PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES CONTRACTORS CORPORATION G.R. No. 167530, March 13, 2013

PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530, March 13, 2013
 Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying shares. As of September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road Construction Program in 1985 for a total contract price of P35,770,120. After computing the payments already made by NMIC under the program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance of P8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a letter of final demand dated August 12, 1986, and when these were not heeded, a complaint for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon, Inc.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger.

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50 creating the APT for the expeditious disposition and privatization of certain government corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB executed their respective deeds of transfer in favor of the National Government assigning, transferring and conveying certain assets and liabilities, including their respective stakes in NMIC. In turn and on even date, the National Government transferred the said assets and liabilities to the APT as trustee under a Trust Agreement.

ISSUE:

Whether or not there is sufficient ground to pierce the veil of corporate fiction of NMIC and held DBP and PNB solidarily liable with NMIC?

RULING:

No.

From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligations to plaintiff.

Then concluded that, "in keeping with the concept of justice and fair play," the corporate veil of NMIC should be pierced.

For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing beneficial contracts, and then using such separate entity to evade the payment of a just debt, would be the height of injustice and iniquity. Surely that could not have been the intendment of the law with respect to corporations.

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.