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by Atty. Gabriel Ablola 🇵🇭

Tag: Jurisdiction over Corporation

  • Can a Corporation Evade a Lawsuit if Summons Was Served on an ‘Unauthorized’ Person?

    Dear Atty. Gab,

    Musta Atty! I’m writing to you because I’m in a really confusing and stressful situation regarding a property I thought I was buying. About two years ago, I entered into a Contract to Sell for a piece of land in Batangas owned by a company called “Prime Lands Corp.” I dealt exclusively with a certain Mr. Carlos Domingo, who presented himself as their Head of Sales and seemed very knowledgeable. He showed me board resolutions (or so I thought) authorizing the sale.

    Based on our contract, I paid a total of P850,000.00 directly to Mr. Domingo, who issued official-looking receipts under Prime Lands’ name. However, when it was time for them to deliver the title and execute the final deed after my full payment, they suddenly stopped responding. Mr. Domingo became unreachable.

    I had no choice but to file a case for specific performance against Prime Lands Corp. My lawyer arranged for the summons to be served. It was eventually served on Mr. Domingo at his residential address, which was also listed in some company documents he previously showed me. Prime Lands Corp. never showed up in court. Because they didn’t appear, the court allowed me to present my side and eventually ruled in my favor, ordering the company to honor the sale.

    Now, months after the decision became final, a different lawyer representing Prime Lands Corp. suddenly appeared, filing a petition to annul the judgment. They claim they never authorized Mr. Domingo to sell the property or receive payments, and more importantly, that the summons served on him was invalid because he wasn’t one of the officers listed in the rules (President, Manager, Secretary, etc.). They argue the court never had jurisdiction over them. Can they really do this? Does this mean the court decision I won is useless? I’m worried I lost my money and the land. What are my rights?

    Salamat po for any guidance.

    Very respectfully,
    Andres Santiago

    Dear Andres,

    Thank you for reaching out. I understand your distress regarding the land purchase with Prime Lands Corp. and the subsequent legal challenge to the court decision you obtained. Your situation touches upon crucial aspects of legal procedure, specifically how courts acquire authority (jurisdiction) over corporations involved in lawsuits.

    The core issue here is whether the service of summons on Mr. Domingo, given his disputed authority and the fact that he might not be one of the officers explicitly named in the procedural rules for service, was valid to bring Prime Lands Corp. under the court’s jurisdiction. If the service was invalid, the corporation has strong grounds to argue that the subsequent judgment is void, even if they knew about the case informally. Let’s delve into the principles governing this.

    The Importance of Getting the Court’s Invitation Right: Serving Summons on Corporations

    In any lawsuit, for a court to have the authority to issue a binding judgment against a defendant (in your case, Prime Lands Corp.), it must first acquire what is called jurisdiction over the person of that defendant. This is a fundamental requirement of due process. Jurisdiction is typically obtained in two ways: either through a valid service of summons or through the defendant’s voluntary appearance in court.

    Summons is the official notice from the court informing the defendant that a case has been filed against them and that they need to respond. Its purpose is twofold: to formally acquire jurisdiction and to afford the defendant the opportunity to be heard. Because of its importance, the rules on how summons must be served are strictly applied, especially when the defendant is a corporation, which acts through individuals.

    The rules specify who within a corporation is authorized to receive summons on its behalf. The rationale is to ensure that the notice reaches a responsible representative who knows what to do with it, ensuring the corporation can protect its interests. At the time the relevant procedural rules applicable to many past cases were in effect (and the principle remains crucial today under the amended rules), the rule stated:

    Sec. 13. Service upon private domestic corporation or partnership.— If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors. (Section 13, Rule 14, 1964 Rules of Civil Procedure)

    This enumeration is exclusive. Serving summons on someone not holding one of these specific positions generally means the service is invalid. The Supreme Court has emphasized this strict adherence:

    [S]ervice of summons on anyone other than the president, manager, secretary, cashier, agent, or director, is not valid. The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him.

    Therefore, even if Mr. Domingo presented himself as the Head of Sales, if he did not concurrently hold one of the positions listed in the rule (President, Manager, Secretary, Cashier, Agent, or Director) at the time of service, the service upon him might indeed be considered defective. His title as ‘Head of Sales’ doesn’t automatically make him a ‘Manager’ or ‘Agent’ in the context of receiving summons, unless proven otherwise or established by corporate bylaws or specific authorization for that purpose.

    You mentioned Prime Lands Corp. did not appear in court after the summons was served on Mr. Domingo. Generally, filing an answer or certain other pleadings constitutes voluntary appearance, which cures defects in the service of summons. However, this presupposes that the person acting on behalf of the corporation is actually authorized to do so. If Mr. Domingo himself, or someone instructed by him, filed an answer without proper authority from Prime Lands Corp.’s board of directors, that act would not necessarily bind the corporation or count as its voluntary appearance.

    A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its bylaws… [A corporation] cannot be bound or deemed to have voluntarily appeared before the [court] by the act of an unauthorized stranger.

    Furthermore, even if Prime Lands Corp. somehow became aware of the lawsuit through other means (perhaps Mr. Domingo informed them, or they saw court records), this actual knowledge does not substitute for valid service of summons as required by the rules.

    [J]urisdiction of the court over the person of the defendant or respondent cannot be acquired notwithstanding his knowledge of the pendency of a case against him unless he was validly served with summons. Such is the important role a valid service of summons plays in court actions.

    If the court never acquired jurisdiction over Prime Lands Corp. due to defective service, the proceedings and the resulting judgment ordering them to honor the sale are considered null and void from the beginning. Annulment of judgment under Rule 47 of the Rules of Court is indeed a remedy available when a judgment is rendered without jurisdiction, provided certain conditions are met, including that the ordinary remedies like new trial, appeal, or relief from judgment are no longer available through no fault of the petitioner.

    Practical Advice for Your Situation

    • Verify Service Details: Immediately consult your lawyer to meticulously review the Sheriff’s Return or report regarding the service of summons. Confirm exactly who was served, what position they held (or claimed to hold), and where the service was made.
    • Check Mr. Domingo’s Authority: Gather all evidence related to Mr. Domingo’s authority – the documents he showed you, receipts he issued, any correspondence mentioning his role, etc. While this might be more relevant to the validity of the contract itself, it could potentially support an argument that he was an ‘agent’ for service purposes, though this is often difficult to prove if he’s not one of the top officers.
    • Examine Corporate Records: If possible, check Prime Lands Corp.’s General Information Sheets (GIS) filed with the Securities and Exchange Commission (SEC) around the time of service to see if Mr. Domingo held any of the qualifying positions (President, General Manager, Corporate Secretary, Treasurer, Director). The current rule also includes ‘in-house counsel’.
    • Assess the Annulment Petition: Work with your lawyer to evaluate the Petition for Annulment filed by Prime Lands Corp. Does it meet the requirements under Rule 47? Was it filed within the prescribed period?
    • Consider Your Options if Judgment is Annulled: If the judgment is unfortunately annulled due to lack of jurisdiction, it is considered void without prejudice to refiling the original action. This means you might have to initiate the specific performance case again, this time ensuring summons is impeccably served on the correct corporate officers listed in the current rules (President, General Manager, Corporate Secretary, Treasurer, or In-House Counsel) at their known office address.
    • Explore Action Against Mr. Domingo: Regardless of the outcome with the corporation, you might have grounds to pursue a separate legal action (civil and potentially criminal) against Mr. Domingo personally if he misrepresented his authority and defrauded you.
    • Potential Estoppel Argument: Discuss with your lawyer whether the doctrine of estoppel might apply against Prime Lands Corp., especially if they benefited from Mr. Domingo’s actions or knowingly permitted him to act as if he had authority, leading you to rely on his representations. This is a complex argument and depends heavily on specific facts.

    This is undoubtedly a challenging situation, Andres. The strict requirements for serving summons on corporations are designed to protect due process, but they can sometimes lead to harsh outcomes for claimants if not followed correctly. It’s crucial to work closely with your legal counsel to navigate the current petition for annulment and strategize your next steps based on a thorough review of all facts and documents.

    Hope this helps!

    Sincerely,
    Atty. Gabriel Ablola

    For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

    Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.

  • Piercing the Corporate Veil for Unpaid SSS Contributions: When Corporate Officers’ Arrest Establishes Jurisdiction Over the Company

    TL;DR

    The Supreme Court ruled that a corporation can be held civilly liable for unpaid Social Security System (SSS) contributions even if its criminally charged officer is acquitted. Jurisdiction over a corporation in SSS contribution cases is established through the arrest of its managing head, directors, or partners. This means that even if the officer is found not criminally liable due to circumstances like not holding office during the delinquency period, the corporation itself remains responsible for the unpaid contributions. The Court emphasized that employers, including corporations, have a mandatory obligation to remit SSS contributions to ensure the social security system’s viability and protect employees’ benefits.

    Whose Fault Is It Anyway? Holding Corporations Accountable for SSS Contributions Despite Officer’s Acquittal

    This case, Ambassador Hotel, Inc. v. Social Security System, delves into the responsibility of corporations for unpaid SSS contributions and the extent to which the actions against corporate officers bind the corporation itself. The central legal question revolves around whether a Regional Trial Court (RTC) validly acquired jurisdiction over Ambassador Hotel, Inc., and whether the hotel could be held civilly liable for unremitted SSS contributions despite the acquittal of its president, who was initially charged in the criminal case. The Social Security System (SSS) filed a criminal case against Ambassador Hotel and its officers for failing to remit SSS contributions from June 1999 to March 2001. Yolanda Chan, the hotel’s president, was charged, but the RTC acquitted her, finding she was not effectively managing the hotel during the delinquency period. However, the RTC still held Ambassador Hotel civilly liable for the unpaid contributions, a decision affirmed by the Court of Appeals (CA). Ambassador Hotel then elevated the case to the Supreme Court, questioning the RTC’s jurisdiction and the imposition of civil liability.

    The Supreme Court underscored the mandatory nature of SSS contributions under Republic Act No. 8282, emphasizing that employers, both natural and juridical persons like Ambassador Hotel, are legally obligated to remit these contributions. Section 22(a) of R.A. No. 8282 mandates the timely remittance of contributions, with penalties for non-compliance. The Court highlighted the social purpose of the SSS, aiming to provide social justice and protection to workers. The financial health of the SSS relies on consistent contributions from employers and employees. Non-remittance undermines this system and jeopardizes benefits for members and their beneficiaries.

    A crucial aspect of the case is how jurisdiction is established over a corporation in criminal cases related to SSS violations. Section 28(f) of R.A. No. 8282 clarifies that when a violation is committed by a corporation, the liability falls upon its “managing head, directors or partners.” The Supreme Court explained that to acquire jurisdiction over a corporation, it is sufficient to arrest its representative, such as the managing head or director. In this case, the arrest of Yolanda Chan, as President of Ambassador Hotel, was deemed sufficient to establish the RTC’s jurisdiction over the corporation. The Court reasoned that the law pierces the corporate veil in such cases, making the actions against the officer binding on the corporation itself. No separate summons for the corporation is needed; the arrest of the officer acts as the jurisdictional link.

    Ambassador Hotel argued that since Yolanda Chan was acquitted, the civil liability against the hotel should also be extinguished. However, the Supreme Court rejected this argument, citing the principle that civil liability arising from a criminal offense is deemed instituted with the criminal action unless waived or reserved. Crucially, the acquittal of Yolanda Chan was based on the finding that she was not managing the hotel during the period of delinquency, not on the finding that the debt itself did not exist. The Court reiterated that the extinction of criminal liability does not automatically extinguish civil liability unless the acquittal is based on the non-existence of the facts from which civil liability arises. In this case, the RTC’s decision did not negate the fact of the unpaid SSS contributions; it only exonerated Yolanda Chan from criminal responsibility due to her lack of managerial control during the relevant period. Therefore, the civil liability of Ambassador Hotel remained valid.

    The Court also addressed the due process argument raised by Ambassador Hotel. The hotel claimed it was deprived of due process because it was not formally a party to the criminal case. The Supreme Court countered that Ambassador Hotel was indeed given ample opportunity to be heard. The SSS had notified the hotel of its delinquency multiple times before filing the case. Furthermore, during the trial, Ambassador Hotel presented its defense through witnesses and legal counsel. The Court concluded that the hotel was aware of the proceedings and had the chance to contest its obligations, thus satisfying the requirements of due process.

    Ultimately, the Supreme Court affirmed the CA’s decision, holding Ambassador Hotel civilly liable for the unremitted SSS contributions. This ruling reinforces the principle that corporations cannot hide behind their separate legal personality to evade social security obligations. The arrest of a corporate officer is sufficient to bring the corporation under the court’s jurisdiction in SSS contribution cases, and acquittal of the officer on grounds not negating the debt itself does not absolve the corporation of its civil liabilities. This case serves as a reminder to corporations to prioritize their obligations to the SSS and ensure timely remittance of contributions to uphold the social security system and protect employee welfare.

    FAQs

    What was the main issue in the Ambassador Hotel case? The main issue was whether the RTC had jurisdiction over Ambassador Hotel and whether the hotel could be held civilly liable for unpaid SSS contributions despite the acquittal of its president in the criminal case.
    How is jurisdiction over a corporation established in SSS contribution cases? Jurisdiction over a corporation is established through the arrest of its managing head, directors, or partners, as provided by Section 28(f) of R.A. No. 8282.
    Does the acquittal of a corporate officer extinguish the corporation’s civil liability for unpaid SSS contributions? Not necessarily. If the acquittal is not based on the fact that the debt does not exist, the corporation can still be held civilly liable.
    What law mandates the remittance of SSS contributions? Republic Act No. 8282, specifically Section 22(a), mandates the timely remittance of SSS contributions by employers.
    Why is the timely remittance of SSS contributions important? Timely remittances are crucial for the financial soundness of the SSS, enabling it to provide social security benefits and protect members and their beneficiaries.
    What was the Supreme Court’s ruling in this case? The Supreme Court affirmed the lower courts’ decisions, holding Ambassador Hotel civilly liable for the unpaid SSS contributions, emphasizing the mandatory nature of these obligations for all employers, including corporations.

    For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Ambassador Hotel, Inc. v. Social Security System, G.R. No. 194137, June 21, 2017