Lex Rex Ph

DBP vs. Hydro Resources (HRCC) Digest

Facts

DBP and PNB foreclosed NMIC’s properties which made the former as the majority stockholder of the latter. NMIC then engaged the services of Hercon/HRCC. NMIC failed to pay Hercon/HRCC. After default and several demands, Hercon sued NMIC, DBP and PNB to be solidarily liable. Cory Aquino then privatized DBP/PNB, transferring their shares to the Asset Privatization Trust (APT). HRCC amended its complaint and included APT as defendant.

Issue

Are DBP/PNB/APT liable to HRCC? Is the corporate veil covering NMIC pierced and reached DBP/PNB/APT?

Ruling

No. To determine if the veil is pierced, the Supreme Court uses a three-pronged test:

  1. Instrumentality or Control Test – is the subsidiary corporation (NMIC) under the full control and domination of the parent entity (DBP/PNB)? Does the subsidiary have no autonomy? Does it have no separate mind, will, or existence?
  2. Fraud Test – did the controlling parent entity use the subsidiary corporation to employ fraud against the plaintiff-creditor? Was the subsidiary used to make an unlawful or unjust act?
  3. Harm Test – did the parent’s control over the subsidiary caused harm to the plaintiff-creditor?

Using the 3 tests above, the answers are all ”no.” PNB and DBP are mere owners of the majority of the stocks of NMIC, which is not sufficient to pierce the corporate veil.

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