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HEIRS OF FE TAN UY v. INTERNATIONAL EXCHANGE BANK

FACTS:

Respondent International Exchange Bank (iBank) granted several loans to Hammer Garments Corporation (Hammer) on various dates from June to September 1997. These loans were covered by promissory notes and deeds of assignment and amounted to a total of P24,938,898.08. The loans were made pursuant to a Letter-Agreement between iBank and Hammer, granting the latter a P25 Million-Peso Omnibus Line. The loans were secured by a Real Estate Mortgage executed by Goldkey Development Corporation (Goldkey), covering its properties, and a Surety Agreement signed by Hammer's President and General Manager, Manuel Chua (Chua), and his wife, Fe Tan Uy (Uy). Hammer defaulted on the payment of its loans, leading iBank to foreclose on Goldkey's Real Estate Mortgage. The mortgaged properties were sold for P12 million, leaving an unpaid balance of P13,420,177.62. iBank filed a complaint for sum of money against Hammer, Chua, Uy, and Goldkey. Hammer and Chua were declared in default, while Uy and Goldkey denied liability. iBank applied for a writ of preliminary attachment, which was granted. The RTC ruled in favor of iBank, finding Uy liable for Hammer's outstanding obligation due to her position as an officer and stockholder. The RTC also pierced the corporate veil and held Goldkey liable for Hammer's obligation. The CA affirmed the RTC's decision. The heirs of Uy and Goldkey filed separate petitions for review on certiorari.

ISSUES:

  1. Whether Uy can be held personally liable for the obligations of Hammer and Goldkey.

  2. Whether the piercing of the corporate veil is justified in this case.

  3. Whether the doctrine of piercing the corporate veil applies in this case.

  4. Whether Goldkey can be held responsible for the obligations of its stockholder, Chua.

  5. Whether iBank is estopped from expanding Goldkey's liability beyond the real estate mortgage.

  6. Whether Goldkey Development Corporation can be held liable for Hammer Garments Corporation's debt to iBank.

  7. Whether Fe Tan Uy can be held liable for Hammer Garments Corporation's debt to iBank.

RULING:

  1. Uy cannot be held personally liable for the obligations of Hammer and Goldkey. The Court finds that Uy did not commit any actionable wrong or participate in the transaction between Hammer and iBank. Therefore, there is no basis to hold her personally liable for the loan.

  2. The piercing of the corporate veil is not justified in this case. The Court states that the piercing of the corporate veil can only be done if it is used to perpetrate fraud or an illegal act or to evade an existing obligation. In this case, there is no clear and convincing evidence to support the claim that Uy's negligence amounted to bad faith. Therefore, there is no sufficient justification to pierce the corporate veil.

  3. The doctrine of piercing the corporate veil applies in this case. Goldkey is considered an alter ego of Hammer, and therefore, should be treated as one and the same entity. Goldkey can be held accountable for the debts of Hammer.

  4. Goldkey can be held responsible for the obligations of its stockholder, Chua. Goldkey acted as a third-party mortgagor to secure the obligation of Hammer to iBank. It cannot deny the validity of the real estate mortgage at this stage.

  5. iBank is not estopped from expanding Goldkey's liability beyond the real estate mortgage. iBank is seeking redress from Goldkey by lifting the corporate veil and holding it accountable for the obligations of Hammer.

  6. Yes, Goldkey Development Corporation can be held liable for Hammer Garments Corporation's debt to iBank. The court found that Goldkey and Hammer had commingled assets, with Goldkey's real properties being mortgaged to secure Hammer's obligation with creditor banks. It was also established that the proceeds of loans obtained by Hammer from iBank were used to finance a manager's check payable to Goldkey, without any evidence to substantiate Goldkey's claim as a creditor of Hammer. Thus, considering the findings that Goldkey was merely an adjunct of Hammer and that they are effectively one and the same, Goldkey, along with Hammer, is jointly and severally liable to pay iBank the unpaid loan obligation.

  7. Fe Tan Uy cannot be held liable for Hammer Garments Corporation's debt to iBank. The court released Fe Tan Uy from any liability arising from the debts incurred by Hammer from iBank.

PRINCIPLES:

  • A corporation is a separate legal entity from its officers and shareholders, and they are generally not personally liable for the obligations of the corporation.

  • The piercing of the corporate veil is only justified when it is used to perpetrate fraud or an illegal act, or to evade an existing obligation.

  • Before a director or officer of a corporation can be held personally liable for corporate obligations, the complainant must allege and prove that the director or officer assented to patently unlawful acts, committed gross negligence or acted in bad faith.

  • The doctrine of piercing the corporate veil should be applied with caution and only when it is clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a deception.

  • The conditions for disregarding the juridical entity and piercing the corporate veil include stock ownership by one or common ownership of both corporations, identity of directors and officers, the manner of keeping corporate books and records, and methods of conducting the business.

  • Doctrine of Piercing the Corporate Veil - The court set aside the separate legal personality of Goldkey and treated it as an adjunct of Hammer due to the commingling of assets and the finding that they were effectively one and the same.

  • Joint and Several Liability - Goldkey and Hammer were held jointly and severally liable to pay iBank's unpaid loan obligation, indicating that each of them can be held fully responsible for the entire debt.