Pacific Rehouse Corp. v.

Court of Appeals
G.R. 199687 & 201537 – March 24, 2014
J. Reyes

Topic: Majority Shaare Ownership and Interlocking Directorships

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.

GR 199687
Petitioner: Pacific Rehouse Corporation
Respondents: Court of Appeals and Export and Industry Bank, Inc.

GR 201537
Petitioner: Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings
Corporation and East Asia Oil Company, Inc.
Respondents: Export and Industry Bank, Inc.

Case Summary: 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 Supreme Court and attained finality.
A writ of execution was issued, however, such was left unsatisfied. Respondents then filed for issuance of an alias write to
hold EIB (Export and Industry Bank) liable because EIB Securities is a wholly-owned controlled and dominated subsidiary
of Export and Industry Bank, and is thus a mere alter ego and business conduit. RTC ruled that E-securities is a mere
business conduit of Export Bank and pierced the veil of corporate fiction.

ISSUE: W/N the CA erred in ruling that the alter ego doctrine is inapplicable – NO

Export Bank argues that it was never impleaded in the earlier case between E-Securities and Pacific Rehouse. The SC held,
however, 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 over a party not impleaded in the case. This means that a corporation not
impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction. In the CAB,
Export Bank was not served with summons, nor did it voluntarily appear before the Court. Export Bank has consistently
disputed the jurisdiction of the RTC by their filing of an Omnibus Motion by way of special appearance. Export Bank
claimed that it was not pleaded as a party; that it was never served with summons; and that it never voluntarily appeared
before the RTC. The SC further held that the 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 is not enough  must be such a 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. To see if the alter ego doctrine is applicable, one must use the three-pronged test:

(1) Complete domination (as mentioned above);

(2) 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 plaintiff’s legal right;
(3) 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. There must be
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.

Facts:
 EIB Securities sold 32,180,000 shares of DMCI belonging to respondents
o The lower court rendered judgment ordering EIB to return the shares to the respondents
 This ruling reached the Supreme Court and attained finality
 A writ of execution was issued, however, such was left unsatisfied
 Respondents then filed for issuance of an alias write to hold EIB (Export and Industry Bank) liable because EIB
Securities is a wholly-owned controlled and dominated subsidiary of Export and Industry Bank, and is thus a mere
alter ego and business conduit
 o RTC ruled that E-securities is a mere business conduit of Export Bank and pierced the veil of corporate
fiction
o The Respondent questioned this, saying it was not impleaded as a party to the case
 This was denied and a garnishment was directed of 1.4B, where the total amount was 32.18M in
DMCI Shares
 The RTC said that since they are the same entity, service of summons upon E-securities bestowed
jurisdiction over the parent and subsidiary
 The CA issued a 60-day TRO enjoining the execution of the RTC orders granting their alias writ
o They then issued a writ of preliminary injunction
o After ruling on the merits, the CA stated 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 is not enough
 Export Bank does not have complete control over business policies and affairs of EIB
Issues + Held:
1. W/N the CA erred in ruling that the alter ego doctrine is inapplicable – NO
 Export Bank argues that it was never impleaded in the earlier case between E-Securities and Pacific Rehouse
o The SC held, however, 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 over
a party not impleaded in the case
 This means that a corporation not impleaded in a suit cannot be subject to the court’s
process of piercing the veil of its corporate fiction
o To properly go about the process, the Court must first acquire jurisdiction over the parties before piercing
its corporate veil  otherwise, it cannot pierce such corporate veil because such action offends the
corporation’s right to due process
 Jurisdiction is acquired by service of summons; without summons or voluntary submission,
any judgment over such person is null and void
 In the CAB, Export Bank was not served with summons, nor did it voluntarily appear before the Court
o Export Bank has consistently disputed the jurisdiction of the RTC by their filing of an Omnibus Motion by
way of special appearance
 Export Bank claimed that it was not pleaded as a party; that it was never served with summons;
and that it never voluntarily appeared before the RTC
 The SC further held that the alter ego doctrine is not applicable:
o 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
o Stock control is not enough  must be such a 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
o To see if the alter ego doctrine is applicable, one must use the three-pronged test:
 (1) Complete domination (as mentioned above);
 (2) 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 plaintiff’s legal right;
 (3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of
o Absence of any one of these prevents piercing of the corporate veil in applying the alter ego doctrine
 The RTC ruled that EIB was the alter ego of EB because of the ff:
o (1) EIB Securities was only reactivated in 2002-2003 to serve as the securities brokerage arm of said parent
corporation bank;
o (2) its capital was supplied by EB because EIB was cash strapped;
o (3) offices located in the same building;
o (4) they share key directors and corporate officers;
o (5) it was admitted in the bank’s financial statements that EIB is a controlled subsidiary;
o (6) both have same lawyers;
 o (7) control was prevailing during the time the acts complained of happened
 However, these reasons were not pleaded properly in accordance with the ROC  they were
merely raised in the Motion for Issuance of Alias writ
 Nonetheless, there must be 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
o The 32.8M shares were originally bought at 0.38 per share, and were sold at 0.24
 Unexpectedly, the total amount of the DMCI shares ballooned to 1.4B, which did not inure to E-
securities benefit nor to Export Bank’s
o Ownership by single stockholder of all or substantially all stock is not sufficient in the absence of fraud and
other public policy considerations

Ruling: WHEREFORE, the petitions are DISMISSED.