In an action for collection of a sum of money, the Regional Trial Court (RTC) of Makati City issued a decision finding D-Securities, Inc. liable to Rehouse Corporation for P10,000,000.00. Subsequently, the writ of execution was issued but returned unsatisfied because D-Securities had no more assets to satisfy the judgment. Rehouse moved for an Alias Writ of Execution against Fairfield Bank (FB), the parent company of D-Securities. FB opposed the motion on the grounds that it is a separate entity and that it was never made a party to the case. The RTC granted the motion and issued the Alias Writ of Execution. In its Resolution, the RTC relied on the following facts: 499,995 out of the 500,000 outstanding shares of stocks of D-Securities are owned by FB; FB had actual knowledge of the subject matter of litigation as the lawyers who represented D-Securities are also the lawyers of FB. As an alter ego, there is no need for a finding of fraud or illegality before the doctrine of piercing the veil of corporate fiction can be applied. The RTC ratiocinated that being one and the same entity in the eyes of the law, the service of summons upon D-Securities has bestowed jurisdiction over both the parent and wholly-owned subsidiary. Is the RTC correct? (4%)
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No, the RTC is not correct. Under Philippine corporate law, a parent corporation has a legal personality separate from its subsidiary. Almost complete stock ownership and shared counsel do not justify piercing the
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Quick check
Does complete stock ownership of a subsidiary by a parent corporation automatically justify piercing the corporate veil?
Complete stock ownership alone does not justify piercing the corporate veil without proof of fraud or breach of duty.
What three elements must concur to pierce the corporate veil under the alter ego doctrine?
The alter ego doctrine requires control, fraud or breach of duty, and proximate injury to the plaintiff.
Does service of summons upon a subsidiary corporation bestow court jurisdiction over its unimpleaded parent company?
Service of summons on a subsidiary does not confer court jurisdiction over an unimpleaded parent company.
Is an alias writ of execution issued against an unimpleaded parent corporation valid under Philippine law?
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Which primary statute governs corporate personality, board liability, and corporate veil principles in the Philippines?
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1. Corporate Fiction Doctrine
Under Philippine corporate law, a corporation possesses a juridical personality separate and distinct from that of its stockholders, officers, and parent entities. The mere fact that a parent corporation owns virtually all or 99.9% of the outstanding capital stock of a subsidiary does not of itself justify merging their corporate personalities or holding the parent liable for the subsidiary's obligations. Ownership of stock alone, even if total, does not create an identity of legal personality between the parent bank and its corporate subsidiary.
2. Alter Ego Requisites
Under the alter ego doctrine, piercing the veil of corporate fiction requires proof of three essential elements: control by the parent entity, fraud or breach of duty committed through such control, and proximate injury or loss sustained by the creditor. Complete stock ownership and shared legal counsel demonstrate control, but control alone without fraud or unlawful conduct is insufficient to pierce the corporate veil. Fraud or illegality must be clearly established to hold the parent company liable for the contract debt of its subsidiary.
3. Jurisdiction Over Parent
Under Philippine procedural law and due process, a court cannot issue an alias writ of execution against a parent corporation that was never impleaded as a party defendant nor served with summons in the main case. Service of summons upon a subsidiary does not confer jurisdiction over its parent entity, even if both corporations share identical lawyers. An alias writ of execution issued against an unimpleaded parent corporation violates fundamental due process rights and is legally void for lack of jurisdiction.