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  Today is Thursday, March 02, 2017 Custom SearchRepublic of the Philippines SUPREME COURT ManilaSECOND DIVISION G.R. No. 142435 April 30, 2003ESTELITA BURGOS LIPAT and ALFREDO LIPAT,  petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITYand the Heirs of EUGENIO D. TRINIDAD,  respondents. QUISUMBING, J  .: This petition for review on certiorari seeks the reversal of the Decision 1  dated October 21, 1999 of the Court of  Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners' appeal from the Decision 2  dated February10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trialcourt had dismissed petitioners' complaint for annulment of real estate mortgage and the extra-judicial foreclosurethereof. Likewise brought for our review is the Resolution 3  dated February 23, 2000 of the Court of Appeals whichdenied petitioners' motion for reconsideration.The facts, as culled from records, are as follows:Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Bela's Export Trading (BET), a singleproprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in themanufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical Fashions inthe 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 theUnited States.In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a specialpower of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other creditaccommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita toexecute mortgage contracts on properties owned or co-owned by her as security for the obligations to beextended 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 bemanufactured by BET and exported to Mystical Fashions in the United States. As security therefor, the Lipatspouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure other additional or new loans,discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said srcinal, additional or new loans, discounting lines, overdrafts and other creditaccommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing tothe Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books andrecords of the Mortgagee. 4 On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) inorder to facilitate the management of the business. BEC was engaged in the business of manufacturing andexportation of all kinds of garments of whatever kind and description 5  and utilized the same machineries andequipment previously used by BET. Its incorporators and directors included the Lipat spouses who owned acombined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other closerelatives and friends of the Lipats. 6  Estelita Lipat was named president of BEC, while Teresita became the vice-president and general manager.  Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC withthe corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit wasalso opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BECexecuted the corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These 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, BECdefaulted in its payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of thebank's liquidator and asked for additional time to enable her to personally settle BEC's obligations. The bankacceded 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 themortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued torespondent 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 realestate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bankand Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, amongothers, that the promissory notes, trust receipt, and export bills were all ultra vires  acts of Teresita as they wereexecuted without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred thatassuming said acts were valid and binding on BEC, the same were the corporation's sole obligation, it having apersonality distinct and separate from spouses Lipat. It was likewise pointed out that Teresita's authority to securea loan from Pacific Bank was specifically limited to Mrs. Lipat's sole use and benefit and that the real estatemortgage was executed to secure the Lipats' and BET's P583,854.00 loan only.In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evadepayments of the value of the promissory notes, trust receipt, and export bills with their property because they andthe BEC are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that hewas a buyer in good faith and for value and that petitioners are estopped from denying BEC's existence after holding themselves out as a corporation. After trial on the merits, the RTC dismissed the complaint, thus:WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in thiscase must be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) daysreckoned from the finality of this decision within which to exercise their right of redemption. The writ of injunction issued is automatically dissolved if no redemption is effected within that period.The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.No costs.IT IS SO ORDERED. 7 The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporationof the Lipats. As such, it was a mere extension of petitioners' personality and business and a mere alter ego  or business conduit of the Lipats established for their own benefit. Hence, to allow petitioners to invoke the theory of separate corporate personality would sanction its use as a shield to further an end subversive of justice. 8  Thus,the trial court pierced the veil of corporate fiction and held that Bela's Export Corporation and petitioners (Lipats)are one and the same. Pacific Bank had transacted business with both BET and BEC on the supposition that bothare 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.The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal,however, was dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ampleevidence on record to support the application of the doctrine of piercing the veil of corporate fiction. In affirmingthe findings of the RTC, the appellate court noted that Mrs. Lipat had full control over the activities of thecorporation and used the same to further her business interests. 9  In fact, she had benefited from the loansobtained by the corporation to finance her business. It also found unnecessary a board resolution authorizingTeresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporation's by-laws allowed suchconduct even without a board resolution. Finally, the Court of Appeals ruled that the mortgage property was notonly liable for the srcinal loan of P583,854.00 but likewise for the value of the promissory notes, trust receipt, andexport bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts, andcredit accommodations which petitioners subsequently obtained from Pacific Bank.  The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000. 10 Hence, this petition, with petitioners submitting that the court a quo  erred —1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIESIN THIS CASE.2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATEMORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OFPROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELA'S EXPORT CORPORATION.3) . . . IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE EXTRA-JUDICIALFORECLOSURE IS BEYOND THIS COURT'S JURISDICTION FOR IT IS BEING RAISED FOR THE FIRSTTIME IN THIS APPEAL. 4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORYNOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACTTHAT THEY WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TOHIM.5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAIDMOTION FOR RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPERWHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS. 11 In sum, the following are the relevant issues for our resolution:1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurredby BEC; and3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estatemortgage.On the first issue , petitioners contend that both the appellate and trial courts erred in holding them liable for theobligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absentany clear showing of fraud on their part.Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given thefindings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners.Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and theresolution 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 theveil of corporate fiction. When the corporation is the mere alter ego  or business conduit of a person, the separatepersonality 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. As held in one case,Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, amere instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may bedisregarded. The control necessary to invoke the rule is not majority or even complete stock control butsuch domination of finances, policies and practices that the controlled corporation has, so to speak, noseparate mind, will or existence of its own, and is but a conduit for its principal. x x x . 13 We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BECare separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were theowners of BET 14  and were two of the incorporators and majority stockholders of BEC. 15  It is also undisputed thatEstelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and creditlines from Pacific Bank on her behalf. 16  Incidentally, Teresita was designated as executive-vice president andgeneral manager of both BET and BEC, respectively. 17  We note further that: (1) Estelita and Alfredo Lipat are theowners 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 theLipats; 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) thecorporate 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 theactivities of and decided business matters of the corporation; 22  and that (10) Estelita Lipat had benefited from theloans secured from Pacific Bank to finance her business abroad 23  and from the export bills secured by BEC for the account of Mystical Fashion. 24  It could not have been coincidental that BET and BEC are so intertwined witheach other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one andthe same and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolatethemselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank isprecisely 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 themortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under thename of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied theinstrumentality doctrine in piercing the corporate veil of BEC.On the second issue , petitioners contend that their mortgaged property should not be made liable for thesubsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it wassecured by Teresita Lipat without any authorization or board resolution of BEC.We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is not limitedto answer for the loan of P583,854.00. Thus:Finally, the extent to which the Lipats' property can be held liable under the real estate mortgage is notlimited to P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and exportbills as well. For the mortgage was executed not only for the purpose of securing the Bela's ExportTrading's srcinal loan of P583,854.00, but also for other additional or new loans, discounting lines,overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor maysubsequently obtain from the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said srcinal, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in theaccounts, books and records of the mortgagee. 25  As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed onappeal by the Supreme Court, provided they are borne out by the record or based on substantial evidence. 26  Asnoted earlier, BEC merely succeeded BET as petitioners' alter ego ; hence, petitioners' mortgaged property mustbe held liable for the subsequent loans and credit lines of BEC.Further, petitioners' contention that the srcinal loan had already been paid, hence, the mortgaged propertyshould not be made liable to the loans of BEC, is unsupported by any substantial evidence other than EstelitaLipat's self-serving testimony. Two disputable presumptions under the rules on evidence weigh againstpetitioners, namely: (a) that a person takes ordinary care of his concerns; 27  and (b) that things have happenedaccording to the ordinary course of nature and the ordinary habits of life. 28  Here, if the srcinal loan had indeedbeen paid, then logically, petitioners would have asked from Pacific Bank for the required documents evidencingreceipt and payment of the loans and, as owners of the mortgaged property, would have immediately asked for the cancellation of the mortgage in the ordinary course of things. However, the records are bereft of any evidencecontradicting or overcoming said disputable presumptions.Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained byBEC as they were secured without any proper authorization or board resolution. They also blame the bank for itslaxity and complacency in not requiring a board resolution as a requisite for approving the loans.Such contentions deserve scant consideration.Firstly, it could not have been possible for BEC to release a board resolution since per admissions by bothpetitioner Estelita Lipat and Alice Burgos, petitioners' rebuttal witness, no business or stockholder's meetings wereconducted nor were there election of officers held since its incorporation. In fact, not a single board resolution waspassed by the corporate board 29  and it was Estelita Lipat and/or Teresita Lipat who decided business matters. 30 Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered intoby Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act onbehalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether the
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