Title
Padilla vs. Court of Appeals
Case
G.R. No. 123893
Decision Date
Nov 22, 2001
Court voided alias writ against Phoenix-Omega and Padilla, citing lack of jurisdiction and due process, upholding corporate separateness without justification for veil-piercing.

Case Summary (G.R. No. 123893)

Background of Property Transactions and Contracts

In 1983, Susana Realty, Inc. sold several parcels of land to LRTA, reserving a right of first refusal for development in certain circumstances. Subsequently, in 1986, LRTA contracted Phoenix-Omega to develop commercial stalls on a portion of these lands. Despite initial opposition by SRI, a tripartite agreement was reached: SRI agreed to lease adjacent property to Phoenix-Omega. Phoenix-Omega assigned development rights over the remaining property to PKA, with both companies entering respective lease contracts with SRI. Amendments to the leasing agreements were made due to sales of portions of property to third parties. A building permit granted to PKA was later revoked due to construction violations but was partially reinstated pending corrective measures. SRI withheld approval of PKA’s amended construction plans, prompting PKA to file a contract rescission suit.

Judicial Proceedings and Decisions on the Lease Dispute

The Regional Trial Court (RTC) declared the rescission and termination of the lease, transferred ownership of improvements to SRI, and ordered PKA to pay monetary damages including unpaid rentals, moral and exemplary damages, attorney’s fees, and costs. The Court of Appeals (CA) affirmed the RTC decision but deleted the awards for moral and exemplary damages. Subsequent motions for reconsideration were denied by both the CA and the Supreme Court. A writ of execution was issued to enforce this judgment, authorizing seizure of PKA’s properties to satisfy the monetary award.

Issuance of Alias Writ of Execution Against Petitioners

After restoration of possession but failure to satisfy the monetary award, SRI sought an alias writ of execution against petitioners’ properties, including Phoenix-Omega and Luisito Padilla personally. The RTC ordered issuance of the alias writ based on its finding that PKA and Phoenix-Omega were one and the same entity. Petitioners challenged this, arguing they were not parties to the case and had no opportunity to present evidence or defend their interests. The RTC denied their motion to annul the writ and cancel the levy and sale notice. The CA denied their petition for certiorari and motion for reconsideration, sustaining the reasoning that PKA and Phoenix-Omega effectively operated as a single entity, with Padilla exercising control over both corporations.

Contentions of the Petitioners

The petitioners asserted that:

  • They were not parties to the main case and thus cannot be held jointly liable or subjected to execution of the judgment.
  • Phoenix-Omega’s role was limited to construction, not as a lessee or party to the lease agreements.
  • The corporate veil between PKA and Phoenix-Omega should not be pierced as the requisites for its application, such as fraud or wrongdoing, were not shown.
  • The dispositive portion of the judgment, which only held PKA liable, cannot be expanded to include petitioners.
  • Their constitutional right to due process was violated because they were deprived of the opportunity to be heard before their properties were subjected to execution.

Arguments of the Respondent and Court of Appeals Rationale

SRI and the CA maintained that:

  • The RTC, CA, and Supreme Court have ruled that petitioners and PKA were one and the same, justifying joint liability and execution against petitioners’ properties.
  • Padilla actively participated in the case as president and general manager of PKA, which effectively gave him control and opportunity to defend against claims, eliminating due process concerns.
  • The dispositive portion of the decision must be construed in light of the entire judgment body, which indicated an intent to hold all parties liable.
  • The corporate veil may be pierced when the two corporations are so closely intertwined and cannot be regarded as separate entities for the purpose of enforcement.

Supreme Court’s Analysis on Jurisdiction and Due Process

The Supreme Court emphasized that:

  • Jurisdiction over a person or entity in a case requires valid summons or their voluntary appearance.
  • Neither Phoenix-Omega nor Padilla, in their individual or corporate capacity separate from PKA, were formally impleaded as parties or subjected to valid service of summons in the main case.
  • Without jurisdiction, a court cannot bind a party or subject that party’s properties to execution.
  • Execution against the properties of non-parties is improper and constitutes deprivation of property without due process, contrary to constitutional protections.
  • Padilla’s participation was limited strictly to his capacity in PKA; his simultaneous office in Phoenix-Omega cannot be equated to participation by Phoenix-Omega or himself personally in the proceedings.
  • The separate juridical personalities of PKA and Phoenix-Omega remain recognized absent clear, convincing proof of misuse of corporate form to justify disregarding corpo

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