Lipat Vs Pacific Banking Corp

Lipat v. Pacific Banking Corp.
, 402 SCRA 339 (2003)
NATURE OF THE CASE: This petition for review on certiorari seeks the reversal of the Decision of the
Court of Appeals which dismissed herein petitioners' appeal. The trial court had dismissed petitioners'
complaint for annulment of real estate mortgage and the extra-judicial foreclosure
Facts:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a
single proprietorship was engaged in the manufacture of garments for domestic and foreign consumption.
The Lipats also owned the "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.
In order to facilitate the convenient operation of BET, Estelita Lipat executed a special power of attorney
appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from
respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute
mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by
Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in
behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy
fabrics to be manufactured by BET and exported to "Mystical Fashions" in the United States. As security
therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their
property.
On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation
(BEC) in order to facilitate the management of the business
Subsequent loans were obtained by BEC with the corresponding promissory notes duly executed by Teresita
on behalf of the corporation. The promissory notes, export bills, and trust receipt eventually became due and
demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific Bank's demand letters,
Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable her to
personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law
the mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City 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. The complaint alleged 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.
After trial on the merits, the RTC dismissed the complaint
The Lipats timely appealed to the Court of Appeals but was dismissed by the appellate court for lack of
merit.
Issue: WON THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN

THIS CASE.
Held: Yes.
When the corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded.12 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.
IN ONE CASE:
“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. x x x .”
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.
 We note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of
BET and BEC, respectively;18 (2) both firms were managed by their daughter, Teresita; 19 (3) both
firms were engaged in the garment business, supplying products to "Mystical Fashion," a U.S.
firm established by Estelita Lipat; (4) both firms held office in the same building owned by the
Lipats;20 (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the
business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the
Burgos and Lipat family members;21 (9) Estelita had full control over the activities of and decided
business matters of the corporation; 22 and that (10) Estelita Lipat had benefited from the loans
secured from Pacific Bank to finance her business abroad 23 and from the export bills secured by
BEC for the account of "Mystical Fashion."
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.

Lipat Vs Pacific Banking Corp

Uploaded by

Copyright:

Available Formats

Lipat Vs Pacific Banking Corp

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Lipat Vs Pacific Banking Corp

Uploaded by

Copyright:

Available Formats

Lipat v. Pacific Banking Corp.

, 402 SCRA 339 (2003)

After trial on the merits, the RTC dismissed the complaint

Issue: WON THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN

You might also like