HSBC vs Sps Galang, GR 199565, June 30, 2021*

DOCTRINE:
Though a subsidiary company's separate corporate personality may be disregarded when the evidence shows that such separate personality was being used by its parent or holding corporation to perpetrate a fraud or evade an existing obligation,85 none of these circumstances were alleged or proved by Spouses Galang. They simply claimed that HSBC-SRP and HSBC acted in bad faith when they foreclosed the mortgaged property though they (Spouses Galang) were up to date in their payments. More, the insistence of Spouses Galang that HSBC was privy to the Mortgage Agreement for its interests are so intertwined with those of HSBC- SRP that they have become identical ï¿½ constitutes a collateral attack on the corporate personality of HSBC-SRP which is prohibited by the Corporation Code of the Philippines.86 Such an inquiry into the legal personality of a corporation may only be made by the Solicitor General in a Quo Warranto proceeding.

FACTS
●     R espondent Ma. Theresa Ofelia G. Galang was a regular employee of petitioner Hongkong and Shanghai Banking Corporation, Ltd. (HSBC), a foreign banking institution duly licensed to do business in the Philippines. HSBC offered benefit plans for its employees, including housing loans, administered and managed by Hongkong and Shanghai
Banking Corporation, Ltd. Staff Retirement Plan (HSBC-SRP)
●     Ma. Theresa applied for a housing loan which HSBC-SRP approved.
●     The monthly amortizations were then paid through deductions from Ma. Theresa's payroll account. The loan was secured by a mortgage on their property in Mandaluyong in favor of HSBC-SRP
●     In January 1993, a labor dispute broke out between HSBC and Hongkong and Shanghai Baking Corporation Employees Union (HSBC-EU), the union of rank-and-file employees of which Ma. Theresa was a member.
●     HSBC was prompted to dismiss almost 90% of its rank and file employees including Ma. Theresa
●     Since she was dropped from the payroll, she was unable to pay the monthly loan amortizations.
●     HSBC-SRP sent Spouses Galang a formal demand for full payment of the loan. Spouses Galang, however, paid only their arrears and resumed remitting their monthly amortizations in December 1994 when they were able to raise enough money. They had since religiously paid their monthly amortizations until October 1996
●     Despite the foregoing, HSBC-SRP sent Sps Galang Installment Overdue Reminders reminding them of the outstanding balance. Then, HSBC- SRP extrajudicially foreclosed the mortgage which covered the outstanding balance. Petitioner Manuel Estacion, Vice President of HSBC and former trustee of HSBC-SRP emerged as the highest bidder.
●     Accordingly, Sps Galang sued HSBC and HSBC-SRP       for
Annulment of Sale with Damages and Preliminary Injunction.
●     In its answer, HSBC-SRP asserted that the complaint stated no cause of action.
➢ For based on the HSBC Retirement Plan Rules and Regulations, upon termination of Ma. Theresa's employment with HSBC, her loan balance automatically became due and demandable. Since she failed to settle this amount in full upon demand, foreclosure of her mortgage logically followed.
●     As for HSBC, it also sought to dismiss the case on the ground that it was not a privy to the real estate mortgage contract between Spouses Galang and HSBC-SRP, a different and separate entity from HSBC itself. In any event, its relationship with Ma. Theresa was purely one of employer-employee - no other.
●     Court of Appeals: the Court of Appeals seemingly applied a variation of the doctrine of piercing the veil of corporate fiction, thus: when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.

• HSBC created HSBC-SRP tasked with administering retirement, pension, and other plans for the benefit of its employees;
• When the loan agreement and the real estate mortgage were executed in 1990,

HSBC-SRP was still directly attached to HSBC as the former was only
incorporated in 1998;

ISSUE:
WON piercing the veil of corporate fiction is applicable in this case.
WON HSBC should be a party in the complaint of SPS Galang because HSBC is a privy to the mortgage contract between HSBC-SRP and SPS Galang.

RULING:
NO. The doctrine of piercing the veil of corporate fiction is not applicable in this case.
The Court ruled that HSBC-SRP and HSBC are separate entities
Though a subsidiary company's separate corporate personality may be disregarded when the evidence shows that such separate personality was being used by its parent or holding corporation to perpetrate a fraud or evade an existing obligation,85 none of these circumstances were alleged or proved by Spouses Galang.
They simply claimed that HSBC-SRP and HSBC acted in bad faith when they foreclosed the mortgaged property though they
(Spouses Galang) were up to date in their payments.
More, the insistence of Spouses Galang that HSBC was privy to the Mortgage Agreement for its interests are so intertwined with those of HSBC- SRP that they have become identical — constitutes a collateral attack on the corporate personality of HSBC-SRP which is prohibited by the Corporation Code of the
Philippines.
➢ Such an inquiry into the legal personality of a corporation may only be made by the Solicitor General in a Quo
Warranto proceeding.
HSBC correctly argues that it had no participation in the foreclosure proceedings. The parties even stipulated during the pre-trial that HSBC was not a signatory to any contract between Spouses Galang and HSBC-SRP. Its role was limited to determining who among its employees were eligible to apply for housing loans, processing and approval of which were left to the discretion of HSBC-SRP.
Considering, too, that Spouses Galang are not entitled to damages, there is simply no reason to pierce the corporate veil as they would have nothing to collect or regain from HSBC. Otherwise stated, Spouses Galang do not have a cause of action against HSBC.