Case Citation: Padilla v.

CA
G.R. No. 123893

Date: November 22, 2001

Petitioners: Luisito Padilla & Phoenix-Omega Development And

Management Corporation

Respondents: Court Of Appeals and Susana Realty, Inc

Doctrine: The general rule is that a corporation is clothed with a personality separate
and distinct from the persons composing it. It may not be held liable for the
obligations of the persons composing it, and neither can its stockholders be
held liable for its obligations.

This veil of corporate fiction may only be disregarded in cases where the
corporate vehicle is being used to defeat public convenience, justify wrong,
protect fraud, or defend crime

Antecedent Facts: Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light Rail
Transit Authority (LRTA) several parcels of land. Under paragraph 7 of the
deed of sale, SRI reserved to itself the right of first refusal to develop and/or
improve the property sold should the LRTA decide to lease and/or assign to
any person the right to develop and/or improve the property

A contract was entered into on July 28,1988 between Phoenix Omega and
SRI with LRTA whereby Phoenix Omega undertook to construct commercial
stalls on the 90-sq. m. property in accordance with plans and specifications
prepared by the latter, the construction to begin, however, only upon SRI's
approval of such plans.

On July 28, 1988, Phoenix Omega, by a deed of assignment, assigned its

right and interests over the remaining property unto its sister company, PKA
Development and Management Corporation (PKA). Signatories to the deed
of assignment were Eduardo Gatchalian in his capacity as President of
Phoenix Omega, and Luisito B. Padilla (Padilla), one of the petitioners
herein, in his capacity as President and General Manager of PKA.

In the meantime, SRI sold part of its remaining property to a third party. An
amended contract of lease was created. PKA was again represented by
Padilla in his capacity as its President and General Manager. And Phoenix
Omega, which was not a party to the July 28, 1988 lease contract sought to
be amended but which was a party, to the amended contract, was also
represented by Padilla as Chairman of the Board of Directors of Phoenix
Omega.

PKA's building permit was later revoked due to certain violations of the
National Building Code (BP 344) but was later on allowed by the DPWH to
resume construction after correction of the defects.

PKA transmitted the amended plans to SRI but SRI did not heed the
repeated requests. This caused PKI to file an action for rescission of
contract of lease against SRI, alleging that SRI's refusal to approve the
plans without any justifiable reason deprived it of the use of the commercial
stalls, thereby incurring losses.
 SRI, upon the other hand, claimed that it was PKA which violated the terms
of their contract, alleging that PKA failed to complete within six months the
construction of the commercial stalls during which period it was not paying
any rentals,

The RTC ruled in favor of SRI and ordered PKA to pay the claimed sums of
money plus damages. The CA and Supreme Court both affirmed this
decision, thus, a writ of execution was issued by the RTC.

Possession of the subject properties was subsequently restored to SRI, but

the monetary award was left unsatisfied. Thus, SRI filed a motion for
issuance of an alias writ against herein petitioners, based on the trial court's
observation that PKA and Phoenix Omega are one and the same entity.
This was granted by the RTC in an order.

Petitioners assailed these orders as confiscatory, since they were never

parties to the case filed by PKA against SRI.

Petitioner’s Contention: Petitioners argue that the amended lease contract was only between SRI
and PKA. Petitioners alleges that PKA and Phoenix-Omega are two
different entities and protest the piercing of the veil of corporate fiction
between themselves and PKA.

Respondent’s Contention: Respondent argues that there is no error in the issuance of the alias writ of
execution against the properties of petitioners since the trial court, the CA,
and this Court had all ruled that petitioners and PKA are in reality one and
the same entity.

MTC/RTC Ruling: The RTC granted the motion for issuance of an alias writ against PKA and
Phoenix finding them to be one and the same entity

CA Ruling: The Court of Appeals agreed with the RTC's finding that there is evidence
on record to support the RTC's conclusion that PKA and Phoenix-Omega
are one and the same, or that the former is a mere conduit of the latter.

Issue: WON the trial court had jurisdiction over petitioners, to justify the issuance
of an alias writ of execution against their properties. (NO)

(WON PKA and Phoenix-Omega are one and the same entities)

SC Ruling: A court acquires jurisdiction over a person through either a valid service of
summons or the person's voluntary appearance in court. In the present
case, we note that the trial court never acquired jurisdiction over petitioners
through any of the modes mentioned above. Neither of the petitioners was
even impleaded as a party to the case.

To levy upon their properties to satisfy a judgment in a case in which they

were not even parties is not only inappropriate; it most certainly is
deprivation of property without due process of law.

To begin with, it is clear that Padilla participated in the proceedings

below as general manager of PKA and not in any other capacity. The
fact that at the same time he was the chairman of the board of Phoenix-
Omega cannot, by any stretch of reasoning, equate to participation by
Phoenix-Omega in the same proceedings. We again stress that Phoenix-
Omega was not a party to the case and so could not have taken part
 therein.
The general rule is that a corporation is clothed with a personality separate
and distinct from the persons composing it. It may not be held liable for the
obligations of the persons composing it, and neither can its stockholders be
held liable for its obligations.

This veil of corporate fiction may only be disregarded in cases where the
corporate vehicle is being used to defeat public convenience, justify wrong,
protect fraud, or defend crime.

PKA and Phoenix-Omega are admittedly sister companies, and may be

sharing personnel and resources, but we find in the present case no
allegation, much less positive proof, that their separate corporate
personalities are being used to defeat public convenience, justify wrong,
protect fraud, or defend crime. "For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed." We find no reason to
justify piercing the corporate veil in this instance

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