G.R. No. 142616, 31 July 2001

FACTS:

PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured by the real estate mortgages on four parcels of land. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to S$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.

In April 1998. Since there was default, PNB-IFL thru PNB, foreclosed the property and were subject to public auction. Ritratto Group filed a complaint for injunction. PNB filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between respondents and petitioner.

ISSUE:

Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being that PNB-IFL is owned by PNB?

RULING:

No. The contract questioned is one entered into between Ritratto and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. PNB was admittedly an agent of the latter who acted as an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage.

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence 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 discretion, step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

*Case digest by Earl M. Acoymo, Refresher, Andres Bonifacio Law School, SY 2019-2020