GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION), vs.

ALSONS
DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION
G.R. No. 154975 January 29, 2007

Facts:

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
money8 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.

Issue: WON the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the case at bar.

Held:

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 Courts 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 petitioners 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.