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PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES CONTRACTORS CORPORATION

FACTS:

The case involves a dispute between Hydro Resources Contractors Corporation (HRCC) and Nonoc Mining and Industrial Corporation (NMIC) over unpaid obligations. HRCC filed a complaint against NMIC, as well as Development Bank of the Philippines (DBP) and Philippine National Bank (PNB), alleging that NMIC is a mere adjunct or alter ego of DBP and PNB, and therefore, DBP and PNB should be held jointly and severally liable for NMIC's obligations to HRCC.

Following the filing of the complaint, the APT was created for the expeditious disposition and privatization of certain government corporations and assets. DBP and PNB executed deeds of transfer in favor of the National Government, which then transferred the assets and liabilities to the APT. The complaint was amended for the second time to include the APT as a defendant.

NMIC, DBP, PNB, and APT filed separate answers and raised various defenses. After trial, the RTC held that DBP and PNB were solidarily liable with NMIC, piercing the corporate veil of NMIC.

DBP, PNB, and APT filed separate appeals in the Court of Appeals. The Court of Appeals affirmed the ruling of the trial court, finding that NMIC is an alter ego of DBP and PNB. It held DBP, PNB, APT, and its successor, the Privatization and Management Office (PMO), jointly and severally liable for NMIC's obligations.

DBP, PNB, and APT filed motions for reconsideration, but their motions were denied. Thus, they filed separate consolidated petitions before the Supreme Court.

DBP, PNB, and APT argue that NMIC has a separate corporate personality and that the doctrine of piercing the corporate veil is unwarranted. They claim that there is no evidence of fraud, illegality, or injustice committed by NMIC, DBP, or PNB that would justify disregarding NMIC's separate corporate personality.

DBP and PNB also argue that their liability for NMIC's obligations was transferred and assumed by the National Government through APT and PMO.

APT argues that it cannot be held liable for NMIC's contractual obligations without an unqualified assumption by the National Government, and HRCC failed to show that APT is the successor-in-interest of all liabilities of NMIC, DBP, and PNB.

HRCC counters that both the trial court and the Court of Appeals correctly applied the doctrine of piercing the corporate veil. It asserts that NMIC is the alter ego of DBP and PNB, and therefore, DBP, PNB, and APT should be held jointly and severally liable for NMIC's obligations.

In this case, petitioner Hotel Resort Corp. of Catbalogan (HRCC) seeks to hold Development Bank of the Philippines (DBP), Philippine National Bank (PNB), New Manila International Corporation (NMIC), and the Asset Privatization Trust (APT) solidarily liable for the obligations of NMIC. HRCC argues that NMIC was the alter ego of DBP and PNB, as shown by their ownership, control, and financing of NMIC. HRCC also claims that APT is liable as the successor-in-interest of DBP and PNB. The Court finds the petitions to be meritorious and discusses the separate juridical personality of corporations and their liabilities.

ISSUES:

  1. Whether the doctrine of piercing the corporate veil can be applied to hold DBP, PNB, and APT solidarily liable for the obligations of NMIC.

  2. Whether the requirements for piercing the corporate veil under the alter ego theory are present in this case.

  3. Whether the elements required to pierce the corporate veil based on alter ego theory have been shown in this case.

  4. Whether there was an alter ego relationship between DBP and PNB and NMIC.

  5. Whether the separate juridical personality of NMIC should be disregarded.

  6. Whether the Asset Privatization Trust (APT) is liable for the corporate obligations of Nonoc Mining and Industrial Corporation (NMIC)?

  7. Whether the APT, as trustee of NMIC, has the duty to ensure compliance with the judgment against it?

RULING:

  1. Yes. The Court held that DBP, PNB, and APT can be held solidarily liable for the obligations of NMIC. The doctrine of piercing the corporate veil can be applied when a corporation is just an alter ego of a person or another corporation, and the corporate veil is used as a shield for fraud, illegality, or inequity committed against third parties.

  2. Yes. The Court found that the requirements for piercing the corporate veil under the alter ego theory are present in this case. These requirements include: (1) complete control and domination of the subsidiary by the parent; (2) the use of such control to commit fraud or wrong, or to perpetuate the violation of a legal duty; and (3) the control and breach of duty by the parent causing the injury or loss complained of.

  3. None of the tests to pierce the corporate veil based on alter ego theory have been satisfactorily met in this case. The Court finds that the control element, which requires actual control over the corporation, has not been shown to have been exercised by the stockholders at the time the acts complained of took place. The mere ownership of all or a great majority of stocks of a corporation and the presence of interlocking directorates are insufficient to establish an alter ego relationship or connection that justifies disregarding the corporate cover. The evidence presented shows that HRCC was dealing with NMIC as a separate entity, not with the stockholders. Additionally, there is no evidence to show that the stockholders had a hand in the acts complained of.

  4. The Court found that there was no alter ego relationship between DBP and PNB and NMIC. There was insufficient proof of interlocking directorates, no allegation of similarity of corporate officers, and no evidence that DBP and PNB assumed and controlled the management of NMIC. The factual backdrop of this case was different from the Sibagat Timber Corporation case which the Court of Appeals relied on to conclude an alter ego relationship.

  5. The Court held that the separate juridical personality of NMIC should not be disregarded. There was no evidence of fraud or wrongdoing by DBP and PNB using the corporate cover of NMIC to commit a fraud or do a wrong against HRCC. The wrongdoing or unjust act in contravention of a plaintiff's legal rights must be clearly and convincingly established, which was not done in this case.

  6. The Asset Privatization Trust (APT) is not liable for the corporate obligations of Nonoc Mining and Industrial Corporation (NMIC). The complaint against APT is dismissed for lack of merit.

  7. The APT, as trustee of NMIC, has the duty to ensure compliance with the judgment against it. The APT is directed to ensure compliance by NMIC with the decision.

PRINCIPLES:

  • A corporation has a separate juridical personality from its stockholders and other corporations to which it may be connected, and it is legally responsible for its own obligations.

  • The doctrine of piercing the corporate veil can be applied when the corporate entity is just an alter ego of a person or another corporation, and the corporate veil is used as a shield for fraud, illegality, or inequity.

  • The doctrine of piercing the corporate veil should be applied with caution, and the wrongdoing must be clearly and convincingly established. It cannot be presumed.

  • The three-pronged test for piercing the corporate veil under the alter ego theory includes: (1) complete control and domination of the subsidiary by the parent; (2) use of such control to commit fraud or wrong or perpetuate a violation of legal duty; (3) the control and breach of duty by the parent causing the injury or loss complained of.

  • To pierce the corporate veil based on alter ego theory, three elements must be shown: control of the corporation by the stockholder, fraud or fundamental unfairness, and harm or damage caused to the plaintiff.

  • Control refers to actual control, not just paper or formal control.

  • Ownership of all or a great majority of stocks and the presence of interlocking directorates are not sufficient grounds to pierce the corporate veil unless accompanied by fraud or other public policy considerations.

  • Findings of fact by the Court of Appeals may be reviewed if they are not supported by evidence or are based on a misapprehension of facts.

  • A corporation will generally be considered a legal entity, unless sufficient reason to the contrary appears.

  • The corporate entity may be disregarded in cases of fraud or wrongdoing that may work inequities among members of the corporation internally, involving no rights of the public or third persons.

  • The wrongdoing must be clearly and convincingly established for the separate juridical personality of a corporation to be disregarded.

  • The contingent liability of a transferee of rights and obligations of a corporation is limited to the liabilities of the assignors.

  • The liability of a distinct and separate legal entity lies with the entity itself and not with its shareholders or affiliates.

  • A trustee has the duty to ensure compliance with the obligations of the trust.

  • The liability of a trustee is limited to the assets held in trust and does not extend to the personal liability of the trustee.