Lipat v.

Pacific Banking Corporation

(G.R. No. 142435)

Jun4by Jai Cdn

Facts:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas
Export Trading (BET), a single proprietorship engaged in the manufacture of
garments for domestic and foreign consumption, which was managed by their
daughterTeresitaB.Lipat.ThespousesalsoownedtheMysticalFashionsinthe
United States, which sells goods imported from the Philippines through BET,
managedbyMrs.Lipat.InordertofacilitatetheconvenientoperationofBET,a
specialpowerofattorneywasexecutedappointingTeresitaLipattoobtainloansand
othercreditaccommodationsfromrespondentPacificBankingCorporation(Pacific
Bank)andtoexecutemortgagecontractsonpropertiesownedorcoownedbyheras
securityfortheobligations.Byvirtueofthespecialpowerofattorney,aloanwas
secured for and in behalf of Mrs. Lipat and BET, a Real Estate Mortgage was
executedovertheirproperty.
BET was then incorporated into a family corporation named Belas Export
Corporation(BEC)engagedinthebusinessofmanufacturingandexportationofall
kindsofgarmentsandutilizedthesamemachineriesandequipmentpreviouslyused
by BET. Eventually, the loan was later restructured in the name of BEC and
subsequent loans were obtained with the corresponding promissory notes duly
executedbyTeresitaonbehalfofthecorporation.BECdefaultedinpaymentswhenit
becamedueanddemandable.Consequently,therealestatemortgagewasforeclosed
and was sold at public auction to respondent Eugenio D.Trinidad as the highest
bidder.
ThespousesLipatfiledacomplaintalleging,amongothers,thatthepromissorynotes,
trust receipt, and export bills were allultra viresacts of Teresita as they were
executedwithouttherequisiteboardresolutionoftheBoardofDirectorsofBEC.
TheyalsoaverredthatassumingsaidactswerevalidandbindingonBEC,thesame

werethecorporationssoleobligation,ithavingapersonalitydistinctandseparate
fromthespouses.
Thetrialcourtruledthattherewasconvincingandconclusiveevidenceprovingthat
BECwasafamilycorporationoftheLipats.Assuch,itwasamereextensionof
petitionerspersonalityandbusinessandamerealteregoorbusinessconduitofthe
Lipatsestablishedfortheirownbenefit.TheLipatstimelyappealedwhichhowever,
wasdismissedbytheappellatecourtforlackofmerit.Hence,thispetition.
Issue:
Whetherornotthedoctrineofpiercingtheveilofcorporatefictionisapplicablein
thiscase.
Ruling:
PetitionerscontentionsfailtopersuadethisCourt.
AcarefulreadingofthejudgmentoftheRTCandtheresolutionoftheappellatecourt
showthatinfindingpetitionersmortgagedpropertyliablefortheobligationsofBEC,
bothcourtsbelowrelieduponthealteregodoctrineorinstrumentalityrule,rather
than fraud in piercing the veil of corporate fiction. When the corporation is the
merealter egoor business conduit of a person, the separate personality of the
corporationmaybedisregarded.Thisiscommonlyreferredtoastheinstrumentality
rule or thealter egodoctrine, which the courts have applied in disregarding the
separatejuridicalpersonalityofcorporations.
Wefindthattheevidenceonrecorddemolishes,ratherthanbuttresses,petitioners
contentionthatBETandBECareseparatebusinessentities.NotethatEstelitaLipat
admittedthatsheandherhusband,Alfredo,weretheownersofBETandweretwoof
theincorporatorsandmajoritystockholdersofBEC.ItisalsoundisputedthatEstelita
Lipatexecutedaspecialpowerofattorneyinfavorofherdaughter,Teresita,toobtain
loans andcreditlines fromPacificBankonherbehalf.Incidentally,Teresitawas
designatedasexecutivevicepresidentandgeneralmanagerofbothBETandBEC,
respectively.Wenotefurtherthat:(1)EstelitaandAlfredoLipataretheownersand
majorityshareholdersofBETandBEC,respectively;(2)bothfirmsweremanagedby
their daughter, Teresita; (3) both firms were engaged in the garment business,

supplyingproductstoMysticalFashion,aU.S.firmestablishedbyEstelitaLipat;
(4)bothfirmsheldofficeinthesamebuildingownedbytheLipats;(5)BECisa
family corporation with the Lipats as its majority stockholders; (6) the business
operationsoftheBECweresomergedwiththoseofMrs.Lipatsuchthattheywere
practicallyindistinguishable;(7)thecorporatefundswereheldbyEstelitaLipatand
thecorporationitselfhadnovisibleassets;(8)theboardofdirectorsofBECwas
composedoftheBurgosandLipatfamilymembers;(9)Estelitahadfullcontrolover
theactivitiesofanddecidedbusinessmattersofthecorporation;andthat(10)Estelita
LipathadbenefitedfromtheloanssecuredfromPacificBanktofinanceherbusiness
abroad and from the export bills secured by BEC for the account of Mystical
Fashion.ItcouldnothavebeencoincidentalthatBETandBECaresointertwined
with each other in terms of ownership, business purpose, and management.
Apparently,BETandBECareoneandthesameandthelatterisaconduitofand
merelysucceededtheformer.Petitionersattempttoisolatethemselvesfromandhide
behindthecorporatepersonalityofBECsoastoevadetheirliabilitiestoPacificBank
ispreciselywhattheclassicaldoctrineofpiercingtheveilofcorporateentityseeksto
preventandremedy.Inourview,BECisamerecontinuationandsuccessorofBET
andpetitionerscannotevadetheirobligationsinthemortgagecontractsecuredunder
thenameofBEConthepretextthatitwassignedforthebenefitandunderthename
ofBET.WearethusconstrainedtorulethattheCourtofAppealsdidnoterrwhenit
appliedtheinstrumentalitydoctrineinpiercingthecorporateveilofBEC.
Wherefore,thepetitionisdenied.