Philippine National Bank v. Hydro Resources Contractors Corp.
REITERATIONFacts
The Antecedents: Sometime in 1984, Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) foreclosed on the assets of Marinduque Mining and Industrial Corporation (MMIC). They organized Nonoc Mining and Industrial Corporation (NMIC), with DBP owning 57% and PNB owning 43% of its shares, and appointed their own officers to NMIC's Board of Directors. NMIC engaged Hercon, Inc. (predecessor of respondent Hydro Resources Contractors Corporation - HRCC) for a mine stripping and road construction program in 1985. After payments and credits, NMIC owed Hercon, Inc. ₱8,370,934.74. Hercon, Inc. made demands, which were unheeded. Subsequently, Hercon, Inc. merged with HRCC. On December 8, 1986, Proclamation No. 50 created the Asset Privatization Trust (APT) for the disposition of government corporations. DBP and PNB transferred their stakes in NMIC to the National Government, which in turn transferred them to APT as trustee. HRCC amended its complaint to include APT as a defendant. Procedural History: The Regional Trial Court (RTC) of Makati City, Branch 62, rendered a Decision on November 6, 1995, in favor of HRCC. The RTC pierced the corporate veil of NMIC, holding DBP and PNB solidarily liable with NMIC for the unpaid obligation. The complaint against APT was dismissed, but APT was directed to ensure compliance with the decision. DBP and PNB appealed. The Court of Appeals (CA) affirmed the RTC's decision to pierce the corporate veil, holding DBP, PNB, and APT solidarily liable with NMIC. The CA's Decision dated November 30, 2004, modified the RTC ruling by including APT as solidarily liable and deleting the award of attorney's fees. The CA's Resolution dated March 22, 2005, denied the separate motions for reconsideration filed by PNB, DBP, and APT. The Petition: Petitioners PNB, DBP, and APT filed petitions for review on certiorari, assailing the CA's decision and resolution. They argued that NMIC's separate juridical personality should not have been disregarded, as there was no showing of fraud, illegality, or injustice. They also contended that any liability of DBP and PNB was transferred to the National Government through APT. HRCC countered that the CA and RTC correctly applied the doctrine of piercing the corporate veil, as NMIC was an alter ego of DBP and PNB, and that APT assumed the obligations of DBP and PNB.
Issue(s)
Whether the corporate veil of Nonoc Mining and Industrial Corporation (NMIC) should be pierced to hold Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) solidarily liable with NMIC for its obligation to Hydro Resources Contractors Corporation (HRCC); specifically, whether DBP and PNB exerted such control over NMIC as to warrant piercing the corporate veil, and whether such control was used to commit fraud or injustice. Whether the Asset Privatization Trust (APT), now the Privatization and Management Office (PMO), is solidarily liable with NMIC, PNB, and DBP, considering its role as a transferee of rights and interests.
Ruling
The petitions are GRANTED. The complaint against Development Bank of the Philippines, the Philippine National Bank, and the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is DIRECTED to ensure compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, with this Decision.
Ratio Decidendi
On the issue of piercing the corporate veil: The Supreme Court found that the RTC and CA erred in piercing the corporate veil of NMIC. The Court reiterated that a corporation possesses a personality separate and distinct from its stockholders, and this protection of limited liability should only be disregarded when the corporate fiction is used to defeat public convenience, commit fraud, or perpetrate injustice. The Court established a three-pronged test for the alter ego theory: (1) control, not mere majority ownership, but complete domination of finances, policies, and business practices; (2) such control used to commit fraud, wrong, or dishonest act; and (3) the control and breach of duty proximately causing the injury. In this case, the Court found that mere majority ownership by DBP and PNB of NMIC's stocks and the alleged interlocking directorates were insufficient to establish an alter ego relationship. The evidence did not show that DBP and PNB dominated NMIC's finances, policies, or practices to the extent that NMIC had no separate mind or will of its own. Furthermore, HRCC failed to present evidence that DBP and PNB had a hand in NMIC's alleged disregard of HRCC's demands, nor was there any showing of fraud or injustice perpetrated by DBP and PNB through NMIC. The Court noted that HRCC dealt with NMIC as a distinct juridical person, as evidenced by their communications and contracts. The finding of interlocking directorates was also found to be unsubstantiated by the evidence presented. On the issue of APT's liability: The Supreme Court ruled that APT is not liable for NMIC's obligation. The Court explained that APT's liability, as a transferee of DBP and PNB's rights and interests in NMIC, would only attach if DBP and PNB were held liable. Since DBP and PNB were not found solidarily liable with NMIC, no contingent liability could be imputed to APT. The Court clarified that APT, as trustee, merely stepped into the shoes of DBP and PNB with respect to their rights and obligations in NMIC, and since the assignors (DBP and PNB) were absolved of liability, the assignee (APT) also incurred no liability for NMIC's corporate obligation. However, the Court affirmed that APT, as trustee of NMIC's assets, should ensure NMIC's compliance with the judgment against it.
Main Doctrine
The doctrine of piercing the corporate veil requires the concurrence of three elements: (1) control of the corporation by the stockholder or parent corporation, (2) fraud or fundamental unfairness imposed on the plaintiff, and (3) harm or damage caused to the plaintiff by the fraudulent or unfair act. The mere ownership of majority or all of the stocks of a corporation and interlocking directorates, without more, are insufficient to establish an alter ego relationship or to justify piercing the corporate veil.