G.R. No. 142435 - Lipat vs. Pacific Banking Corp.

Case Summary (G.R. No. 142435)

Background and Loan Acquisition

In December 1978, Estelita Lipat executed a special power of attorney, appointing her daughter, Teresita Lipat, to secure loans from Pacific Bank. Utilizing this authority, Teresita acquired a loan amounting to P583,854.00 in April 1979 to facilitate operations within BET. The Lipats executed a Real Estate Mortgage over their property in Quezon City to secure this obligation. The transaction was structured to also cover future loans, financial accommodations, and associated interests and obligations.

Transition to Corporate Structure

On September 5, 1979, BET transitioned into BEC, a family corporation, with the same business functions. The Lipat spouses became majority shareholders, alongside their daughter, Teresita. While Teresita was managing daily operations, subsequent loans were restructured under BEC, using the same Real Estate Mortgage as collateral, including letters of credit and promissory notes.

Foreclosure and Legal Proceedings

Following BEC's default on payments and the subsequent foreclosure of the mortgaged property, the Lipats filed a complaint for annulment of the mortgage and the foreclosure proceedings. They claimed that the financing agreements executed by Teresita lacked necessary corporate authorization; consequently, they argued that the obligations incurred by BEC were not binding on them through the doctrine of separate corporate personality.

Trial Court Findings

The RTC easily dismissed the Lipats' claims, ruling that BEC functioned as an alter ego of its shareholders, specifically the Lipats. The trial court found overwhelming evidence indicating that BEC served merely as a conduit for the Lipats’ personal and business interests, thus justifying the "piercing of the corporate veil" doctrine. They concluded that the obligations incurred under BEC were effectively the obligations of the Lipat spouses too.

Appeal and Court of Appeals Decision

The petitioners subsequently appealed to the Court of Appeals, which upheld the RTC ruling, asserting the validity of the doctrine applied. The appellate court found no substantial evidence indicating that Teresita's actions were ultra vires, and conclusively held that both the mortgage covered the original loan as well as subsequent financial obligations incurred by BEC.

Issues for Resolution

Regarding the petition, the core issues revolved around whether the doctrine of piercing the veil of corporate fiction applies, the liability extent of the mortgaged property, and the application of attorney's fees as part of the foreclosure process. The court determined that the lack of separate identity between the Lipats and BEC justified the disregarding of corporate entity protections and led to shared liability for debts incurred by BEC.

Findings on Piercing the Corporate Veil

The court found that the evidence presented demonstrated significant overlap in control and operations between the Lipats and their corporation. The overlaps substantiated the ruling that BEC was simply acting as an extension of the Lipat spouses' business so that they could not disavow the debts incurred by BEC as separate.

Liability for Subsequent Financial Obligations

In terms of the mortgage liability, the court underscored that the terms of the Real Estate Mortgage expressly allowed f