3. PHILIPPINE NATIONAL BANK, petitioner, vs.

HYDRO RESOURCES CONTRACTORS Court has likewise ruled that the “existence of interlocking directors, corporate officers and shareholders
CORPORATION, respondent. is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public
ASSET PRIVATIZATION TRUST, petitioner, vs. HYDRO RESOURCES CONTRACTORS policy considerations.”
CORPORATION, respondent. PETITIONS for review on certiorari of the decision and resolution of the Court of Appeals.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HYDRO RESOURCES The facts are stated in the opinion of the Court.
CONTRACTORS CORPORATION, respondent. Dennis R. Giron for Philippine National Bank.
Mercantile Law; Corporation Law; Principle of Limited Liability; By virtue of the separate Office of the Legal Counsel for Development Bank of the Philippines.
juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the Law Firm of Tanjuatco & Partners for Hydro Resources Contractors Corporation.
stockholder. This protection from liability for shareholders is the principle of limited liability.—A LEONARDO-DE CASTRO, J.:
corporation is an artificial entity created by operation of law. It possesses the right of succession and such These petitions for review on certiorari1 assail the Decision2 dated November 30, 2004 and the
powers, attributes, and properties expressly authorized by law or incident to its existence. It has a Resolution3dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said Decision
personality separate and distinct from that of its stockholders and from that of other corporations to which affirmed the Decision4dated November 6, 1995 of the Regional Trial Court (RTC) of Makati City, Branch
it may be connected. As a consequence of its status as a distinct legal entity and as a result of a conscious 62, granting a judgment award of P8,370,934.74, plus legal interest, in favor of respondent Hydro
policy decision to promote capital formation, a corporation incurs its own liabilities and is legally Resources Contractors Corporation (HRCC) with the modification that the Privatization and Management
responsible for payment of its obligations. In other words, by virtue of the separate juridical personality of Office (PMO), successor of petitioner Asset Privatization Trust (APT), 5 has been held solidarily liable
a corporation, the corporate debt or credit is not the debt or credit of the stockholder. This protection from with Nonoc Mining and Industrial Corporation (NMIC)6 and petitioners Philippine National Bank (PNB)
liability for shareholders is the principle of limited liability. and Development Bank of the Philippines (DBP), while the Resolution denied reconsideration separately
Same; Same; Piercing the Veil of Corporate Fiction; The corporate mask may be removed or the prayed for by PNB, DBP, and APT.
corporate veil pierced when the corporation is just an alter ego of a person or of another corporation.— Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB
when the corporation is just an alter ego of a person or of another corporation. For reasons of public acquired substantially all the assets of MMIC and resumed the business operations of the defunct MMIC
policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a by organizing NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except
shield for fraud, illegality or inequity committed against third persons. However, the rule is that a court for five qualifying shares.8 As of September 1984, the members of the Board of Directors of NMIC,
should be careful in assessing the milieu where the doctrine of the corporate veil may be applied. namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were
Otherwise an injustice, although unintended, may result from its erroneous application. either from DBP or PNB.9
Same; Same; Same; Alter Ego Theory; Instrumentality Theory; Case law lays down a three- Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
pronged test to determine the application of the alter ego theory, which is also known as the Construction Program in 1985 for a total contract price of P35,770,120. After computing the payments
instrumentality theory.—In this connection, case law lays down a three-pronged test to determine the already made by NMIC under the program and crediting the NMIC’s receivables from Hercon, Inc., the
application of the alter egotheory, which is also known as the instrumentality theory, namely: (1) Control, latter found that NMIC still has an unpaid balance of P8,370,934.74.10 Hercon, Inc. made several demands
not mere majority or complete stock control, but complete domination, not only of finances but of policy on NMIC, including a letter of final demand dated August 12, 1986, and when these were not heeded, a
and business practice in respect to the transaction attacked so that the corporate entity as to this transaction complaint for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners
had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the NMIC, DBP, and PNB solidarily liable for the amount owing Hercon, Inc.11 The case was docketed as
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, Civil Case No. 15375.
or dishonest and unjust act in contravention of plaintiff’s legal right; and (3) The aforesaid control and Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
breach of duty must have proximately caused the injury or unjust loss complained of. prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.12
Same; Same; Same; Same; Same; In applying the alter ego doctrine, the courts are concerned with Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
reality and not form, with how the corporation operated and the individual defendant’s relationship to creating the APT for the expeditious disposition and privatization of certain government corporations
that operation.—To summarize, piercing the corporate veil based on the alter ego theory requires the and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB
concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud executed their respective deeds of transfer in favor of the National Government assigning, transferring and
or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the conveying certain assets and liabilities, including their respective stakes in NMIC. 13 In turn and on even
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the date, the National Government transferred the said assets and liabilities to the APT as trustee under a Trust
corporate veil. This Court finds that none of the tests has been satisfactorily met in this case. In applying Agreement.14 Thus, the complaint was amended for the second time to implead and include the APT as a
the alter ego doctrine, the courts are concerned with reality and not form, with defendant.
how the corporation operated and the individual defendant’s relationship to that operation. With In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract
respect to the control element, it refers not to paper or formal control by majority or even complete stock with HRCC was entered into by its then President without any authority. Moreover, the said contract
control but actual control which amounts to “such domination of finances, policies and practices that the allegedly failed to comply with laws, rules and regulations concerning government contracts. NMIC
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit further claimed that the contract amount was manifestly excessive and grossly disadvantageous to the
for its principal.” In addition, the control must be shown to have been exercised at the time the acts government. NMIC made counterclaims for the amounts already paid to Hercon, Inc. and attorney’s fees,
complained of took place. as well as payment for equipment rental for four trucks, replacement of parts and other services, and
Same; Same; Same; Corporate Rehabilitation; Mere ownership by a single stockholder or by damage to some of NMIC’s properties.16
another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because
ground for disregarding the separate corporate personality.—While ownership by one corporation of all DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate
or a great majority of stocks of another corporation and their interlocking directorates may serve from that of DBP. DBP further interposed a counterclaim for attorney’s fees. 18
as indicia of control, by themselves and without more, however, these circumstances are insufficient to PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part
establish an alter ego relationship or connection between DBP and PNB on the one hand and NMIC on and laches as defenses, claiming that the inclusion of PNB in the complaint was the first time a demand
the other hand, that will justify the puncturing of the latter’s corporate cover. This Court has declared that for payment was made on it by HRCC. PNB also invoked the separate juridical personality of NMIC and
“mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock made counterclaims for moral damages and attorney’s fees.20
of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.” This
 APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity with legal interest from date of demand is hereby AFFIRMED, but the dismissal of the case as against
between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of NMIC.22 Assets Privatization Trust is REVERSED, and its successor the Privatization and Management Office is
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It INCLUDED as one of those jointly and severally liable for such indebtedness. The award of attorney’s
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC: fees is DELETED.
On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this All other claims and counter-claims are hereby DISMISSED.
Court likewise finds for the plaintiff. Costs against appellants.28
From the documentary evidence adduced by the plaintiff, some of which were even adopted by The respective motions for reconsideration of DBP, PNB, and APT were denied. 29Hence, these
defendants and DBP and PNB as their own evidence (Exhibits “I”, “I-1”, “I-2”, “I-3”, “I-4”, “I-5”, “I-5- consolidated petitions.30All three petitioners assert that NMIC is a corporate entity with a juridical
A”, “I-5-B”, “I-5-C”, “I-5-D” and submarkings, inclusive), it had been established that except for five (5) personality separate and distinct from both PNB and DBP. They insist that the majority ownership by
qualifying shares, [NMIC] is owned by defendants DBP and PNB, with the former owning 57% thereof, DBP and PNB of NMIC is not a sufficient ground for disregarding the separate corporate personality of
and the latter 43%. As of September 24, 1984, all the members of [NMIC]’s Board of Directors, namely, NMIC because NMIC was not a mere adjunct, business conduit or alter ego of DBP and PNB. According
Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada are to them, the application of the doctrine of piercing the corporate veil is unwarranted as nothing in the
either from DBP or PNB (Exhibits “I-5”, “I-5-C”, “I-5-D”). records would show that the ownership and control of the shareholdings of NMIC by DBP and PNB were
The business of [NMIC] was then also being conducted and controlled by both DBP and PNB. In used to commit fraud, illegality or injustice. In the absence of evidence that the stock control by DBP and
fact, it was Rolando M. Zosa, then Governor of DBP, who was signing and entering into contracts with PNB over NMIC was used to commit some fraud or a wrong and that said control was the proximate
third persons, on behalf of [NMIC]. cause of the injury sustained by HRCC, resort to the doctrine of “piercing the veil of corporate entity” is
In this jurisdiction, it is well-settled that “where it appears that the business enterprises are owned, misplaced.31
conducted and controlled by the same parties, both law and equity will, when necessary to protect the DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay
rights of third persons, disregard legal fiction that two (2) corporations are distinct entities, and treat them NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the two banks was
as identical.” (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669). transferred to and assumed by the National Government through the APT, now the PMO, under the
From all indications, it appears that [NMIC] is a mere adjunct, business conduit or alter ego of both respective deeds of transfer both dated February 27, 1997 executed by DBP and PNB pursuant to
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with [NMIC] for the latter’s Proclamation No. 50 dated December 8, 1986 and Administrative Order No. 14 dated February 3, 1987. 32
unpaid obligations to plaintiff.23 For its part, the APT contends that, in the absence of an unqualified assumption by the National
Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of Government of all liabilities incurred by NMIC, the National Government through the APT could not be
the trial court reads: held liable for NMIC’s contractual liability. The APT asserts that HRCC had not sufficiently shown that
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff the APT is the successor-in-interest of all the liabilities of NMIC, or of DBP and PNB as transferors, and
HYDRO RESOURCES CONTRACTORS CORPORATION and against the defendant[s] NONOC that the adjudged liability is included among the liabilities assigned and transferred by DBP and PNB in
MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and favor of the National Government.33
PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff jointly and HRCC counters that both the RTC and the CA correctly applied the doctrine of “piercing the veil of
severally, the sum of P8,370,934.74 plus legal interest thereon from date of demand, and attorney’s fees corporate fiction.” It claims that NMIC was the alter ego of DBP and PNB which owned, conducted and
equivalent to 25% of the judgment award. controlled the business of NMIC as shown by the following circumstances: NMIC was owned by DBP
The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING and PNB, the officers of DBP and PNB were also the officers of NMIC, and DBP and PNB financed the
AND INDUSTRIAL CORPORATION is directed to ensure compliance with this Decision. 24 operations of NMIC. HRCC further argues that a parent corporation may be held liable for the contracts or
DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was wrong obligations of its subsidiary corporation where the latter is a mere agency, instrumentality or adjunct of the
for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP and PNB solidarily liable parent corporation.34
with NMIC.25 Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and
The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of the NMIC because the APT assumed the obligations of DBP and PNB as the successor-in-interest of the said
veil of the corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. In banks with respect to the assets and liabilities of NMIC.35 As trustee of the Republic of the Philippines, the
particular, the Court of Appeals made the following findings: APT also assumed the responsibility of the Republic pursuant to the following provision of Section 2.02
In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the of the respective deeds of transfer executed by DBP and PNB in favor of the Republic:
extent of 57% and 43% respectively; that said two (2) appellants are the only stockholders, with the SECTION 2. TRANSFER OF BANK’S LIABILITIES
qualifying stockholders of five (5) consisting of its own officers and included in its charter merely to xxxx
comply with the requirement of the law as to number of incorporators; and that the directorates of DBP, 2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s
PNB and [NMIC] are interlocked. creditors consent to the transfer thereof is not obtained, said liabilities shall remain in the books of the
xxxx BANK with the GOVERNMENT funding the payment thereof.36
We find it therefore correct for the lower court to have ruled that: After a careful review of the case, this Court finds the petitions impressed with merit.
“From all indications, it appears that [NMIC] is a mere adjunct, business conduit or alter A corporation is an artificial entity created by operation of law. It possesses the right of succession
ego of both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with [NMIC] and such powers, attributes, and properties expressly authorized by law or incident to its existence. 37 It has
for the latter’s unpaid obligation to plaintiff.”26 (Citation omitted.) a personality separate and distinct from that of its stockholders and from that of other corporations to
The Court of Appeals then concluded that, “in keeping with the concept of justice and fair play,” the which it may be connected.38 As a consequence of its status as a distinct legal entity and as a result of a
corporate veil of NMIC should be pierced, ratiocinating: conscious policy decision to promote capital formation,39 a corporation incurs its own liabilities and is
For to treat [NMIC] as a separate legal entity from DBP and PNB for the purpose of securing beneficial legally responsible for payment of its obligations.40 In other words, by virtue of the separate juridical
contracts, and then using such separate entity to evade the payment of a just debt, would be the height of personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder.41 This
injustice and iniquity. Surely that could not have been the intendment of the law with respect to protection from liability for shareholders is the principle of limited liability.42
corporations. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
The dispositive portion of the Decision of the Court of Appeals reads: pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
judgment in favor of appellee Hydro Resources Contractors Corporation in the amount of P8,370,934.74 becomes a shield for fraud, illegality or inequity committed against third persons.43
 However, the rule is that a court should be careful in assessing the milieu where the doctrine of the In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the
corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous corporation operated and the individual defendant’s relationship to that operation. 62 With respect to the
application.44Thus, cutting through the corporate cover requires an approach characterized by due care and control element, it refers not to paper or formal control by majority or even complete stock control but
caution: actual control which amounts to “such domination of finances, policies and practices that the controlled
Hence, any application of the doctrine of piercing the corporate veil should be done with corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its
caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the principal.”63 In addition, the control must be shown to have been exercised at the time the acts complained
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed of took place.64
against another, in disregard of its rights. The wrongdoing must be clearly and convincingly Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
established; it cannot be presumed. x x x.45 (Emphases supplied; citations omitted.) cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks of
Sarona v. National Labor Relations Commission46 has defined the scope of application of the NMIC, and (2) the alleged interlocking directorates of DBP, PNB and NMIC.65Unfortunately, the
doctrine of piercing the corporate veil: conclusion of the trial and appellate courts that the DBP and PNB fit the alter ego theory with respect to
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of NMIC’s transaction with HRCC on the premise of complete stock ownership and interlocking directorates
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing involved a quantum leap in logic and law exposing a gap in reason and fact.
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a While ownership by one corporation of all or a great majority of stocks of another corporation and
crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business their interlocking directorates may serve as indicia of control, by themselves and without more, however,
conduit of a person, or where the corporation is so organized and controlled and its affairs are so these circumstances are insufficient to establish an alter ego relationship or connection between DBP and
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. PNB on the one hand and NMIC on the other hand, that will justify the puncturing of the latter’s corporate
(Citation omitted.) cover. This Court has declared that “mere ownership by a single stockholder or by another corporation of
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
of DBP and PNB) should be held solidarily liable for using NMIC as alter ego.47 The RTC sustained the separate corporate personality.”66 This Court has likewise ruled that the “existence of interlocking
allegation of HRCC and pierced the corporate veil of NMIC pursuant to the alter ego theory when it directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate
concluded that NMIC “is a mere adjunct, business conduit or alter ego of both DBP and PNB.”48 The fiction in the absence of fraud or other public policy considerations.” 67
Court of Appeals upheld such conclusion of the trial court. 49 In other words, both the trial and appellate True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal to
courts relied on the alter ego theory when they disregarded the separate corporate personality of NMIC. this Court, provided they are borne out of the record or are based on substantial evidence. 68 It is equally
In this connection, case law lays down a three-pronged test to determine the application of the alter true that the question of whether one corporation is merely an alter ego of another is purely one of fact. So
ego theory, which is also known as the instrumentality theory, namely: is the question of whether a corporation is a paper company, a sham or subterfuge or whether the requisite
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances quantum of evidence has been adduced warranting the piercing of the veil of corporate
but of policy and business practice in respect to the transaction attacked so that the corporate entity as to personality.69 Nevertheless, it has been held in Sarona v. National Labor Relations Commission70 that this
this transaction had at the time no separate mind, will or existence of its own; Court has the power to resolve a question of fact, such as whether a corporation is a mere alter ego of
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the another entity or whether the corporate fiction was invoked for fraudulent or malevolent ends, if the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of findings in the assailed decision are either not supported by the evidence on record or based on a
plaintiff’s legal right; and misapprehension of facts.
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC
complained of.50(Emphases omitted.) were dominated by DBP and PNB in such a way that NMIC could be considered to have no separate
The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary be mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary, the evidence
completely under the control and domination of the parent. 51 It examines the parent corporation’s establishes that HRCC knew and acted on the knowledge that it was dealing with NMIC, not with NMIC’s
relationship with the subsidiary.52 It inquires whether a subsidiary corporation is so organized and stockholders. The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the contract
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent for NMIC’s mine stripping and road construction program was addressed to and accepted by NMIC. 71 The
corporation such that its separate existence as a distinct corporate entity will be ignored.53 It seeks to various billing reports, progress reports, statements of accounts and communications of Hercon,
establish whether the subsidiary corporation has no autonomy and the parent corporation, though acting Inc./HRCC regarding NMIC’s mine stripping and road construction program in 1985 concerned NMIC
through the subsidiary in form and appearance, “is operating the business directly for itself.” 54 and NMIC’s officers, without any indication of or reference to the control exercised by DBP and/or PNB
The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in using over NMIC’s affairs, policies and practices.72
the subsidiary corporation be unjust, fraudulent or wrongful. 55It examines the relationship of the plaintiff HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the
to the corporation.56 It recognizes that piercing is appropriate only if the parent corporation uses the alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services
subsidiary in a way that harms the plaintiff creditor. 57 As such, it requires a showing of “an element of rendered by HRCC in connection with NMIC’s mine stripping and road construction program in 1985. On
injustice or fundamental unfairness.”58 the contrary, the overall picture painted by the evidence offered by HRCC is one where HRCC was
The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s control, dealing with NMIC as a distinct juridical person acting through its own corporate officers.73
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. 59 A causal Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
connection between the fraudulent conduct committed through the instrumentality of the subsidiary and interlocking has no basis. HRCC’s Exhibit “I-5,”74 the initial General Information Sheet submitted by
the injury suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove NMIC to the Securities and Exchange Commission, relied upon by the trial court and the Court of Appeals
that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant’s exercise of may have proven that DBP and PNB owned the stocks of NMIC to the extent of 57% and 43%,
control and improper use of the corporate form and, thereby, suffer damages. 60 respectively. However, nothing in it supports a finding that NMIC, DBP, and PNB had interlocking
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of directors as it only indicates that, of the five members of NMIC’s board of directors, four were nominees
three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental of either DBP or PNB and only one was a nominee of both DBP and PNB. 75 Only two members of the
unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be members of the
act of the corporation. The absence of any of these elements prevents piercing the corporate veil.61 board of governors of DBP and none was proved to be a member of the board of directors of PNB. 76 No
This Court finds that none of the tests has been satisfactorily met in this case. director of NMIC was shown to be also sitting simultaneously in the board of governors/directors of both
DBP and PNB.
 In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and The complaint as against Development Bank of the Philippines, the Philippine National Bank, and
NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v. Garcia,77 which it the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of
described as “a case under a similar factual milieu.”78 However, in Sibagat Timber Corporation, this Court merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc
took care to enumerate the circumstances which led to the piercing of the corporate veil of Sibagat Timber Mining and Industrial Corporation, now the Philnico Processing Corporation, is DIRECTED to ensure
Corporation for being the alter ego of Del Rosario & Sons Logging Enterprises, Inc. Those circumstances compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation,
were as follows: holding office in the same building, practical identity of the officers and directors of the with this Decision.
two corporations and assumption of management and control of Sibagat Timber Corporation by the SO ORDERED.
directors/officers of Del Rosario & Sons Logging Enterprises, Inc. Sereno (C.J., Chairperson), Bersamin, Villarama, Jr.and Reyes, JJ., concur.
Here, DBP and PNB maintain an address different from that of NMIC. 79 As already discussed, there Petitions granted, complaint dismissed.
was insufficient proof of interlocking directorates. There was not even an allegation of similarity of Notes.—The doctrine of piercing the veil of corporate fiction applies only when such corporate
corporate officers. Instead of evidence that DBP and PNB assumed and controlled the management of fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is
NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity endowed with its own legal made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
personality. Thus, what obtains in this case is a factual backdrop different from, not similar to, Sibagat conduit of a person, or where the corporation is so organized and controlled and its affairs are so
Timber Corporation. conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
In relation to the second element, to disregard the separate juridical personality of a corporation, the (Rivera vs. United Laboratories, Inc., 586 SCRA 269 [2009])
wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly The corporate personality may be disregarded, and the individuals composing the corporation will be
established; it cannot be presumed. Without a demonstration that any of the evils sought to be prevented treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a
by the doctrine is present, it does not apply.80 justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the
In this case, the Court of Appeals declared: stockholders. (Halley vs. Printwell, Inc., 649 SCRA 116 [2011])
We are not saying that PNB and DBP are guilty of fraud in forming [NMIC], nor are we implying
that [NMIC] was used to conceal fraud. x x x.81
Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC
which DBP and PNB used “to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights.” It is a
recognition that, even assuming that DBP and PNB exercised control over NMIC, there is no evidence
that the juridical personality of NMIC was used by DBP and PNB to commit a fraud or to do a wrong
against HRCC.
There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed
against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a
mere alter ego of DBP and PNB. As this Court ruled in Ramoso v. Court of Appeals:82
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.
Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may
work inequities among members of the corporation internally, involving no rights of the public or third
persons. In both instances, there must have been fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm
could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could hold
DBP and PNB solidarily liable with NMIC.
Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as
transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB are
held liable, the APT incurs no liability for the judgment indebtedness of NMIC. Even HRCC recognizes
that “as assignee of DBP and PNB’s loan receivables,” the APT simply “stepped into the shoes of DBP
and PNB with respect to the latter’s rights and obligations” in NMIC. 83 As such assignee, therefore, the
APT incurs no liability with respect to NMIC other than whatever liabilities may be imputable to its
assignors, DBP and PNB.
Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which HRCC
invokes, the APT cannot be held liable. The contingent liability for which the National Government,
through the APT, may be held liable under the said provision refers to contingent liabilities of DBP and
PNB. Since DBP and PNB may not be held solidarily liable with NMIC, no contingent liability may be
imputed to the APT as well. Only NMIC as a distinct and separate legal entity is liable to pay its corporate
obligation to HRCC in the amount of P8,370,934.74, with legal interest thereon from date of demand.
As trustee of the assets of NMIC, however, the APT should ensure compliance by NMIC of the
judgment against it. The APT itself acknowledges this.84
WHEREFORE, the petitions are hereby GRANTED.