G.R. No. 199687, March 24, 2014
PACIFIC REHOUSE CORPORATION, Petitioner, v. COURT OF APPEALS AND EXPORT AND INDUSTRY BANK, INC., Respondents.
G.R. No. 201537
PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION AND EAST ASIA OIL COMPANY, INC., Petitioners, v. EXPORT AND INDUSTRY BANK, INC., Respondent.
D E C I S I O N
We trace the roots of this case to a complaint instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of private respondents Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the pleadings. The fallo reads:The Regional Trial Court (RTC) ratiocinated that being one and the same entity in the eyes of the law, the service of summons upon EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.3 The RTC cited the cases of Sps. Violago v. BA Finance Corp. et al.4 and Arcilla v. Court of Appeals5 where the doctrine of piercing the veil of corporate fiction was applied notwithstanding that the affected corporation was not brought to the court as a party. Thus, the RTC held in its Order6 dated August 26, 2011:WHEREFORE, premises considered, judgment is hereby rendered directing the defendant [E–Securities] to return the plaintiffs’ [private respondents herein] 32,180,000 DMCI shares, as of judicial demand.The Resolution was ultimately affirmed by the Supreme Court and attained finality.
On the other hand, plaintiffs are directed to reimburse the defendant the amount of [P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share.
SO ORDERED. x x x
When the Writ of Execution was returned unsatisfied, private respondents moved for the issuance of an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E–Securities is “a wholly–owned controlled and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E–Securities opposed the motion[,] arguing that it has a corporate personality that is separate and distinct from petitioner. On July 27, 2011, private respondents filed their (1) Reply attaching for the first time a sworn statement executed by Atty. Ramon F. Aviado, Jr., the former corporate secretary of petitioner and E–Securities, to support their alter ego theory; and (2) Ex–Parte Manifestation alleging service of copies of the Writ of Execution and Motion for Alias Writ of Execution on petitioner.
On July 29, 2011, the RTC concluded that E–Securities is a mere business conduit or alter ego of petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate fiction. The trial court brushed aside E–Securities’ claim of denial of due process on petitioner as “xxx case records show that notices regarding these proceedings had been tendered to the latter, which refused to even receive them. Clearly, [petitioner] had been sufficiently put on notice and afforded the chance to give its side[,] yet[,] it chose not to.” Thus, the RTC disposed as follows:WHEREFORE, xxx,With this development, petitioner filed an Omnibus Motion (Ex Abundanti Cautela) questioning the alias writ because it was not impleaded as a party to the case. The RTC denied the motion in its Order dated August 26, 2011 and directed the garnishment of P1,465,799,000.00, the total amount of the 32,180,000 DMCI shares at P45.55 per share, against petitioner and/or E–Securities.2 x x x. (Citations omitted)
Let an Alias Writ of Execution be issued relative to the above–entitled case and pursuant to the RESOLUTION dated October 18, 2005 and to this Order directing defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully comply therewith.
The Branch Sheriff of this Court is directed to cause the immediate implementation of the given alias writ in accordance with the Order of Execution to be issued anew by the Branch Clerk of Court.
SO ORDERED. x x x
WHEREFORE, premises considered, the Motion for Reconsideration with Motion to Inhibit filed by defendant EIB Securities, Inc. is denied for lack of merit. The Omnibus Motion Ex Abundanti C[au]tela is likewise denied for lack of merit.
Pursuant to Rule 39, Section 10 (a) of the Rules of Court, the Branch Clerk of Court or the Branch Sheriff of this Court is hereby directed to acquire 32,180,000 DMCI shares of stock from the Philippine Stock Exchange at the cost of EIB Securities, Inc. and Export and Industry Bank[,] Inc. and to deliver the same to the plaintiffs pursuant to this Court’s Resolution dated October 18, 2005.
To implement this Order, let GARNISHMENT issue against ALL THOSE HOLDING MONEYS, PROPERTIES OF ANY AND ALL KINDS, REAL OR PERSONAL BELONGING TO OR OWNED BY DEFENDANT EIB SECURITIES, INC. AND/OR EXPORT AND INDUSTRY BANK[,] INC., [sic] in such amount as may be sufficient to acquire 32,180,000 DMCI shares of stock to the Philippine Stock Exchange, based on the closing price of Php45.55 per share of DMCI shares as of August 1, 2011, the date of the issuance of the Alias Writ of Execution, or the total amount of PhP1,465,799,000.00.
Considering the amount ordered to be garnished from petitioner Export and Industry Bank, Inc. and the fiduciary duty of the banking institution to the public, there is grave and irreparable injury that may be caused to [Export Bank] if the assailed Orders are immediately implemented. We thus resolve to GRANT the Temporary Restraining Order effective for a period of sixty (60) days from notice, restraining/enjoining the Sheriff of the Regional Trial Court of Makati City or his deputies, agents, representatives or any person acting in their behalf from executing the July 29, 2011 and August 26, 2011 Orders. [Export Bank] is DIRECTED to POST a bond in the sum of fifty million pesos (P50,000,000.00) within ten (10) days from notice, to answer for any damage which private respondents may suffer by reason of this Temporary Restraining Order; otherwise, the same shall automatically become ineffective.Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation and East Asia Oil Company, Inc. (petitioners) filed their Comment12 to Export Bank’s petition and proffered that the cases mentioned by Export Bank are inapplicable owing to their clearly different factual antecedents. The petitioners alleged that unlike the other cases, there are circumstances peculiar only to E–Securities and Export Bank such as: 499,995 out of 500,000 outstanding shares of stocks of E–Securities are owned by Export Bank;13 Export Bank had actual knowledge of the subject matter of litigation as the lawyers who represented E–Securities are also lawyers of Export Bank.14 As an alter ego, there is no need for a finding of fraud or illegality before the doctrine of piercing the veil of corporate fiction can be applied.15
Let the HEARING be set on September 27, 2011 at 2:00 in the afternoon at the Paras Hall, Main Building, Court of Appeals, to determine the necessity of issuing a writ of preliminary injunction. The Division Clerk of Court is DIRECTED to notify the parties and their counsel with dispatch.
x x x x
WHEREFORE, finding [Export Bank’s] application for the ancillary injunctive relief to be meritorious, and it further appearing that there is urgency and necessity in restraining the same, a Writ of Preliminary Injunction is hereby GRANTED and ISSUED against the Sheriff of the Regional Trial Court of Makati City, Branch 66, or his deputies, agents, representatives or any person acting in their behalf from executing the July 29, 2011 and August 26, 2011 Orders. Public respondents are ordered to CEASE and DESIST from enforcing and implementing the subject orders until further notice from this Court.18The petitioners filed a Manifestation19 and Supplemental Manifestation20 challenging the above–quoted CA resolution for lack of concurrence of Associate Justice Socorro B. Inting (Justice Inting), who was then on official leave.
We GRANT the petition. The Orders dated July 29, 2011 and August 26, 2011 of the Makati City Regional Trial Court, Branch 66, insofar as [Export Bank] is concerned, are NULLIFIED. The Writ of Preliminary Injunction (WPI) is rendered PERMANENT.The CA explained that the alter ego theory cannot be sustained because ownership of a subsidiary by the parent company is not enough justification to pierce the veil of corporate fiction. There must be proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–Securities. The existence of interlocking incorporators, directors and officers between the two corporations is not a conclusive indication that they are one and the same.25 The records also do not show that Export Bank has complete control over the business policies, affairs and/or transactions of E–Securities. It was solely E–Securities that contracted the obligation in furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its limited liability.26
In G.R. No. 199687,
WHETHER THE CA COMMITTED GRAVE ABUSE OF DISCRETION IN GRANTING EXPORT BANK’S APPLICATION FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.
In G.R. No. 201537, I.
WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT EXPORT BANK MAY NOT BE HELD LIABLE FOR A FINAL AND EXECUTORY JUDGMENT AGAINST E–SECURITIES IN AN ALIAS WRIT OF EXECUTION BY PIERCING ITS VEIL OF CORPORATE FICTION; and
WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT THE ALTER EGO DOCTRINE IS NOT APPLICABLE.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability; it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:From the preceding, it is therefore correct to say that the court must first and foremost acquire jurisdiction over the parties; and only then would the parties be allowed to present evidence for and/or against piercing the veil of corporate fiction. If the court has no jurisdiction over the corporation, it follows that the court has no business in piercing its veil of corporate fiction because such action offends the corporation’s right to due process.“23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation. x x x”50 (Citations omitted)
[B]y no stretch of even the most fertile imagination may one be able to conclude that the challenged Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudged. By its clear and unequivocal language, it is the petitioner who was declared liable therefor and consequently made to pay. x x x, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The fiction of a separate juridical personality conferred upon such corporation by law should be disregarded. x x x.58 (Citation omitted)It is important to bear in mind that although CMRI was not a party to the suit, it was Arcilla, the defendant himself who was found ultimately liable for the judgment award. CMRI and its properties were left untouched from the main case, not only because of the application of the alter ego doctrine, but also because it was never made a party to that case.
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.64 Hence, all three elements should concur for the alter ego doctrine to be applicable.
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss complained of.63
1. Defendant EIB Securities, a subsidiary corporation 100% totally owned by Export and Industry Bank, Inc., was only re–activated by the latter in 2002–2003 and the continuance of its operations was geared for no other reason tha[n] to serve as the securities brokerage arm of said parent corporation bank;All the foregoing circumstances, with the exception of the admitted stock ownership, were however not properly pleaded and proved in accordance with the Rules of Court.66 These were merely raised by the petitioners for the first time in their Motion for Issuance of an Alias Writ of Execution67 and Reply,68 which the Court cannot consider. “Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.”69
2. It was the parent corporation bank that provided and infused the fresh working cash capital needed by defendant EIB Securities which prior thereto was non–operating and severely cash–strapped. [This was so attested by the then Corporate Secretary of both corporations, Atty. Ramon Aviado, Jr., in his submitted Sworn Statement which is deemed allowable “evidence on motion”, under Sec. 7, Rule 133, Rules on Evidence; Bravo vs. Borja, 134 SCRA 438];
3. For effective control purposes, defendant EIB Securities and its operating office and staff are all housed in Exportbank Plaza located at Chino Roces cor. Sen. Gil Puyat Avenue, Makati City which is the same building w[h]ere the bank parent corporation has its headquarters;
4. As shown in the General Information Sheets annually filed with the S.E.C. from 2002 to 2011, both defendant EIB Securities and the bank parent corporation share common key Directors and corporate officers. Three of the 5–man Board of Directors of defendant EIB Securities are Directors of the bank parent corporation, namely: Jaime C. Gonzales, Pauline C. Tan and Dionisio E. Carpio, Jr. In addition, Mr. Gonzales is Chairman of the Board of both corporations, whereas Pauline C. Tan is concurrently President/General Manager of EIB Securities, and Dionisio Carpio Jr., is not only director of the bank, but also Director Treasurer of defendant EIB Securities;
5. As admitted by the bank parent corporation in its consolidated audited financial statements[,] EIB Securities is a CONTROLLED SUBSIDIARY, and for which reason its financial condition and results of operations are included and integrated as part of the group’s consolidated financial statements, examined and audited by the same auditing firm;
6. The lawyers handling the suits and legal matters of defendant EIB Securities are the same lawyers in the Legal Department of the bank parent corporation. The Court notes that in [the] above–entitled suit, the lawyers who at the start represented said defendant EIB Securities and filed all the pleadings and filings in its behalf are also the lawyers in the Legal Services Division of the bank parent corporation. They are Attys. Emmanuel A. Silva, Leonardo C. Bool, Riva Khristine E. Maala and Ma. Esmeralda R. Cunanan, all of whom worked at the Legal Services Division of Export Industry Bank located at 36/F, Exportbank Plaza, Don Chino Roces Avenue, cor. Sen. Gil Puyat Avenue, Makati City.
7. Finally[,] and this is very significant, the control and sway that the bank parent corporation held over defendant EIB Securities was prevailing in June 2004 when the very act complained of in plaintiff’s Complaint took place, namely the unauthorized disposal of the 32,180,000 DMCI shares of stock. Being then under the direction and control of the bank parent corporation, the unauthorized disposal of those shares by defendant EIB Securities is attributable to, and the responsibility of the former.65
1 Penned by Associate Justice Mario V. Lopez, with Associate Justice Amy C. Lazaro–Javier, concurring; Associate Justice Vicente S.E. Veloso penned a Separate Concurring Opinion. Associate Justices Magdangal M. De Leon and Socorro B. Inting penned a Dissenting Opinion; rollo (G.R. No. 201537), pp. 47–68.
2 Id. at 48–50.
3 Id. at 230.
4 581 Phil. 62 (2008).
5 G.R. No. 89804, October 23, 1992, 215 SCRA 120.
6Rollo (G.R. No. 201537), pp. 329–231.
7 Id. at 231.
8 Id. at 232–269.
9Filmerco Commercial Co, Inc. v. Intermediate Appellate Court, 233 Phil. 197 (1987); Padilla v. CA, 421 Phil. 883 (2001); Kukan International Corporation v. Reyes, G.R. No. 182729, September 29, 2010, 631 SCRA 596.
10Rollo (G.R. No. 201537), pp. 271–272.
11 Id. at 272.
12 Id. at 334–362.
13 Id. at 352.
14 Id. at 353.
15 Id. at 355.
16See Petitioners’ Memorandum, id. at 405–435; See Export Bank’s Memorandum, id. at 436–451.
17 Penned by Associate Justice Mario V. Lopez, with Associate Justice Magdangal M. De Leon, concurring; Associate Justice Socorro B. Inting was on official leave; id. at 453–455. See also rollo (G.R. No. 199687), pp. 27–29.
18Rollo (G.R. No. 201537), p. 454; rollo, (G.R. No. 199687), p. 28.
19Rollo (G.R. No. 201537), pp. 487–490.
20 Id. at 491–493.
21 Penned by Associate Justice Mario V. Lopez, with Associate Justices Magdangal M. De Leon and Amy C. Lazaro–Javier, concurring; Associate Justice Socorro B. Inting penned a Dissenting Opinion with Associate Justice Vicente S.E. Veloso, concurring; id. at 495–497. See also rollo (G.R. No. 199687), pp. 31–33.
22Rollo (G.R. No. 199687), pp. 3–23.
23 Penned by Associate Justice Mario V. Lopez, with Associate Justice Amy C. Lazaro–Javier, concurring; Associate Justice Vicente S.E. Veloso penned a Separate Concurring Opinion. Associate Justice Magdangal M. De Leon and Socorro B. Inting penned a Dissenting Opinion; rollo (G.R. No. 201537), pp. 47–68.
24 Id. at 67–68.
25 Id. at 59–60.
26 Id. at 61.
27 Id. at 3–43.
28 Court First Division Resolution dated September 26, 2012.
29 Id. at 487–490.
30 Id. at 491–493.
31 Sec. 5. Action by a Justice. – All members of the Division shall act upon an application for temporary restraining order and preliminary injunction. However, if the matter is of extreme urgency and a Justice is absent, the two other justices shall act upon the application. If only the ponente is present, then he/she shall act alone upon the application. The action of the two Justices or of the ponente shall, however, be submitted on the next working day to the absent member or members of the Division for ratification, modification or recall.
32Rollo (G.R. No. 199687), pp. 15–16.
33 Batas Pambansa Bilang 129, as amended by Executive Order No. 33
Section 6. Section 11 of the same Act is hereby amended to read as follows:“Sec. 11. Quorum. A majority of the actual members of the Court shall constitute a quorum for its session en banc. Three members shall constitute a quorum for the sessions of a division. The unanimous vote of the three members of a division shall be necessary for the pronouncement of a decision or final resolution, which shall be reached in consultation before the writing of the opinion by any member of the division. In the event that the three members do not reach a unanimous vote, the Presiding Justice shall request the Raffle Committee of the Court for the designation of two additional Justices to sit temporarily with them, forming a special division of five members and the concurrence of a majority of such division shall be necessary for the pronouncement of a decision or final resolution. The designation of such additional Justices shall be made strictly by raffle.34 Rule VI, Section 10. Procedure in Case of Dissent. – When the unanimous vote of the members of the Division cannot be attained, the following shall be observed:
A motion for reconsideration of its decision or final resolution shall be resolved by the Court within ninety (90) days from the time it is submitted for resolution, and no second motion for reconsideration from the same party shall be entertained.”(a) Within five (5) working days from the date of deliberation, the Chairperson of the Division shall refer the case in writing, together with the rollo, to the Raffle Committee which shall designate two (2) Justices by raffle from among the Justices in the same station to sit temporarily with the three members, forming a Special Division of Five.35Rollo (G.R. No. 199687), p. 14.
A written dissenting opinion shall be submitted by a Justice to the ponente and the other members of the Special Division of Five within ten (10) working days from his/her receipt of the records.
If no written dissenting opinion is submitted within the period above–stated, with no additional period being agreed upon by majority of said Division, that Special Division shall be automatically abolished and the case shall revert to the regular Division as if no dissent has been made.
(b) The Special Division of Five shall retain the case until its final disposition regardless of reorganization, provided that all the members thereof remain in the same station. (Sec. 4, Rule 8, RIRCA [a])
x x x x
36 Id. at 15.
37Philippine Savings Bank (PSBANK) v. Senate Impeachment Court, G.R. No. 200238, November 20, 2012, 686 SCRA 35, 37–38, citing Sales v. Commission on Elections, 559 Phil. 593, 597 (2007).
38Soriano Vda. De Dabao v. Court of Appeals, 469 Phil. 928, 937 (2004).
39 CA Associate Justice Magdangal M. De Leon.
40Rollo (G.R. No. 201537), p. 18.
41 G.R. Nos. 178831–32, July 30, 2009, 594 SCRA 434.
42 Id. at 447–448; rollo (G.R. No. 201537), pp. 18–19.
43Rollo (G.R. No. 201537), p. 68.
44 Id. at 810–811.
45 G.R. No. 184036, October 13, 2010, 633 SCRA 214.
46Rollo (G.R. No. 201537), pp. 170–172.
47 Id. at 171.
48 Id. at 137–156.
49 Supra note 9.
50 Id. at 618–619.
51Pascual v. Pascual, G.R. No. 171916, December 4, 2009, 607 SCRA 288, 304.
52Manotoc v. CA, 530 Phil. 454, 462 (2006).
53Rollo (G.R. No. 201537), pp. 189–209.
54 Id. at 724–800.
55 Id. at 777.
56 Id. at 230.
57 Supra note 4, at 76.
58 Supra note 5, at 129.
59China Banking Corp. v. Dyne–Sem Electronics Corporation, 527 Phil. 74, 80 (2006).
60Cirtek Employees Labor Union–Federation of Free Workers v. Cirtek Electronics, Inc., G.R. No. 190515, June 6, 2011, 650 SCRA 656, 660, citing Rule 45 of the Rules of Court.
61Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil. 955, 964–965 (1996).
62 Id. at 965–966.
63 Id. at 966.
64Philippine National Bank v. Hydro Resources Contractors Corporation, G.R. No. 167530, March 13, 2013, 693 SCRA 294, 309–310.
65Rollo (G.R. No. 201537), pp. 170–171.
66 Id. at 59.
67 Id. at 121–125.
68 Id. at 157–169.
69Pantranco Employees Association (PEA–PTGWO) v. National Labor Relations Commission, G.R. No. 170689, March 17, 2009, 581 SCRA 598, 614.
70NASECO Guards Association–PEMA (NAGA–PEMA) v. National Service Corporation (NASECO), G.R. No. 165442, August 25, 2010, 629 SCRA 90, 101.
71Philippine National Bank v. Ritratto Group Inc., 414 Phil. 494, 503 (2001).
72 Henry W. Ballantine, Separate Entity of Parent and Subsidiary Corporations, p. 20, California Law Review Volume 14 (1925), citing Erkenbrecher v. Grant, 187 Cal. 7, 200 Pac. 641, (1921); Minifie v. Rowlev, 187 Cal. 481, 202 Pac. 673, (1921); (visited January 20, 2013).
73Pacific Rehouse Corporation v. EIB Securities, Inc., supra note 45.
74Rollo (G.R. No. 201537), p. 62.
75Philippine National Bank v. Hydro Resources Contractors Corporation, supra note 64, at 311.
76Philippine National Bank v. Andrada Electric & Engineering Company, 430 Phil. 882, 894–895 (2002).