G.R. No. 122710 - Philippine National Bank vs. Court of Appeals

Case Digest (G.R. No. 122710)
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Facts:

Background of the Case

Remington Industrial Sales Corporation (plaintiff) filed a complaint on August 1, 1984 before the Regional Trial Court, Branch 19, Manila.

The complaint sought the recovery of a sum of P921,755.95 for unpaid purchases of construction materials and other merchandise supplied to Marinduque Mining and Industrial Corporation (MMIC) from July 16, 1982, to October 4, 1983.
It also claimed damages comprising interest at 18% per annum, 25% of the claim as attorney’s fees, and court costs.

Subsequent Amendments to the Complaint

On September 7, 1984, the complaint was amended to include the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) as co-defendants due to their involvement in the foreclosure of MMIC’s encumbered properties.
A second amended complaint was filed on September 13, 1984 to add Nonoc Mining and Industrial Corporation, organized by PNB and DBP, as an assignee of MMIC’s assets, specifically at its Nonoc nickel facility in Surigao del Norte.
On March 26, 1986, with the court’s leave, a third amended complaint included Maricalum Mining Corporation and Island Cement Corporation.

These entities were alleged to have received the foreclosed assets of MMIC from PNB and DBP, thereby attempting to shield MMIC’s creditors from satisfaction of the unpaid obligations.
The plaintiff asserted that these various corporate entities were “one and the same” and urged the piercing of the corporate veil, contending that they were mere adjuncts, subsidiaries, or alter egos of PNB and DBP.

Foreclosure and Asset Transfer

On August 31, 1984, PNB exercised its legal right by foreclosing on MMIC’s chattel and real estate mortgages.

This foreclosure encompassed the real and personal properties of MMIC, including the merchandise supplied on credit by Remington.

The foreclosure raised issues as to whether the subsequent transfer of MMIC’s assets and the organization of newly created entities (Nonoc Mining, Maricalum Mining, and Island Cement) were designed to circumvent the debt owed to Remington.

The plaintiff alleged that these entities were created under suspicious circumstances, primarily for the purpose of evading creditor claims against MMIC.
Arguments were made that the personnel, management, and even physical locations of these corporations bore a striking resemblance to those of MMIC.

Contentions of the Parties

Plaintiff’s Arguments

Remington contended that all the defendant entities should be treated as a single corporate instrumentality to prevent fraud or injustice, specifically invoking the doctrine of piercing the corporate veil.
It was argued that the transformation of MMIC’s assets into the hands of the new entities was executed in fraud of creditors and that the foreclosure did not absolve the original obligation based on the sale on credit.

Defendants’ Arguments

PNB, DBP, Nonoc Mining, Maricalum Mining, and Island Cement denied that a cause of action existed against them.
They maintained that:

The complaint failed to demonstrate any legal or contractual obligation on their part toward Remington.
They are independent and distinct corporate entities with separate boards, management, and individual corporate charters.

Defendants further contended that the foreclosure sale executed by PNB was a lawful exercise of its rights under the mortgage and that the transfer of assets did not impose any liability on PNB or DBP for the unpaid purchase price.

Procedural History

The trial court rendered a decision in favor of Remington, holding the defendants jointly and severally liable for the unpaid sum.
The Court of Appeals affirmed the trial court decision.
Subsequently, the case was elevated to the Supreme Court via a petition for certiorari challenging the appellate decision.

Specific Pleadings and Evidences

The plaintiff’s pleadings emphasized that:

The goods and merchandise delivered to MMIC had been sold on credit, and ownership had been transferred upon delivery.
Including such goods in the foreclosure sale should not extinguish MMIC’s obligation, nor should it automatically transfer liability to the foreclosing bank (PNB).

Defendants’ pleadings detailed that:

The foreclosure was conducted lawfully, and the essence of a sale on credit is that the unpaid seller’s claim is extraneous to the foreclosure mechanism itself.
The separate corporate identities and subsequent transactions continued to respect the arms’ length relation between the creditor banks and the debtor corporation.

Issues:

Primary Issue

Whether the Philippine National Bank (PNB) is liable to pay for the unpaid purchase price of goods and merchandise supplied by Remington Industrial Sales Corporation to MMIC merely because these goods were included in the foreclosure sale of MMIC’s mortgaged properties.

Subsidiary Issues

Whether the inclusion of the goods in the foreclosure sale transfers an obligation from MMIC to PNB, thereby violating Remington’s rights as an unpaid seller.
Whether the restructuring and subsequent transfer of assets to new corporate entities (Nonoc Mining, Maricalum Mining, and Island Cement) could justify piercing the corporate veil in order to hold the banks liable.
Whether any alleged wrongful or fraudulent transfer of MMIC’s assets can constitute grounds for extending liability to PNB or DBP.

Ruling:

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Ratio:

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Doctrine:

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Case Digest (G.R. No. 122710)
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Case Digest (G.R. No. 122710)
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