FACTS:

The petitioner filed a complaint against the private respondents to recover a balance of payment for a jeep body purchased by the Manuels from petitioner, as well as the unpaid balance for the cost of repair and attorney's fees. In their answer, the private respondents filed a permissive counterclaim for unpaid legal services rendered by Gregorio Manuel to the Francisco family in an intestate estate case.

The trial court ruled in favor of the petitioner's claim for money but also allowed the counterclaim of the private respondents. Both parties appealed, and the Court of Appeals sustained the trial court's decision.

The petitioner questioned the trial court's jurisdiction over the counterclaim and argued that the individual members of the Francisco family should be held liable, not the corporation. However, the Court of Appeals held that the corporate veil can be pierced in certain cases and concluded that the petitioner should be held liable for the attorney's fees owed to Gregorio Manuel.

The petitioner also argued that there was no proper service of the answer containing the permissive counterclaim, thus the court did not acquire jurisdiction over the petitioner. The Court of Appeals disagreed and held that failure to serve summons did not negate the court's jurisdiction over the counterclaim.

ISSUES:

1. Whether the court can pierce the corporate veil and hold the individuals personally liable for the alleged corporate act.

2. Whether the court acquired jurisdiction over the petitioner with regard to the permissive counterclaim.

3. Whether or not the doctrine of piercing the corporate veil can be applied in this case.

4. Whether or not the claim for legal fees should be directed against the corporation or the individual members of the Francisco family.

5. Whether or not summons is required for the court to acquire jurisdiction over the defendant in a counterclaim.

RULING:

1. The court held that the doctrine of piercing the corporate veil has no relevant application in this case. In order to pierce the corporate veil, there must be a showing that the corporate entity is being used to defeat public convenience, justify wrong, protect fraud, or defend crime. It may also be pierced if the corporation is a mere alter ego, adjunct, or business conduit of a person or another corporation. However, in this case, the individuals are seeking to hold the petitioner corporation liable for their services, rather than holding the individuals responsible for an alleged corporate act. Therefore, the court ruled that the doctrine of piercing the corporate veil is not applicable.

2. The court held that there was no violation of petitioner's right to due process when the permissive counterclaim was granted due course without proper service of summons. According to the court, no provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Since the petitioner voluntarily submitted itself to the jurisdiction of the court by filing the complaint, the issuance of summons on it was no longer necessary. The court also found that the answer containing the counterclaim was properly served on petitioner's former counsel before he withdrew his appearance. Therefore, the court ruled that the jurisdiction of the court was properly acquired over the petitioner.

3. The doctrine of piercing the corporate veil cannot be applied in this case. The claim for legal fees was incurred by the individual incorporators, directors, and officers of the corporation in their personal capacity. The corporation cannot be held liable for their personal obligations, as doing so would prejudice the corporation, its creditors, and other stockholders.

4. The claim for legal fees should be directed against the individual members of the Francisco family, not the corporation. The corporation and its individual incorporators, directors, and officers should be kept separate, and the claim should be properly laid at their door.

5. Summons is not required for the court to acquire jurisdiction over the defendant in a counterclaim. The filing of the counterclaim already submits the defendant to the jurisdiction of the court. Failure to answer the counterclaim can result in a declaration of default, as in this case. Moreover, the defendant's motion to set aside the order of default further submitted the defendant to the court's jurisdiction.

PRINCIPLES:

• A corporation has a separate personality distinct from its stockholders and other corporations, but the doctrine of piercing the corporate veil permits the courts to disregard the separate juridical personality of the corporation in certain circumstances.

• The doctrine of piercing the corporate veil may be applied when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. It may also be applied if the corporation is a mere alter ego, adjunct, or business conduit of a person or another corporation.

• In order to pierce the corporate veil, there must be a showing of fraudulent or illegal activity being shielded by the corporate identity.

• Service of summons on a defendant in a counterclaim is not required under the Rules of Court. Jurisdiction over the defendant is acquired when the defendant voluntarily submits to the jurisdiction of the court.

• The doctrine of piercing the corporate veil should be carefully assessed and not easily applied. The function and purpose of separate corporate identity should be considered, and personal obligations of individual incorporators, directors, and officers should not be imputed to the corporation.

• Every action, including a counterclaim, must be prosecuted or defended in the name of the real party in interest. It is an error to direct the claim against the corporation instead of the individual parties concerned.

• Summons is not required for the court to acquire jurisdiction over the defendant in a counterclaim. The filing of the counterclaim submits the defendant to the court's jurisdiction, and failure to answer the counterclaim can result in a declaration of default.