Pacific Rehouse Corporation versus Court of Appeals and Export and Industry Bank, Inc.

G.R. No. 199687, March 24, 2014, J.Reyes

Question:
EIB Securities Inc. (E–Securities) was sued for unauthorized sale of
32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde
Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East
Asia Oil Company, Inc. RTC rendered judgment on the pleadings, directing
the E–Securities to return to the Pacific Rehouse Et.Al., 32,180,000 DMCI
shares, as of judicial demand. On the other hand, Pacific Rehouse Et.Al., are
directed to reimburse the E-Securities the amount of [P]10,942,200.00,
representing the buyback price of the 60,790,000 KPP shares of stocks at
[P]0.18 per share. The Resolution was ultimately affirmed by the Supreme
Court and attained finality. However, the Writ of Execution was returned
unsatisfied. Pacific Rehouse moved for the issuance of an alias writ of
execution to hold Export and Industry Bank, Inc. (Export Bank) liable for the
judgment obligation as E–Securities is a mere alter ego and business conduit
of Export Bank. E- Securities being wholly–owned controlled and dominated
subsidiary of Export Bank and that E- Securities and Export Bank have
interlocking directorates. E–Securities opposed the motion, arguing that it
has a corporate personality that is separate and distinct from Export Bank.
The RTC concluded that E–Securities is a mere business conduit or alter ego
of Export Bank, the dominant parent corporation, which justifies piercing of
the veil of corporate fiction, and issued an alias writ of summons directing
EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully comply
therewith and that being one and the same entity in the eyes of the law, the
service of summons upon E–Securities has bestowed jurisdiction over both
the parent and wholly–owned subsidiary. Is the RTC correct?

Suggested Answer:
No, the RTC is incorrect.
An alter ego exists where one corporation is so organized and controlled and
its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other. Ownership of a subsidiary by the parent company as
well as the existence of interlocking incorporators, directors or officers are
not conclusive the corporations are one and the same. There must be proof
aside from such that the principal corporation exploited or misused the
corporate fiction of the subsidiary or perpetuation of fraud.

In this case, ownership of Export bank of great majority if not all stocks of E- Securities and the
existence of the interlocking directorates may serve as badges of control but ownership per se
without proof of actual conditions was insufficient to establish alter ego relationship that will
justify the piercing the veil of corporate fiction. There is no wrongful or fraudulent intent in
setting up E- Securities. It is used to perform legitimate functions. Hence, E- Securities is not a
mere alter ego or business conduit of Export bank and piercing of the veil of corporate
fiction cannot be justified.