GR 126200; (August, 2001) (Digest)
G.R. No. 126200 ; August 16, 2001
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
FACTS
Marinduque Mining-Industrial Corporation (MMIC) obtained substantial loans from the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP). To secure these loans, MMIC executed real estate and chattel mortgages covering its properties, including subsequently acquired assets. Due to MMIC’s failure to pay, PNB and DBP extrajudicially foreclosed on the mortgaged properties in 1984. The banks emerged as the highest bidders and subsequently transferred the foreclosed assets to newly formed corporations.
Meanwhile, Remington Industrial Sales Corporation supplied construction materials to MMIC between 1982 and 1983, which remained unpaid. Remington filed a collection suit against MMIC and later amended its complaint to implead PNB, DBP, and the transferee corporations. Remington argued that the corporate veil should be pierced, treating all defendants as a single entity liable for MMIC’s debts. The trial court dismissed the case against DBP, but the Court of Appeals reversed, holding DBP solidarily liable with MMIC for the unpaid purchases.
ISSUE
Whether the Court of Appeals erred in holding DBP solidarily liable with MMIC for the unpaid obligations arising from the sale of construction materials.
RULING
Yes. The Supreme Court reversed the Court of Appeals and reinstated the trial court’s dismissal of the complaint against DBP. The Court held that the appellate court erred in applying the doctrine of piercing the corporate veil. The legal fiction of separate corporate personality cannot be disregarded merely because a corporation becomes a mortgagee and later a purchaser at a foreclosure sale. DBP and PNB acted within their rights as secured creditors under the mortgage contracts. Their subsequent transfer of the assets to other corporations, which were managed separately, did not justify treating them as alter egos of MMIC. No evidence was presented showing that DBP used its corporate control to commit fraud, violate a legal duty, or act as a mere instrumentality of MMIC.
Furthermore, Remington, as an unsecured creditor, cannot claim a pro-rata share from the foreclosure proceeds. The Court cited Barretto v. Villanueva, which established that the concurrence and preference of credits under Article 2242 of the Civil Code require a proceeding for the orderly settlement of the debtor’s entire estate, not a simple foreclosure. An extrajudicial foreclosure is not the liquidation proceeding contemplated by law for enforcing the preferences among creditors. Therefore, Remington’s claim cannot be enforced against DBP, a foreclosing mortgagee, outside of such a comprehensive insolvency proceeding.