Pacific Rehouse Corp. v. Court of Appeals
REITERATIONFacts
The Antecedents: Private respondents (Pacific Rehouse Corporation, et al.) filed a complaint against E-Securities for unauthorized sale of 32,180,000 DMCI shares. The Regional Trial Court (RTC) ordered E-Securities to return the shares and directed private respondents to reimburse E-Securities for the buy-back price of KPP shares. This judgment attained finality. Procedural History: When the writ of execution was returned unsatisfied, private respondents moved for an alias writ to hold Export and Industry Bank, Inc. (Export Bank) liable, alleging E-Securities is a mere alter ego and business conduit of Export Bank. The RTC granted the motion, piercing the veil of corporate fiction and ordering an alias writ of execution against Export Bank. Export Bank filed a petition for certiorari with the Court of Appeals (CA), arguing it was not impleaded and thus the RTC gravely abused its discretion. The CA issued a Temporary Restraining Order (TRO) and later a Writ of Preliminary Injunction, nullifying the RTC orders insofar as Export Bank was concerned, stating that mere ownership of a subsidiary is insufficient to pierce the corporate veil without proof of exploitation or misuse. The Petition: Petitioners (Pacific Rehouse Corporation, et al.) filed a petition for certiorari (G.R. No. 199687) assailing the CA resolutions granting the injunction. They also filed a Petition for Review (G.R. No. 201537) assailing the CA Decision on the merits. The two cases were consolidated.
Issue(s)
Whether the CA committed grave abuse of discretion in granting Export Bank’s application for a writ of preliminary injunction. 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 by piercing its veil of corporate fiction. Whether the CA committed a reversible error in ruling that the alter ego doctrine is not applicable.
Ruling
The petition in G.R. No. 199687 is dismissed for being moot and academic. The petition in G.R. No. 201537 is denied for lack of merit. The Decision dated April 26, 2012 of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of grave abuse of discretion in granting the preliminary injunction (G.R. No. 199687): The Supreme Court held that the challenge to the CA resolutions granting the TRO and preliminary injunction became moot and academic with the rendition of the CA Decision on the merits. The Court reiterated the principle that courts will not determine questions that have become moot and academic because there is no longer any justiciable controversy to speak of, and the judgment would not serve any useful purpose or have any practical legal effect. Therefore, it would be futile to address the issue raised in G.R. No. 199687. On the issue of whether Export Bank may be held liable for the judgment against E-Securities by piercing the veil of corporate fiction (G.R. No. 201537): The Supreme Court affirmed the CA's ruling that Export Bank cannot be held liable. The Court emphasized that the doctrine of piercing the veil of corporate fiction is applied only to determine established liability and is not available to confer jurisdiction over a party not impleaded in a case. Since Export Bank was neither served with summons nor voluntarily appeared before the RTC, the court had not acquired jurisdiction over it. Consequently, any proceedings taken against Export Bank would infringe its right to due process. The Court distinguished the present case from Violago and Arcilla, noting that in those cases, the individuals made liable were already parties to the main case, unlike Export Bank which was sought to be held liable for a judgment against a separate entity. On the issue of the applicability of the alter ego doctrine (G.R. No. 201537): The Supreme Court reiterated the three-pronged control test for applying the alter ego doctrine: (1) complete domination of finances, policies, and practices; (2) use of such control to commit fraud or wrong; and (3) the control and breach of duty proximately causing the injury. The Court found that while Export Bank owned E-Securities and there were interlocking directors and officers, these factors alone were insufficient to establish an alter ego relationship. The RTC's findings, though detailed, were not properly pleaded and proved in accordance with the Rules of Court. Crucially, there was no evidence of fraud, wrongful intent, or dishonest and unjust acts by Export Bank in controlling E-Securities. The Court stressed that the separate juridical personality of a corporation should only be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime, which was not sufficiently established in this case. The Court also noted that the unexpected increase in the value of DMCI shares did not inure to the benefit of Export Bank.
Main Doctrine
A corporation not impleaded in a suit cannot be subjected to the court's process of piercing the veil of its corporate fiction, as the court has not acquired jurisdiction over it, and any proceedings against it would infringe its right to due process. The doctrine of piercing the veil of corporate fiction applies only after jurisdiction has been acquired over the corporation.