PNB v.

Ritratto
G.R. No. 142616 July 31, 2001 J. Kapunan
petitioners Philippine National Bank
respondents Ritratto Group Inc., Riatto International, Inc., and Dadasan General Merchandise
summary PNB-IFL extended a letter of credit to Ritratto secured by a real estate mortgage. The latter
defaulted so PNB-IFL through its attorney-in-fact PNB sent them notice of the foreclosure.
Ritratto filed for an injunction against PNB to stop the foreclosure. RTC ruled in favor of
Ritratto and CA dismissed PNBs petition for certiorari. The SC ruled in favor of PNB and
reversed the CA decision. They held that PNB was an agent, being a mere attorney-in-fact, of
PNB-IFL with limited authority and specific duties. It is therefore not privy to the contract
between PNB-IFL and Ritratto and therefore the latter has no cause of action against PNB.

facts of the case

PNB International Finance Ltd., a subsidiary company of PNB extended a letter of credit to Ritratto Group Inc., which
was secured by a real estate mortgage over 4 parcels of land. Ritratto later defaulted and pursuant to the terms of the real
estate mortgages, PNB-IFL through its attorney-in-fact PNB notified Ritratto of the foreclosure and public auction.
Ritratto then filed for a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order. PNB filed for a motion to dismiss on the grounds of failure to state a cause of action and the
absence of any privity between the petitioner and the respondents. The RTC ruled in favor of Ritratto and ordered the
issuance of the writ. The petition for certiorari before the CA was dismissed for lack of merit.

issue
WON PNB is a real party-in-interest in the contract, being merely an attorney-in-fact authorized to enforce an ancillary
contract? NO.

ratio
Ritratto argues that PNB is a party-in-interest even if PNB-IFL and PNB are separate entities and thus be the proper
subject for the writ of preliminary injunction they prayed for because it is tasked to commit the acts of foreclosure of
Ritrattos properties. They also argue that the entire credit facility is void because it violates the principle of mutuality of
contracts (determination of interest rates were left to the sole discretion of PNB and that the rate of interest may be
unilaterally modified by PNB etc) and that the RTC was correct in piercing the corporate veil because PNB is a mere alter
ego of PNB-IFL.
The Court disagreed with their arguments. The contract was between Ritratto and PNB-IFL, not PNB. Ritratto even
admits that PNB is a mere attorney-in-fact for PNB-IFL with full power and authority to foreclose the properties. PNB is
therefore an agent with limited authority and specific duties under a special power of attorney incorporated in the real
estate mortgage. The conclusion is that PNB is not privy to the loan contracts entered into by Ritratto and PNB-IFL.
The validity of the loan contracts is a matter between PNB-IFL and Ritratto. The latters prayer that petitioner PNB,
despite being merely an agent, be ordered to recompute the rescheduling of the interest they had to pay cannot be
granted. Since it was not a part of the contract it has no power to recomputed the interest rates, therefore Ritratto has no
cause of action against PNB.
The SC disagrees with the RTC ruling that because PNB-IFL is a subsidiary of PNB, a suit against the latter is a suit
against the former, citing Koppel Phil Inc vs Yatco. In said case, it was held that corporate entity may be discarded where
a corporation is a mere alter ego 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. The SC restated
that the GR is that a corporation has a personality distinct and separate from its individual stockholders or members and
is not affected by the personal rights, obligations and transactions of the latter. Just because a corporation owns all the
stocks of another corporation, by itself, is not sufficient to treat them as one entity. Koppel could not be applied in this
case because Ritratto failed to show any good reason to disregard the separate entities of PNB and PNB-IFL.
With regard to the piercing of the corporate veil, the Court held that its application is justified 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 legit issues. In Concept Builders Inc v NLRC the court laid down the test in determining its applicability: 1.
Complete control or domination of not only finances but also of policy and business practice, 2. Such control must have
been used to commit fraud or wrong and 3. The control and breach of duty must proximately cause the injury or unjust
loss complained of. All three must be present in order for the doctrine to be applicable.