actual situs of the shares
of stocks is in the Philippines.

It would follow then that the authority of the probate court to require that
ancillary administrator's right to "the stock certificates covering the 33,002
shares ... standing in her name in the books of [appellant] Benguet Consolidated,
Inc...." be respected is equally beyond question. For appellant is a Philippine
corporation owing full allegiance and subject to the unrestricted jurisdiction of
local courts. Its shares of stock cannot therefore be considered in any wise as
immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue finds
application. "In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successfully do so even if it were so minded.
Tayag vs Benguet Consolidated Inc
26 SCRA 242 [GR No. L-23145 November 27,1968]

Facts: County Trust Company of New York, United States of America

is the domiciliary administration of the decedent, Idonah Slade
Perkins who owned 33,002 shares of stocks in the appellant,
domestic corporation, Benguet Consolidated Inc. located in the
Philippines. A dispute arose between the appellee, Tayag who is the
appointed ancillary of Perkins in the Philippines and the domiciliary
administration as to who is entitled to the possession of the
certificate of shares, however, County Trust Company refuses to
transfer the said certificate to Tayag despite the order of the court.
Hence, the appellee was compelled to petition the court for the
appellant to declare the subject certificates as lost to which appellant
allegeed that no new certificate can be issued and the same cannot
be rendered as lost in accordance with their by-laws.

Issue: Whether or not the certificate of shares of stock can be

declared lost.
Held: Yes. Administration whether principal or ancillary certainly
extends to the assets of a decedent found within the state or country
where it was granted.

It is often necessary to have more than one administration of an

estate. When a person dies intestate owning property located in the
country of his domicile as well as in a foreign country, administration
is had in both countries. That which is granted in the jurisdiction of
decedent’s last domicile is termed the principal administration, while
any other administration is termed the ancillary administration. The
reason for the latter is because a grant of administration does not ex
proprio vigore have any effect beyond the limits of the country in
which it is granted.Hence, an administration appointed in a foreign
state has no authority in the Philippines. The ancillary administration
is proper, whenever a person dies, leaving in a country other than
that of his last domicile, property to be administered in the nature of
the deceased’s liable for his individual debts or to be distributed
among his heirs.

Since there is refusal, persistently adhered to by the domiciliary

administration in New York, to deliver the shares of stocks of
appellant corporation owned by the decedent to the ancillary
administration in the Philippines, there was nothing unreasonable or
arbitrary in considering them lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby the task incumbent
under the law on the ancillary administration could be discharged
and his responsibility fulfilled.

Assuming that a contrariety exist between the provision of the laws

and the command of a court decree, the latter is to be followed.

A corporation as known to Philippine jurisprudence is a creature

without any existence until it has received the imprimatur of state
according to law. It is logically inconceivable therefore it will have
rights and privileges of a higher priority than that of its creator, more
than that, it cannot legitimately refuse to yield obedience to acts of
its state organs, certainly not excluding the judiciary, whenever
called upon to do so.
CASTILLO vs. BALINGHASAY 440 scra 442 G.R. No. 150976
(2004)
FACTS: Petitioners and the respondents are stockholders of Medical
Center Parañaque, Inc (MCPI), with the former holding Class "B"
shares and the latter owning Class "A" shares. MCPI is a domestic
corporation. At the time of its incorporation, Act No. 1459, the old
Corporation Law was still in force and effect. On September 9, 1992,
Article VII was again amended. It states that “Except when otherwise
provided by law, only holders of Class "A" shares have the right to
vote and the right to be elected as directors or as corporate officers.”
The SEC approved the foregoing amendment on September 22,
1993. On February 9, 2001, the shareholders of MCPI held their
annual stockholders’ meeting and election for directors. During the
course of the proceedings, respondent Rustico Jimenez, citing Article
VII, as amended, and notwithstanding MCPI’s history, declared over
the objections of herein petitioners, that no Class "B" shareholder
was qualified to run or be voted upon as a director. In the past, MCPI
had seen holders of Class "B" shares voted for and serve as members
of the corporate board and some Class "B" share owners were in fact
nominated for election as board members. Nonetheless, Jimenez
went on to announce that the candidates holding Class "A" shares
were the winners of all seats in the corporate board. The petitioners
protested, claiming that Article VII was null and void for depriving
them, as Class "B" shareholders, of their right to vote and to be voted
upon, in violation of the Corporation Code (Batas Pambansa Blg. 68),
as amended. On March 22, 2001, after their protest was given short
shrift, herein petitioners filed a Complaint for Injunction, Accounting
and Damages before the RTC. In finding for the respondents, the trial
court ruled that corporations had the power to classify their shares
of stocks, such as "voting and non-voting" shares, conformably with
Section 67 of the Corporation Code of the Philippines. Hence this
petition.

ISSUE: Whether or not holders of Class "B" shares of the MCPI may
be deprived of the right to vote and be voted for as directors in
MCPI.

RULING:
Since the Class “B” shareholders are not classified as holders of
either preferred or redeemable shares, then it necessarily follows
that they are entitled to vote and to be voted for as directors or
officers The law referred to in the amendment to Article VII refers to
the Corporation Code and no other law. At the time of the
incorporation of MCPI in 1977, the right of a corporation to classify
its shares of stock was sanctioned by Section 5 of Act No. 1459. The
law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of
right of classification of stock shares to corporations, but with a
significant change. Under Section 6 of B.P. Blg. 68, the requirements
and restrictions on voting rights were explicitly provided for, such
that "no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code" and that "there shall always be a
class or series of shares which have complete voting rights." Section
6 of the Corporation Code being deemed written into Article VII of
the Articles of Incorporation of MCPI, it necessarily follows that
unless Class "B" shares of MCPI stocks are clearly categorized to be
"preferred" or "redeemable" shares, the holders of said Class "B"
shares may not be deprived of their voting rights. Note that there is
nothing in the Articles of Incorporation nor an iota of evidence on
record to show that Class "B" shares were categorized as either
"preferred" or "redeemable" shares. The only possible conclusion is
that Class "B" shares fall under neither category and thus, under the
law, are allowed to exercise voting rights.