Scenario B

Alpha is the judgment creditor if Wapera Corporation. Wapera Corporation is the

judgment debtor of Alpha, 99% owned by Wal Apera, with no money or assets to pay off its
obligations. M-ore Corporation is 99% owned by Wapera Corporation and 1% owned by Wal
Apera.

The plaintiff team cited the three-pronged test to determine the application of the alter-ego
theory; the instrumentality or control test, the fraud test and the harm test.

1. Control Test - This test requires that the subsidiary be completely under the
control and domination of the parent. It examines the parent corporation’s relationship with the
subsidiary. It inquires whether a subsidiary corporation is so organized and controlled and its
affairs are so conducted as to make it a mere instrumentality or agent of the parent corporation
such that its separate existence as a distinct corporate entity will be ignored. It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation,
though acting through the subsidiary in form and appearance, "is operating the business
directly for itself.
2. Fraud Test - This test requires that the parent corporation’s conduct in using the
subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a
showing of "an element of injustice or fundamental unfairness

3. Harm Test - This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages.

Plaintiff Team argues that Wapera Corporation has control over M-ore Corporation since 99% of
the latter corporation is owned by the former which shows the complete control and domination of the
former over the latter corporation. Consequently, Plaintiff Team asserts that Wapera Corporation's
inability to pay is tainted by malice or fraud by means of attaching its assets under M-ore Corporation;
and lastly, by reason of public policy and in the interest of justice, the veil must be pierced.

In answer, Defense Team presented the sufficiency of evidence or burden of proof; The party
alleging that the corporate veil must be pierced has the burden to prove it by clear and convincing
evidence - that the evidence is highly and substantially be true than untrue. The quantum of evidence is
that fraud must be clearly and convincingly shown.

Additionaly, Defense Team has cited the Doctrine of Separate Juridical Personality where
stockholders are not the owners of corporate property which is owned by the corporation as a distinct
person; thus, in MR Holdings vs Bajar (GR. no. 138104 - April 11, 2002), the Supreme Court ruled that
"the mere fact 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 existence shall be respected, and the liability of the parent corporation, as well as the
subsidiary, will be confined to those arising in their respective business."

Lastly, Defense Team asserts the jurisdiction of the court over M-ore Corporation is in question
as to apply the Doctrine of Piercing the Corporate Veil; that a corporation not impleaded in a suit cannot
be subject to the court’s process of piercing the veil of its corporate fiction thus violating the said
corporation's right to due process.

DECISION

The Doctrine of Piercing the Corporate Piercing cannot apply.

Issue on Jurisdiction

Defense team questions the jurisdiction of the court; such contention is bereft of merit.
Fundamental is the rule that jurisdiction over a defendant in a civil case is acquired either through
service of summons or through voluntary appearance in court and submission to its authority. In the
absence or when the service of summons upon the person of the defendant is defective, the court
acquires no jurisdiction over his person, and a judgment rendered against him is null and void.

Unlikely that the court would call upon the attention of a person not impleaded in a suit where
interest of the plaintiff is alleged; that such would prompt the person or corporation to respond. If so
desired, the corporation should have filed a seasonal motion contesting whether or not the court has
acquired jurisdiction over the corporation. Carrying on, the application of the doctrine of piercing the
corporate veil has already been raised which implies that jurisdiction has already been acquired. Before
the doctrine of piercing the veil of corporate fiction comes into play, the court must first acquire
jurisdiction over the corporation. Since the Plaintiff Team has already raised the doctrine of corporate
piercing, it is conclusive that the court has already acquired jurisdiction over the corporation.

Three-Pronged Test/elements must be satisfied

In light with the Plaintiff Team's presentation of the three-pronged test, in order to pierce the
corporate veil which us based on the alter-ego theory necessitates the concurrence of the three
elements or the three test; that there exist the control of the parent corporation, that the control over
the subsidiary corporation was used for fraud or wrongful acts and that through the fraud or wrongful
act committed through the subsidiary corporation, harm or damage was caused to the plaintiff. Absence
of one of any of the elements bars the application of piercing the corporate veil.
 The Plaintiff Team fails to substaintiate any of the test to merit corporate piercing. First, in the
application of the alter ego doctrine, with respect to the control test or control element, the "control"
refers not to the formal control over the stocks but the actual control whic would amount to domination
of finances, policies and practices that the controlled corporation has making the existence of the
subsidiary corporation only as an extention of the principal. Moreover, the control must be shown to
have been exercised at the time the acts complained of took place.

Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient ground for disregarding the separate corporate
personality. Consequently, there was no allegation of similarity of corporate officers, directors or
shareholders as to warrant control of Wapera Corporation over the M-ore Corporation, thus, to conclude
that M-ore Corporation is a subsidiary corporation of Wapera Corporation defeats the Doctrine of
Separate Corporate Personality/Entity.

Secondly, in order to disregard separate corporate personality, the wrongdoing or unjust act in
contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot be
presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is
present, it does not apply. Assuming that Wapera has exercised control over M-ore corp, the plaintiff
team failed to show that the M-ore Corporation was used by the Wapera Corporation in committing
fraud or to do wrong against Alpha.

We agree with the Defense Team. The party alleging that the corporate veil must be pierced has
the burden to prove it by clear and convincing evidence - that the evidence is highly and substantially be
true than untrue.

Third, in the absence of control by Wapera Corporation over M-ore Corporation and that
through such control unfairness or fraud was comitted is not present, no harm could have been caused
by Wapera Corporation on Alpha to warrant the liabilities asserted therein.

Assets are not conclusive to warrant a parent-subsidiary corporation

Likewise, the court cannot inquire or question the wisdom of a business action or decision; The
business judgment rule is a presumption that in making a business decision, the directors of a
corporation acted on an informed basis, in good faith and in the honest belief that the action taken was
in the best interests of the company. Similarly, Management prerogative is an inherent privilege in the
employer's right to control and manage its enterprise effectively, its freedom to conduct its operations to
achieve its purpose cannot be denied.

To question the wisdom behind why there are exist greater assets of M-ore Corporation as
against Wapera Corporation would impede such rights of the stockholders or directors and even the
corporations themselves to devise means to improve its operations and to survive as a corporation;
unless it would be clearly shown that there is an intent to defraud, which in this case the plaintiff failed
to do so as such assets are not conclusive to give grounds for the alter-ego theory.
 With the foregoing, we acknowledged that the doctrine of piercing the corporate viel cannot be
applied in the said case.