Case Summary (G.R. No. 142616)
Key Dates and Procedural Posture
Material transactions and proceedings: letter of credit extended May 29, 1996; credit facility amounts adjusted through April 1998; foreclosure notice and scheduled auction for May 27, 1999. Respondents filed an injunction complaint May 25, 1999; a 72-hour TRO was issued; case raffled May 28, 1999 to RTC Makati Branch 147; hearing June 8, 1999; petitioner filed opposition June 15, 1999 and a motion to dismiss June 25, 1999; RTC ordered issuance of a writ of preliminary injunction June 30, 1999 (issued July 14, 1999) and denied the motion to dismiss October 4, 1999. The Court of Appeals affirmed; petitioner sought review by the Supreme Court under Rule 45.
Applicable Law and Procedural Rules
Constitutional framework: 1987 Philippine Constitution applies given the post-1990 decision date.
Procedural provisions: petition for review under Rule 45, Revised Rules of Court; joinder and real-party-in-interest rules under Rules of Court (Rule 3, sections 2 and 7); standards for preliminary injunction under Section 3, Rule 58 of the 1997 Rules of Civil Procedure.
Corporate-law doctrines: corporate personality and the equitable doctrine of piercing the corporate veil (alter ego/instrumentality doctrine) and governing tests as set forth in precedent cited by the Court.
Facts Material to Relief
PNB-IFL extended credit facilities and took four Makati parcels as real estate mortgage security. Respondents repaid portions but still had outstanding obligations as of April 30, 1998. PNB-IFL, through a special power of attorney authorizing PNB to act as attorney-in-fact, notified respondents of foreclosure and scheduled public auction. Respondents sued to enjoin foreclosure, alleging void contractual provisions — principally unilateral discretion of the bank to set or modify interest rates — and sought relief including recomputation of interest and crediting of previous payments.
Issues Presented for Review
- Whether the complaint should have been dismissed because, on its face, no cause of action exists against petitioner PNB, which is not a party to the loan contracts and was sued only as attorney-in-fact (real party in interest/privity issue).
- Whether the RTC acted in excess of jurisdiction by issuing a preliminary injunction beyond what was prayed for in the complaint.
Petitioner’s Contentions
Petitioner argued lack of privity and lack of real-party-in-interest status: PNB is merely attorney-in-fact of PNB-IFL and not a party to the loan contracts; therefore respondents stated no cause of action against PNB. Petitioner also contended that the RTC exceeded its jurisdiction in issuing the writ of preliminary injunction and that the complaint should be dismissed.
Respondents’ Contentions
Respondents argued that PNB, as agent with authority to foreclose, was a party-in-interest and could properly be sued; they further maintained that the credit facility contained void stipulations (violating mutuality of contracts) and treated PNB as the alter ego or business conduit of PNB-IFL, invoking the doctrine of piercing the corporate veil to hold the parent liable.
Court’s Analysis — Real Party in Interest and Privity
The Court emphasized that respondents’ complaint conceded that the loan contracts were between respondents and PNB-IFL, and that PNB acted only as attorney-in-fact under a special power of attorney incorporated in the real estate mortgages. As a matter of procedural law, actions must be prosecuted in the name of the real party-in-interest; parties without whom no final determination can be had must be joined. Respondents sought substantive relief (e.g., recomputation of interest under the loan contract) that only a contracting party or a properly-joined principal could provide. Because PNB was not a party to the loan agreements and the relief sought implicated the contractual relationship with PNB-IFL, the Court found respondents had not stated a cause of action against PNB.
Court’s Analysis — Piercing the Corporate Veil (Alter Ego/Instrumentality Doctrine)
The Court reviewed the recognized equitable doctrine allowing disregard of separate corporate personalities where a subsidiary is a mere instrumentality of its parent used to perpetrate fraud, evade obligations, or accomplish other wrongful ends. The Court outlined and applied the factors in Garrett (ownership, common officers, financing, inadequate capital, use of subsidiary’s assets, lack of independent action by subsidiary directors, failure to observe formalities, etc.) and the two-element test from Concept Builders (complete domination of finance and policy plus use of such control to commit fraud or wrong causing the injury). The Court found that mere common ownership (PNB wholly owns PNB-IFL) is insufficient; respondents failed to demonstrate the indicia of instrumentality or that PNB-IFL’s separate corporate existence was abused to perpetrate wrongs. There was no showing that PNB-IFL was a mere sham or that PNB used the subsidiary to defeat public convenience, perpetrate fraud, evade duty, or otherwise justify piercing the corporate veil. Consequently, the alter ego doctrine did not apply to make PNB liable as if it were PNB-IFL.
Court’s Analysis — Standards for Preliminary Injunction
The Court reiterated the requirements under Section 3, Rule 58 (1997 Rules): a preliminary injunction may be gran
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Procedural History
- Petition for review on certiorari under Rule 45 of the Revised Rules of Court filed by petitioner Philippine National Bank (PNB) to annul and set aside the Court of Appeals' Decision in C.A. G.R. S.P. No. 55374 dated March 27, 2000.
- The Court of Appeals had affirmed the Regional Trial Court (RTC) of Makati, Branch 147, Order of June 30, 1999 issuing a writ of preliminary injunction, and the RTC Order of October 4, 1999 denying petitioner's motion to dismiss.
- Respondents filed a complaint for injunction with prayer for a writ of preliminary injunction and/or temporary restraining order before the RTC of Makati on May 25, 1999; a 72-hour temporary restraining order was issued by the Executive Judge.
- Case raffled to RTC Branch 147 on May 28, 1999; hearing set for June 8, 1999; petitioner given seven days to file written opposition.
- Petitioner filed opposition on June 15, 1999; respondents filed reply. Petitioner filed a motion to dismiss on June 25, 1999.
- RTC issued an Order for the issuance of a writ of preliminary injunction on June 30, 1999; writ issued on July 14, 1999. Motion to dismiss denied by RTC on October 4, 1999.
- Petitioner sought certiorari and prohibition in the Court of Appeals; the appellate court dismissed the petition. Petitioner elevated the case to the Supreme Court.
Parties and Corporate Identities
- Petitioner: Philippine National Bank (PNB), a domestic corporation organized and existing under Philippine law.
- PNB International Finance Ltd. (PNB-IFL): a subsidiary of PNB, organized and doing business in Hong Kong; the entity that extended the loan and letter of credit to respondents.
- Respondents: Ritratto Group, Inc.; Riatto International, Inc.; and Dadasan General Merchandise — all domestic corporations organized and existing under Philippine law.
- In respondents' complaint they admitted that petitioner (PNB) acted as attorney-in-fact for PNB-IFL with full power and authority, inter alia, to foreclose the mortgaged properties.
Facts — Loan, Security and Repayments
- On May 29, 1996, PNB-IFL extended a letter of credit in favor of respondents in the amount of US$300,000.00, secured by real estate mortgages over four parcels of land in Makati City.
- The credit facility was increased successively: to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998.
- Respondents made repayments by remitting amounts to their loan account with PNB-IFL in Hong Kong.
- As of April 30, 1998, respondents’ outstanding obligations totaled US$1,497,274.70.
- Pursuant to the real estate mortgages' terms, PNB-IFL, through its attorney-in-fact PNB, notified respondents of foreclosure and scheduled a public auction of the properties on May 27, 1999 at Makati City Hall.
Relief Sought by Respondents and Grounds Alleged
- Respondents sought injunction to enjoin and restrain PNB from foreclosing and selling the mortgaged properties to protect their rights, alleging the credit facilities supporting the mortgages were void.
- Grounds asserted in the complaint:
- The determination of interest rates being left to the sole discretion of PNB contravened the principle of mutuality of contracts.
- A stipulation permitting unilateral modification of the agreed interest rate by the defendant (PNB) was void because there was no stipulation that interest would be reduced if the applicable maximum rate was reduced by law or the Monetary Board.
- Respondents prayed, among other things, that PNB be ordered to re-compute the rescheduling of interest and credit amounts previously paid.
Petitioner’s Procedural and Substantive Arguments (Errors Raised)
- Petitioner asked the Supreme Court to set aside the Court of Appeals Decision and the RTC Orders and to dismiss the complaint.
- Two errors raised specifically:
- Court of Appeals erred in not dismissing the complaint because, by the complaint’s own allegations, no cause of action exists against petitioner; petitioner is not the real party in interest, being a mere attorney-in-fact authorized to enforce an ancillary contract.
- Court of Appeals erred in allowing the trial court to issue a writ of preliminary injunction beyond what was prayed for in the complaint, contrary to cited precedent (Chief of Staff, AFP vs. Guadiz, Jr., 101 SCRA 827).
Respondents’ Counter-Arguments as Presented to the Court
- Respondents contended that even if PNB and PNB-IFL are separate entities, petitioner is still a party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosure on respondents’ properties.
- Respondents argued the entire credit facility was void due to stipulations violating the principle of mutuality of contracts.
- Respondents justified the court a quo’s application of the doctrine of piercing the veil of corporate identity by alleging that PNB is merely an alter ego or business conduit of PNB-IFL.
Trial Court and Court of Appeals Rulings
- RTC Branch 147 issued an Order for a writ of preliminary injunction on June 30, 1999; writ issued July 14, 1999.
- RTC denied petitioner's motion to dismiss in an Order dated October 4, 1999, reasoning that since PNB-IFL is a wholly owned subsidiary of PNB, a suit against P