G.R. No. 140923 - Mendoza vs. Banco Real Development Bank

On August 7, 1985, the Board of Directors of Technical Video, Inc. (TVI) passed a Resolution authorizing its President, Eduardo A. Yotoko (petitioner), or its General Manager-Secretary-Treasurer, Manuel M. Mendoza (petitioner), to apply for and secure a loan from Pasay City Banco Real Development Bank (now LBC Development Bank), the respondent.
TVI, acting through its board resolution, paved the way for the subsequent financial transaction with the bank.

On September 11, 1985, the respondent bank extended a loan amounting to P500,000.00 to TVI.
In his capacity as General Manager, petitioner Mendoza executed a promissory note and a chattel mortgage over 195 units of Beta video machines and related equipment (totalling collateral) belonging to TVI, thereby securing the loan.

On October 3, 1986, TVI, along with two other video firms (Fox Video and Galactica Video), organized a new corporation—FGT Video Network Inc. (FGT).
Petitioner Mendoza concurrently served as President of FGT while also holding a key management position at TVI, leading to operational transfer: the office of TVI was moved to FGT’s building for improved oversight of distribution and marketing.

TVI failed to pay its loan upon maturity, prompting respondent bank to file, on January 26, 1987, a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage with the Regional Trial Court (RTC) of Pasay City.
The Sheriff's Report/Return dated January 27, 1987 revealed that:

TVI was no longer operating at its registered address.
Petitioner Mendoza had shifted his employment to FGT Video Network, with a new office address at the Philcemcor Building in San Juan, Metro Manila.
When confronted about the missing video machines, petitioner Mendoza denied any knowledge of their whereabouts.
The foreclosure proceedings were postponed indefinitely pending further instructions from the bank.

Following the sheriff’s findings, the respondent bank wrote to TVI demanding the immediate surrender of the video machines.
On February 19, 1987, petitioner Mendoza requested additional time from the bank to settle the total obligations and proposed a repayment scheme with a start date no later than March 10, 1987.
Despite this request, no payment was rendered, and TVI neither responded nor produced the mortgaged assets.

In a related case involving FGT Video Network Inc. and other defendants, the RTC, Branch 167, Pasig City, issued a search warrant.
National Bureau of Investigation (NBI) agents confiscated 638 machines and pieces of equipment at FGT’s offices, which included the 195 Beta video machines that were the subject of the chattel mortgage with the respondent bank.
On May 29, 1987, a subsequent court order (moved by FGT and the petitioners) directed the NBI to release and return these confiscated machines.
However, this order was challenged by major film studios, resulting in a petition for certiorari that led to a temporary restraining order by this Court on June 18, 1987, maintaining the seizure of the machines pending resolution of that petition.

On July 13, 1990, the respondent bank filed a complaint for collection of P500,000.00 against TVI, FGT, and the petitioners before the RTC, Branch 110, Pasig City.
Petitioners, in their joint answer, specifically denied the allegations and asserted that the loan was a corporate indebtedness strictly of TVI, not their personal obligation.
On April 29, 1991, the trial court rendered a Decision holding:

TVI was determined to be the mere alter ego or business conduit of petitioners Mendoza and Yotoko.
Evidence indicated that Mendoza had neither knowledge of the location of the mortgaged property during the foreclosure process nor had he secured the respondent bank’s consent when transferring the mortgaged property to FGT.
Based on these factors, the court pierced the corporate veil and held petitioners personally liable for TVI’s obligation to the respondent bank.

The trial court ordered the petitioners to pay the loan amount of P500,000.00 plus agreed-upon interests, charges, and penalties.
They were also ordered to pay attorney’s fees equivalent to ten percent (10%) of the total unpaid obligation, in addition to the costs.

The petitioners appealed the trial court decision, but the Court of Appeals, on September 21, 1998, affirmed the trial court’s ruling in toto.
A subsequent motion for reconsideration by the petitioners was denied on December 3, 1999, which led to the present petition for review on certiorari.

The primary issue is whether petitioners Mendoza and Yotoko can be held personally liable for TVI’s indebtedness of P500,000.00 despite the general rule that corporate debts are separate from the personal liability of its officers and directors.
This issue revolves around whether the corporate entity was used merely as an alter ego or business conduit by the petitioners to perpetrate fraud or injustice against the respondent bank.

Whether the transfer of the Beta video machines from TVI to FGT Video Network Inc. without securing the consent of the respondent bank, as required under the chattel mortgage, constitutes an act of bad faith and fraud.
The impact of petitioners’ denial of knowledge regarding the whereabouts of the mortgaged assets is also a central point of inquiry.

Whether the doctrine of piercing the corporate veil is applicable in this case, given that the petitioners allegedly used the corporate entity as a cover to shield their fraudulent actions.
Determination of whether the actions of transferring assets and concealing the chattels warrant personal liability under the guise of an improper or fraudulent restructuring of corporate affairs.