The RTC found E-Securities, a wholly owned subsidiary of Export Bank, liable for a judgment against it as the alter ego of Export Bank. However, the Supreme Court determined ownership and interlocking directors alone are not enough to establish an alter ego relationship. There must be evidence the subsidiary was exploited or its corporate form abused to perpetrate fraud. Here, no such evidence was presented, as E-Securities was established for legitimate functions. Therefore, the RTC incorrectly pierced the corporate veil and held Export Bank liable for E-Securities' judgment.
The RTC found E-Securities, a wholly owned subsidiary of Export Bank, liable for a judgment against it as the alter ego of Export Bank. However, the Supreme Court determined ownership and interlocking directors alone are not enough to establish an alter ego relationship. There must be evidence the subsidiary was exploited or its corporate form abused to perpetrate fraud. Here, no such evidence was presented, as E-Securities was established for legitimate functions. Therefore, the RTC incorrectly pierced the corporate veil and held Export Bank liable for E-Securities' judgment.
The RTC found E-Securities, a wholly owned subsidiary of Export Bank, liable for a judgment against it as the alter ego of Export Bank. However, the Supreme Court determined ownership and interlocking directors alone are not enough to establish an alter ego relationship. There must be evidence the subsidiary was exploited or its corporate form abused to perpetrate fraud. Here, no such evidence was presented, as E-Securities was established for legitimate functions. Therefore, the RTC incorrectly pierced the corporate veil and held Export Bank liable for E-Securities' judgment.
The RTC found E-Securities, a wholly owned subsidiary of Export Bank, liable for a judgment against it as the alter ego of Export Bank. However, the Supreme Court determined ownership and interlocking directors alone are not enough to establish an alter ego relationship. There must be evidence the subsidiary was exploited or its corporate form abused to perpetrate fraud. Here, no such evidence was presented, as E-Securities was established for legitimate functions. Therefore, the RTC incorrectly pierced the corporate veil and held Export Bank liable for E-Securities' judgment.
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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.
