G.R. No.
142435 April 30, 2003
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners,
vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON
CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
FACTS :
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Bela's Export Trading
(BET), a single proprietorship engaged in the manufacture of garments for domestic and foreign
consumption, as well as Mystical Fashions in the United States, which sells goods imported from
the Philippines through BET.
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while
she was managing Mystical Fashions in the United States.
December 14, 1978, Estelita executed an SPA appointing Teresita as her attorney-in-fact to
obtain loans and other credit accommodations from respondent Pacific Banking Corporation
(Pacific Bank).
April 1979, Teresita was able to secure from Pacific Bank a loan of P583,854.00 for business
operations which was secured by a Real Estate Mortgage over their property located in QC where
BET's principal office was located.
The property was likewise made to secure other additional or new loans, discounting lines,
overdrafts and credit accommodations.
In September 5 1979, BET was incorporated into a family corporation named Belas Export
Corporation (BEC);
Eventually, the prior and subsequent loans were restructured in the name of BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation.
Trust receipt and export bills were also executed for additional finances. All transactions were
all secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments.
Consequently, the real estate mortgage was foreclosed and the mortgaged property was sold
at public auction.
TRIAL :
Petitioners filed before the RTC a complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank
and Eugenio D. Trinidad (highest bidder).
The complaint alleged among others, that the promissory notes, trust receipt, and export bills
were all ultra vires acts of Teresita as they were executed without the requisite board resolution
of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporations sole obligation, it having a personality distinct
and separate from spouses Lipat.
RTC pierced the veil of corporate fiction and held that Belas Export Corporation and
petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both BET and
BEC on the supposition that both are one and the same. Hence, the Lipats were estopped from
disclaiming any obligations on the theory of separate personality of corporations, which is
contrary to principles of reason and good faith. Thus dismissing the complaint.
CA dismissed the appeal.
ISSUE :
W/N DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
HELD :
Yes. The judgment of the RTC and the resolution of the appellate court show that in finding
petitioners mortgaged property liable for the obligations of BEC, both courts below relied upon
the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate
fiction. When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded. This is commonly referred to as the
instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations.
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of
the instrumentality may be disregarded. The control necessary to invoke the rule is not majority
or even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal.
It is noted that:
- Lipat spouses are the owners and majority shareholders of BET and BEC, respectively;
- Both firms were managed by their daughter, Teresita;
- Both firms were engaged in the garment business, supplying products to Mystical Fashion, a
U.S. firm established by Estelita Lipat;
- Both firms held office in the same building owned by the Lipats;
- BEC is a family corporation with the Lipats as its majority stockholders;
- The business operations of the BEC were so merged with those of Mrs. Lipat such that they
were practically indistinguishable;
- The corporate funds were held by Estelita Lipat and the corporation itself had no visible
assets;
- The board of directors of BEC was composed of the Burgos and Lipat family members;
- Estelita had full control over the activities of and decided business matters of the
corporation;
- Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business
abroad and from the export bills secured by BEC for the account of "Mystical Fashion.
BET and BEC are one and the same and the latter is a conduit of and merely succeeded the
former. Petitioners attempt to isolate themselves from and hide behind the corporate personality
of BEC so as to evade their liabilities to Pacific Bank is precisely what the doctrine of piercing the
veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and
successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured
under the name of BEC on the pretext that it was signed for the benefit and under the name of
BET.
