G.R. No. 199687 and G.R. No. 201537, March 24, 2014.
PACIFIC REHOUSE CORPORATION, Petitioner, vs. COURT OF APPEALS and EXPORT AND INDUSTRY BANK, INC., Respondents. (G.R. No. 199687)

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION and EAST ASIA OIL COMPANY, INC., Petitioners, vs. EXPORT AND INDUSTRY BANK, INC., Respondent. (G.R. No. 201537)

FACTS

The roots of the case trace to a complaint filed with the Makati RTC, Branch 66, against EIB Securities Inc. (E-Securities) for unauthorized sale of 32,180,000 DMCI shares owned by the petitioners. The RTC rendered a judgment on the pleadings, ordering E-Securities to return the shares and the petitioners to reimburse a specified amount. This judgment attained finality after affirmation by the Supreme Court. When a writ of execution was returned unsatisfied, the petitioners moved for an alias writ of execution to hold Export and Industry Bank, Inc. (Export Bank) liable, arguing that E-Securities was a wholly-owned, controlled, and dominated subsidiary and a mere alter ego and business conduit of Export Bank. The RTC, in an Order dated July 29, 2011, concluded that E-Securities was a mere business conduit or alter ego of Export Bank, justifying piercing the veil of corporate fiction, and issued an alias writ against “EIB Securities, Inc., and/or Export and Industry Bank, Inc.” A subsequent Order dated August 26, 2011, denied Export Bank’s omnibus motion and directed garnishment against properties of E-Securities and/or Export Bank to acquire the DMCI shares. Export Bank filed a petition for certiorari with the CA, which granted a Temporary Restraining Order and later a Writ of Preliminary Injunction against the execution of the RTC Orders. The CA eventually rendered a Decision on April 26, 2012, granting Export Bank’s petition, nullifying the RTC Orders insofar as Export Bank was concerned, and making the injunction permanent. The CA held that the alter ego theory was not sustained as mere ownership and interlocking incorporators were insufficient to justify piercing the corporate veil without proof of misuse of the corporate fiction or complete control by the parent. The petitioners challenged the CA’s injunctive resolutions via a Rule 65 petition (G.R. No. 199687) and the CA’s final Decision via a Rule 45 petition (G.R. No. 201537).

ISSUE

Whether the Court of Appeals erred in nullifying the Regional Trial Court’s Orders which applied the doctrine of piercing the corporate veil to hold Export and Industry Bank, Inc. liable for the judgment obligation of its subsidiary, EIB Securities Inc.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the Decision of the Court of Appeals. The Court held that the doctrine of piercing the corporate veil was improperly applied by the RTC. The Court reiterated that a corporation has a separate legal personality from its stockholders and members. The conditions for piercing the veil are: 1) control, not mere stock control, but complete domination of finances, policy, and business practice; 2) such control must have been used to commit fraud or wrong, to perpetuate a violation of a statutory or positive legal duty, or a dishonest and unjust act in contravention of the plaintiff’s legal rights; and 3) the control and breach of duty must have proximately caused the injury or unjust loss. Mere ownership by a parent of all or a majority of the subsidiary’s capital stock, and the existence of interlocking directors and officers, are not enough by themselves to justify piercing. The petitioners failed to prove that Export Bank had complete control over E-Securities’ business policies and affairs or that the corporate fiction was used to defeat public convenience, justify wrong, protect fraud, or defend crime. The fact that Export Bank owned 499,995 out of 500,000 of E-Securities’ shares and that they shared lawyers did not, without more, establish the requisite control for alter ego liability. The obligation was solely contracted by E-Securities in pursuit of its legitimate corporate purpose. Furthermore, Export Bank was not a party to the original case and was not given its day in court on the alter ego issue, as the RTC’s finding was based solely on the motion for alias writ and supporting documents without a full-blown trial. Thus, the CA correctly ruled that the RTC committed grave abuse of discretion in issuing the assailed Orders against Export Bank.