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Pacific Rehouse Corp. v.

CA

Summary: Judgment was rendered against EIB Securities. This case


reached the SC which ruled in favor of the petitioners, for the return of the
DMCI shares of stock to them. The writ of execution went unsatisfied, so
they filed an alias writ, which was sought to be enforced against Export
Bank, the alleged parent corporation of EIB. The SC did not allow this,
saying the court did not acquire jurisdiction over Export Bank, and that
the alter ego doctrine did not apply.

Doctrine: there must be a perpetuation of fraud or at least a fraudulent or


illegal purpose behind the control to justify piercing the veil of corporate
fiction.

EIB Securities sold 32,180,000 shares of DMCI belonging to respondents.


The lower court rendered judgment, ordering EIB to return the shares to
the respondents. This ruling reached the SC and attained finality. Writ of
execution issued, but was unsatisfiied.

Respondents then filed for issuance of an alias writ to hold Export and
Industry Bank liable because EIB Securities is a wholly-owned controlled
and dominated subsidiary of Export snd Industry Bank, and is thus a mere
alter ego and business conduit.

EIB Securities opposed, saying it has a separate corporate personality,


distinct from Export Bank.

RTC ruled that E-securities is a mere business conduit of Export Bank and
pierced the veil of corporate fiction.

Respondent questioned this, saying it was not impleaded as a party to the


case. This was denied, and directed garnishment of P1.4B, the total
amount of the 32.18M DMCI shares. RTC said that since they are the same
entity, service of summons upon E-Securities bestowed jurisdiction over
the parent and subsidiary.

CA issued 60-day TRO enjoining the execution of the RTC orders granting
ther alias writ. Then they issued writ of preliminary injunction. Then they
ruled in the merits, saying that the alter ego theory cannot be sustained
because ownership by a parent corporation of a subsidiary is not enough
justification to pierce the veil. Proof must be shown, apart from mere
ownership, that Export Bank misused the corporate fiction of E-Securities.
Mere interlocking of directors not enough
Export Bank does not have complete control over business policies
and affairs
They went to the SC.

Issue: W/N CA erred in ruling that alter ego doctrine is inapplicable NO.
CA is correct.
Export Bank argues that it was never impleaded in the earlier case
between E-Securities and Pacific Rehouse.

However, the SC held that in the case of Kukan International v. Reyes,


compliance with the recognized modes of acquiring jurisdiction cannot be
dispensed with even in piercing the veil of corporate fiction:
Piercing the veil is applied only to determine liability. It is not
available to confer jurisdiction it has not acquired over a party not
impleaded in the case.
In other words, a corporation not impleaded in a suit cannot be
subject to the courts process of piercing the veil of its corporate
fiction.
Court must first acquire jurisdiction over the parties before piercing its
corporate veil; otherwise, it cannot pierce because such action offends the
corporations right to due process. Jurisdiction is acquire by service of
summons. Without summons or voluntary submission, any judgment over
such person is null and void.

In this case, Export Bank was not served with summons, nor voluntarily
appeared before the court.
Export Bank has consistently disputed RTC jurisdiction by filing of
Omnibus Motion by way of special appearance
It was not pleaded as a party
It was never served with summons
It did not voluntarily appear before RTC

Alter ego doctrine is not applicable


Where one corporation is organized and controlled, and its affairs
conducted so that it is in fact a mere instrumentality of the other,
the fiction of the instrumentality may be disregarded.
Stock control not enough. Must be such domination of finances,
policies, and practices, that the controlled corporation has no
separate mind, will or existence of its own. Control must be
exercised at the time the acts complained of took place.
Three pronged test
o Complete domination (above mentioned)
o Control must have been used to commit fraud or wrong, to
perpetuate violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiffs legal
right
o The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of
Absence of any one of these prevents piercing of the corporate veil
in applying the alter ego doctrine.
The RTC said alter ego because of the ff:
o EIB Securities was only reactivated in 2002-2003 to serve as
the securities brokerage arm of said parent corporation bank,
o its capital was supplied by Export Bank because EIB was cash
strapped
o Offices located in the same building
o They share key directors and corporate officers
o It was admitted in the Banks financial statements that EIB is a
controlled subsidiary
o Same lawyers
o Control was prevailing during the time the acts complained of
happened
However, these were not pleaded properly in accordance with ROC,
and were merely raised in the Motion for Issuance of Alias writ.
Nonetheless, there must be a perpetuation of fraud or at least a
fraudulent or illegal purpose behind the control to justify piercing
the veil. In this case, there is none.
The 32.8 M shares were originally bought at 0.38 per share, and
were sold at 0.24. The proceeds were used to buy back 61M KPP
shares. Unexpectedly, the total amount of the DMCI shares
ballooned to 1.4B, which did not inure to E-Securities benefit nor
Export Bank.
Ownership by single stockholder of all or substantially all stock is
not sufficient, in the absence of fraud and other public policy
considerations.