Reynoso v. Court of Appeals

G.R. No. 116124-25, 22 November 2000

FACTS:

The Commercial Credit Corporation (hereinafter, “CCC”), a financing and investment firm, decided to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City (hereinafter, “CCC-QC”).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called “DOSRI Rule”, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with related interests therein.CCC decided to form CCC Equity Corporation, (hereinafter, “CCC-Equity”), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two seats in the latter’s Board of Directors.

Several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.

Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.

A complaint for sum of money with preliminary attachment was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioner’s wife, as a party defendant. The complaint alleged that petitioner embezzled the funds of CCC-QC.

The trial court rendered its decision wherein it finds the complaint without merit. Accordingly, said complaint was dismissed which both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

Petitioner insisted that General Credit Corporation is just the new name of Commercial Credit Corporation hence, General Credit Corporation and Commercial Credit Corporation should be treated as one and the same entity but Regional Trial Court of Quezon City denied the Omnibus Motion.

General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City, praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and from further levying on other properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q-30583.

ISSUE:

Whether or not the judgment in favor of petitioner may be executed against respondent General Credit Corporation.

RULING:

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence. It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to look carefully into the exercise of powers by these artificial persons it has created. However, the Court will not hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of justice.

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from CCC-Quezon.

*Case digest by Radolf Zell Adasa JD-IV, Andres Bonifacio Law School, SY 2019-2020

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