Mendoza v. Banco Real Development Bank
REITERATIONFacts
The Antecedents: On August 7, 1985, the Board of Directors of Technical Video, Inc. (TVI) authorized its President, Eduardo A. Yotoko, or its General Manager-Secretary-Treasurer, Manuel M. Mendoza (petitioners), to apply for a loan. On September 11, 1985, TVI obtained a ₱500,000.00 loan from Banco Real Development Bank (respondent). Petitioner Mendoza executed a promissory note and a chattel mortgage over 195 Beta video machines and equipment belonging to TVI. On October 3, 1986, TVI, along with two other firms, organized FGT Video Network Inc. (FGT), with petitioner Mendoza as concurrent President of FGT and Operating General Manager of TVI. TVI's office was transferred to FGT's building. Procedural History: Due to TVI's failure to pay the loan, respondent bank filed a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage on January 26, 1987. The Sheriff's Report indicated that TVI was no longer doing business at its address, and petitioner Mendoza denied knowledge of the whereabouts of the mortgaged video machines. The foreclosure was postponed. Respondent bank demanded the surrender of the machines, but TVI ignored the demand. Subsequently, the National Bureau of Investigation (NBI) confiscated 638 machines and equipment, including the 195 mortgaged Beta machines, from FGT's offices in a separate case. Upon motion of FGT and petitioners, the RTC ordered the release of the machines to them. However, this Court issued a temporary restraining order, and the machines remained in NBI custody. On July 13, 1990, respondent bank filed a complaint for collection of a sum of money against TVI, FGT, and petitioners. Petitioners denied personal liability, claiming the loan was a corporate debt of TVI. The RTC ruled that TVI was a mere alter ego of petitioners, who transferred the mortgaged property to FGT without consent and disclaimed knowledge of the property's whereabouts, thus piercing the corporate veil and holding petitioners personally liable. The Court of Appeals affirmed the RTC decision. The Petition: Petitioners seek review of the Court of Appeals' decision affirming the trial court's ruling that they are personally liable for TVI's indebtedness.
Issue(s)
Whether petitioners Manuel M. Mendoza and Edgardo A. Yotoko are personally liable for the ₱500,000.00 loan obtained by Technical Video, Inc. (TVI) from respondent Banco Real Development Bank, and whether the corporate veil of TVI should be pierced to hold petitioners personally liable.
Ruling
The petition is DENIED. The Court of Appeals, in affirming the Decision of the trial court, correctly ruled that petitioners, not TVI, are the ones personally liable to respondent bank for the payment of the loan.
Ratio Decidendi
On the issue of personal liability and piercing the corporate veil: The Court affirmed the findings of both the trial court and the Court of Appeals that petitioners transferred the mortgaged Beta video machines from TVI to FGT without the consent of the respondent bank. Furthermore, petitioner Mendoza, when inquired about by the sheriff, disclaimed knowledge of the whereabouts of the mortgaged video machines. The seizure of the video machines from FGT, which bore the same serial numbers as those in the chattel mortgage contract, corroborated the transfer. The courts below also found that TVI was merely an alter ego or business conduit of petitioners, who controlled its affairs. The general rule is that corporations are separate legal entities, and their obligations are their own. However, this "veil" can be lifted when the corporation is used as a cloak or cover for fraud or illegality, or to avoid a legal obligation. In this case, the petitioners acted in bad faith to defraud the respondent bank by hiding the chattels and preventing the foreclosure of the mortgage. Therefore, the doctrine of corporate entity was pierced, and petitioners were held personally liable for TVI's obligation to the respondent bank, as the corporate form cannot be used to defeat public convenience, justify wrong, protect fraud, or avoid a legal obligation. The Court reiterated that the petitioners succeeded in hiding the chattels, thereby preventing the sheriff from foreclosing the mortgage, which clearly demonstrated their bad faith and intent to defraud the respondent bank.
Main Doctrine
The corporate veil may be pierced when the corporation is used as a cloak or cover for fraud or illegality, or to avoid a legal obligation, making the directors or officers personally liable for corporate debts.