G.R. No. 154975, 29 January 2007
Petitioner General Credit Corporation (GCC), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country. In furtherance of its business, GCC was able to secure license from Central Bank (CB) and SEC to engage also in quasi-banking activities.
On the other hand, respondent CCC Equity Corporation (EQUITY) was organized in by GCC for the purpose of, among other things, taking over the operations and management of the various franchise companies. At a time material hereto, respondent Alsons Development and Investment Corporation (ALSONS) and the Alcantara family, each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu.
ALSONS and the Alcantara family, for a consideration of P2M, sold their shareholdings (101,953 shares), in the CCC franchise companies to EQUITY. EQUITY issued ALSONS et al., a “bearer” promissory note for P2M with a one-year maturity date.
4 years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which became the holder thereof. But even before the execution of the assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY. EQUITY no longer then having assets or property to settle its obligation nor being extended financial support by GCC, pleaded inability to pay.
ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money against EQUITY and GCC. GCC is being impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC.
According to EQUITY (cross-claim against GCC): it acted merely as intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the investing public; and is solely dependent upon GCC for its funding requirements. Hence, GCC is solely and directly liable to ALSONS, the former having failed to provide …EQUITY the necessary funds to meet its obligations to ALSONS.
GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from EQUITY.
RTC, finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, rendered judgment for Alson. CA affirmed.
Whether or not the doctrine of “Piercing the Veil of Corporate Fiction” should be applied in the case at bar.
YES. The notion of separate personality, however, may be disregarded under the doctrine – “piercing the veil of corporate fiction” – as in fact the court will often look at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two (2) business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates the corporation from any other legal entity to which it may be related, is allowed. These are:
1) defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an existing obligation;
2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
The Court agrees with the disposition of the CA on the application of the piercing doctrine to the transaction subject of this case. Per the Court’s count, the trial court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioner’s corporate existence as to ALSONS’ claim in question.
Foremost of what the trial court referred to as “certain circumstances” are the commonality of directors, officers and stockholders and even sharing of office between petitioner GCC and respondent EQUITY; certain financing and management arrangements between the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not control wielded by the petitioner over the finances, business policies and practices of respondent EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules.
Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of “parent-subsidiary corporations” the foregoing principles and doctrines find suitable applicability in the case at bar; and, it having been satisfactorily and indubitably shown that the said relationships had been used to perform certain functions not characterized with legitimacy, this Court … feels amply justified to “pierce the veil of corporate entity” and disregard the separate existence of the parent and subsidiary the latter having been so controlled by the parent that its separate identity is hardly discernible thus becoming a mere instrumentality or alter ego of the former.
*Case digest by Radolf Zell Adasa JD-IV, Andres Bonifacio Law School, SY 2019-2020