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  Today is Thursday, March 02, 2017 Custom SearchRepublic of the Philippines SUPREME COURT ManilaFIRST DIVISION G.R. No. 142616 July 31, 2001PHILIPPINE NATIONAL BANK,  petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE, respondents. KAPUNAN, J  .: In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and setaside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, andits Order dated October 4, 1999, which denied petitioner's motion to dismiss.The antecedents of this case are as follows:Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law.Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise aredomestic corporations, likewise, organized and existing under Philippine law.On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doingbusiness in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility waslater increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; toUS$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents maderepayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosureof all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May27, 1999 at the Makati City Hall.On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminaryinjunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case wasraffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. Atthe hearing of the application for preliminary injunction, petitioner was given a period of seven days to file itswritten opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismisson the grounds of failure to state a cause of action and the absence of any privity between the petitioner andrespondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminaryinjunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismisswas denied by the trial court judge for lack of merit.Petitioner, thereafter, in a petition for certiorari   and prohibition assailed the issuance of the writ of preliminaryinjunction before the Court of Appeals. In the impugned decision, 1  the appellate court dismissed the petition.Petitioner thus seeks recourse to this Court and raises the following errors:1.THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT  A QUO ,CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS   AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.2.THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESSOR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WASPRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR  ., 101SCRA 827. 2 Petitioner prays, inter alia , that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Ordersdated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case. 3 In their Comment, respondents argue that even assuming arguendo  that petitioner and PNB-IFL are two separateentities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked tocommit acts of foreclosing respondents' properties. 4  Respondents maintain that the entire credit facility is void asit contains stipulations in violation of the principle of mutuality of contracts. 5  In addition, respondents justified theact of the court a quo  in applying the doctrine of Piercing the Veil of Corporate Identity by stating that petitioner is merely an alter ego  or a business conduit of PNB-IFL. 6 The petition is impressed with merit.Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:GROUNDSITHE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THEDEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.IITHERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREEDUPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THERATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OFINTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD. 7 Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure andeventual sale of the property in order to protect their rights to said property by reason of void credit facilities asbases for the real estate mortgage over the said property. 8 The contract questioned is one entered into between respondent 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. In other words, hereinpetitioner is an agent with limited authority and specific duties under a special power of attorney incorporated inthe real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the partyto the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, therespondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of theinterest to be paid by them in accordance with the terms and conditions in the documents evidencing the creditfacilities, and crediting the amount previously paid to PNB by herein respondents. 9 Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in thecontract. Respondents, therefore, do not have any cause of action against petitioner.The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly ownedsubsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL. 10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco , 11  reasoned that the corporateentity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or wherethe corporation is so organized and controlled and its affairs are so conducted, as to make it merely aninstrumentality, agency, conduit or adjunct of another corporation. 12 We disagree.  The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individualstockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. 13 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 existencemay be respected, and the liability of the parent corporation as well as the subsidiary will be confined to thosearising in their respective business. The courts may in the exercise of judicial discretion step in to prevent theabuses of separate entity privilege and pierce the veil of corporate entity.We find, however, that the ruling in Koppel   finds no application in the case at bar. In said case, this Courtdisregarded the separate existence of the parent and the subsidiary on the ground that the latter was formedmerely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show anycogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.While there exists no definite test of general application in determining when a subsidiary may be treated as amere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co . 14 is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit againstSouthern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Courtstated that as a general rule the stock ownership alone by one corporation of the stock of another does notthereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporateexistence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but aninstrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may beuseful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation: The Circumstance rendering the subsidiary an instrumentality  . It is manifestly impossible to catalogue theinfinite variations of fact that can arise but there are certain common circumstances which are importantand which, if present in the proper combination, are controlling.These are as follows:(a) The parent corporation owns all or most of the capital stock of the subsidiary.(b) The parent and subsidiary corporations have common directors or officers.(c) The parent corporation finances the subsidiary.(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes itsincorporation.(e) The subsidiary has grossly inadequate capital.(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.(g) The subsidiary has substantially no business except with the parent corporation or no assets exceptthose conveyed to or by the parent corporation.(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described asa department or division of the parent corporation, or its business or financial responsibility is referred to asthe parent corporation's own.(i) The parent corporation uses the property of the subsidiary as its own.(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary buttake their orders from the parent corporation.(k) The formal legal requirements of the subsidiary are not observed.The Tennessee Supreme Court thus ruled:In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capitalstock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint mustbe dismissed.Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrinedeveloped to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify  wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where acorporation is the mere alter ego  or business conduit of a person, or where the corporation is so organized andcontrolled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15 In Concept Builders, Inc. v. NLRC  , 16  we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to thistransaction had at the time no separate mind, will or existence of its own.2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate theviolation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffslegal rights; and,3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.The absence of any one of these elements prevents piercing the corporate veil. In applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how thecorporation operated and the individual defendant's relationship to the operation. 17  Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of theindicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there ademonstration 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 instrumentalitydoctrine finds no application in the case at bar.In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationshipinvolved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, thepetitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. Asuit against an agent cannot without compelling reasons be considered a suit against the principal. Under theRules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unlessotherwise authorized by law or these Rules. 18  In mandatory terms, the Rules require that parties-in-interestwithout whom no final determination can be had, an action shall be joined either as plaintiffs or defendants. 19  Inthe case at bar, the injunction suit is directed only against the agent, not the principal. Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy butadjunct to the main suit. 20  A writ of preliminary injunction is an ancillary or preventive remedy that may only beresorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendencyof the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuanceof the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule58, of the 1997 Rules of Civil Procedure provides:SECTION 3. Grounds for issuance of preliminary injunction . — A preliminary injunction may be grantedwhen it is established:(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists inrestraining the commission or continuance of the act or acts complained of, or in requiring the performanceof an act or acts, either for a limited period or perpetually,(b) That the commission, continuance or non-performance of the acts or acts complained of during thelitigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting thesubject of the action or proceeding, and tending to render the judgment ineffectual.Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injuriousconsequences which cannot be remedied under any standard compensation. 21  Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged propertiesare properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in thecontract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove thatthey have a right protected and that the acts against which the writ is to be directed are violative of said right. 22 The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious
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