Sps. Lipat v. Pacific Banking Corporation (G.R. No. 142435)

Facts:

Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single proprietorship engaged in the manufacture of garments for domestic and foreign consumption. The spouses by virtue of an SPA appointed and authorized their daughter to obtain loan from respondent Pacific Bank. A loan was secured and as security therefore a REM was executed over the property of the spouses. Sometime after, BET was incorporated into a family corporation named Bela’s Export Corporation (BEC) and the loan was restructured in its name. Subsequent loans were obtained in behalf of BEC all secured by the previous REM. BEC defaulted in its payments which led to the foreclosure and sale of the mortgaged property. The spouses moved to annul the sale alleging that BEC is a distinct and separate personality from them and that the REM was executed only to secure BET’s loan. Both trial court and CA ruled to pierce the corporate veil to hold petitioner spouses liable for BEC’s obligations.

Issue:

Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.

Ruling: YES.

We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET and were two of the incorporators and majority stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. Incidentally, Teresita was designated as executive-vice president and general manager of both BET and BEC, respectively.

It could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and management. Apparently, 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 classical 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. We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.

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