G.R. No. 199687 - Pacific Rehouse Corp. vs. Court of Appeals

Case Summary (G.R. No. 199687)

Factual Background

The underlying dispute arose from a complaint against EIB Securities, Inc. for the unauthorized sale of 32,180,000 DMCI shares belonging to the petitioners. The Makati RTC rendered judgment on the pleadings on October 18, 2005 directing E‑Securities to return the DMCI shares and directing the plaintiffs to reimburse E‑Securities for a buy‑back of other shares. That judgment became final and executory. Execution returned unsatisfied, whereupon the private respondents sought an alias writ of execution to hold Export and Industry Bank, Inc. liable on the theory that E‑Securities was a wholly owned, controlled, and dominated subsidiary and a mere alter ego of the bank.

Trial Court Proceedings

At the execution stage, the RTC entertained private respondents’ motion and, on July 29, 2011, concluded that E‑Securities was a mere business conduit or alter ego of Export Bank and ordered an alias writ of execution to include Export Bank. The RTC found that Export Bank had been sufficiently put on notice because notices had been tendered and refused. Thereafter, in an August 26, 2011 Order the RTC denied Export Bank’s Omnibus Motion and directed garnishment of PHP 1,465,799,000.00 to acquire the DMCI shares at the then closing price, instructing the Branch Sheriff to implement garnishment against all those holding properties of E‑Securities and/or Export Bank.

Proceedings in the Court of Appeals

Export and Industry Bank, Inc. sought relief from the Court of Appeals by filing a petition for certiorari and an application for injunctive relief, asserting grave abuse of discretion in the RTC’s inclusion of Export Bank in execution and emphasizing the corporate separateness doctrine. The CA issued a 60‑day temporary restraining order on September 2, 2011 and later, after hearings and memoranda, granted a writ of preliminary injunction on October 25, 2011 enjoining implementation of the RTC orders as to Export Bank. The CA, sitting in a Special Division of Five, rendered a Decision on April 26, 2012, nullifying the RTC orders insofar as Export Bank was concerned and rendering the writ of preliminary injunction permanent.

Issues Presented to the Supreme Court

The consolidated questions presented to the Supreme Court were: in G.R. No. 199687, whether the Court of Appeals committed grave abuse of discretion in granting Export Bank’s application for a writ of preliminary injunction; and in G.R. No. 201537, whether the CA erred in ruling that Export Bank may not be held liable for the final and executory judgment against E‑Securities through piercing the veil of corporate fiction and whether the alter ego doctrine was applicable.

Contentions of the Parties

The petitioners argued that the CA erred in granting injunctive relief and that Export Bank was properly subjected to execution because E‑Securities was its alter ego; petitioners relied on facts such as near‑total ownership by Export Bank, interlocking directors and officers, shared legal counsel, co‑location of offices, financial integration in consolidated statements, and alleged control exercised at the time of the wrongful disposition of shares. Export Bank contended that it was never impleaded nor validly served and that the separate juridical personality of E‑Securities could not be disregarded without proof of misuse of corporate form; it invoked authorities upholding corporate separateness and argued that piercing the corporate veil could not be used to confer jurisdiction upon a non‑party.

The Supreme Court’s Rulings

The Supreme Court dismissed G.R. No. 199687 as moot and academic because the CA had already rendered a decision on the merits. On the merits in G.R. No. 201537, the Court denied the petition and affirmed the CA Decision dated April 26, 2012, thereby holding that the RTC orders insofar as they sought to bind Export and Industry Bank, Inc. were nullified and that the writ of preliminary injunction issued by the CA was properly rendered permanent.

Legal Reasoning on Jurisdiction and Execution

The Court reaffirmed the settled principle that the instrumentality or alter ego doctrine addresses liability, not jurisdiction, and held that a court cannot dispense with recognized modes of acquiring jurisdiction in order to pierce the corporate veil. Citing Kukan International Corporation v. Reyes, the Court explained that a corporation not impleaded in the suit cannot be subjected to the court’s process absent valid service of summons or voluntary appearance, because such action would infringe the non‑party corporation’s right to due process. The RTC therefore erred in treating service upon E‑Securities as conferring jurisdiction over Export Bank and in enforcing the judgment against the bank without first having acquired jurisdiction over it.

Legal Reasoning on the Alter Ego Doctrine

The Court reiterated the three‑pronged control test for the alter ego doctrine: (1) domination of finances, policy and business practice such that the controlled corporation had no separate mind, will, or existence with respect to the transaction attacked; (2) use of such control to commit fraud or wrong or to perpetuate a violation of legal duty; and (3) proximate causation between the control and the injury complained of. The Court emphasized that proof of mere ownership, interlocking directors, shared offices, inclusion in consolidated financial statements, and common legal counsel may be badges of control but are not, by themselves, sufficient to pierce the corporate veil in the absence of evidence of fraudulent, illegal, or unjust purpose. The Court found that the petitioners’ allegations and the materials presented at the execution stage were not properly pleaded and proved in conformity with the Rules of Court and that the record did not establish the requisite fraudulent intent or misuse of the corporate form.

Assessment of Precedents Invoked

The Supreme Court explained that the RTC misapplied the Court’s rulings in Sps. Violago v. BA Finance Corp. an

Case Syllabus (G.R. No. 199687)

Parties and Procedural Posture

Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. were petitioners in G.R. No. 201537 and co-petitioners in the consolidated matter.
Export and Industry Bank, Inc. was the respondent before the Court of Appeals and the respondent in the consolidated appeal to the Supreme Court.
The underlying action began as a complaint before the Makati RTC, Branch 66, against EIB Securities, Inc. for the unauthorized sale of 32,180,000 DMCI shares belonging to the petitioners.
Petitioners invoked an alias writ of execution to hold Export Bank liable as alleged alter ego of EIB Securities, Inc. after the writ of execution issued on a final judgment proved unsatisfied.
The controversies reached the Supreme Court by a petition for certiorari under Rule 65 (G.R. No. 199687) and a petition for review under Rule 45 (G.R. No. 201537), which the Court consolidated for decision.

Key Factual Allegations

The RTC rendered a judgment on the pleadings directing EIB Securities, Inc. to return 32,180,000 DMCI shares and ordered plaintiffs to reimburse P10,942,200 for buyback of 60,790,000 KPP shares.
The judgment was affirmed by this Court in the principal case and a writ of execution later returned unsatisfied.
Private respondents moved for an alias writ to charge Export Bank as the parent and alleged alter ego of EIB Securities, Inc. based on nearly total stock ownership, shared officers and lawyers, consolidated financial statements, co-location of offices, and parent infusions of capital.
On July 29, 2011 the RTC found EIB Securities, Inc. to be the alter ego of Export Bank and on August 26, 2011 ordered garnishment of P1,465,799,000 based on DMCI closing price of P45.55 per share.
Export Bank sought relief from the Court of Appeals, which issued a temporary restraining order and subsequently granted a writ of preliminary injunction that the Court of Appeals later made permanent.

Lower Court Proceedings

The Makati RTC issued orders on July 29, 2011 and August 26, 2011 implementing an alias writ of execution against EIB Securities, Inc. and Export Bank and directing garnishment to satisfy the judgment.
The RTC justified joinder in execution by treating service upon EIB Securities, Inc. as conferring jurisdiction over the parent under the doctrine of piercing the corporate veil and cited Sps. Violago v. BA Finance Corp. and Arcilla v. Court of Appeals.
The Court of Appeals enjoined implementation of the RTC orders by issuing a Temporary Restraining Order dated September 2, 2011 and later a Writ of Preliminary Injunction dated October 25, 2011, which a Special Division of Five reiterated on December 22, 2011.
On April 26, 2012 the Court of Appeals rendered a Decision nullifying the RTC orders insofar as Export Bank was concerned and permanently issuing the writ of preliminary injunction.

Issues

Whether the Court of Appeals committed grave abuse of discretion in granting Export Bank's application for a writ of preliminary injunction in G.R. No. 199687.
Whether the Court of Appeals committed reversible error in ruling that Export Bank may not be held liable for the final and executory judgment against EIB Securities, Inc. by piercing the veil of corporate fiction.
Whether the Court of Appeals committed