PNB vs. Ritratto Group, Inc.

, 362 SCRA 216 (2001) terms and conditions in the documents evidencing the credit facilities, and crediting the amount
previously paid to PNB by herein respondents.
FACTS:
Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates
Petitioner Philippine National Bank is a domestic corporation organized and existing under set forth in the contract. Respondents, therefore, do not have any cause of action against
Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and petitioner.
Dadasan General Merchandise are domestic corporations, likewise, organized and existing under
Philippine law.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly
owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs.
organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents
Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the mere
in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4)
alter ego, or business conduit of a person or where the corporation is so organized and controlled
parcels of land in Makati City. Respondents made repayments of the loan incurred by remitting
and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct
those amounts to their loan account with PNB-IFL in Hong Kong.
of another corporation.12
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant
to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the We disagree.
respondents of the foreclosure of all the real estate mortgages and that the properties subject
thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.
The general rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by the personal
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a
rights, obligations and transactions of the latter. The mere fact that a corporation owns all
writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of
of the stocks of another corporation, taken alone is not sufficient to justify their being
Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary
treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence
restraining order. At the hearing of the application for preliminary injunction, petitioner was given
a period of seven days to file its written opposition to the application. On June 25, 1999, petitioner may be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business. The courts may in the exercise of judicial
filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of
discretion step in to prevent the abuses of separate entity privilege and pierce the veil of
any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued
corporate entity.
an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued
on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge
for lack of merit. Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil
is an equitable doctrine developed to address situations where the separate corporate
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of personality of a corporation is abused or used for wrongful purposes. The doctrine applies
preliminary injunction before the Court of Appeals. In the impugned decision, the appellate court when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
dismissed the petition. defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation is so
ISSUE: Whether petitioner may be sued by the respondents on the ground of parent-subsidiary organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
relationship between PNB and PNB-IFL. agency, conduit or adjunct of another corporation.

RULING: NO.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL no showing of the indicative factors that the former corporation is a mere instrumentality
are two separate entities, petitioner is still the party-in-interest in the application for preliminary of the latter are present. Neither is there a demonstration that any of the evils sought to be
injunction because it is tasked to commit acts of foreclosing respondents' properties. Respondents prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the
maintain that the entire credit facility is void as it contains stipulations in violation of the principle doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine
of mutuality of contracts. In addition, respondents justified the act of the court a quo in applying finds no application in the case at bar.
the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter
ego or a business conduit of PNB-IFL. All told, respondents do not have a cause of action against the petitioner as the latter is not
privy to the contract the provisions of which respondents seek to declare void. Accordingly,
Respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the the case before the Regional Trial Court must be dismissed and the preliminary injunction issued
property in order to protect their rights to said property by reason of void credit facilities as bases in connection therewith, must be lifted.
for the real estate mortgage over the said property.

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the
other words, herein petitioner is an agent with limited authority and specific duties under a Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of
special power of attorney incorporated in the real estate mortgage. It is not privy to the the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED
loan contracts entered into by respondents and PNB-IFL. Yet, despite the recognition that and SET ASIDE and the complaint in said case DISMISSED.
petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be
ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the SO ORDERED.