GR 117416; (December, 2000) (Digest)
G.R. No. 117416; December 8, 2000
Avelina G. Ramoso, et al., and Commercial Credit Corp. of North Manila, et al., petitioners, vs. Court of Appeals, General Credit Corp., et al., and Securities and Exchange Commission, respondents.
FACTS
Petitioners are investors and franchise companies (e.g., Commercial Credit Corp. of North Manila) organized under proposals by respondent Commercial Credit Corporation (later renamed General Credit Corporation or GCC). GCC held minority shares, while petitioners held majority shares in these franchise companies. Management contracts gave GCC control over operations, and investors signed continuing guarantees for bad accounts from GCC’s discounting of the franchise companies’ receivables. In 1974, to circumvent Central Bank DOSRI regulations for obtaining a quasi-banking license, GCC divested its shareholdings to a newly formed entity, CCC Equity Corp., which then administered the franchises. Petitioners later alleged discovering fraudulent schemes by GCC, including assigning uncollectible accounts to the franchise companies. They filed a case with the SEC seeking, among others, piercing of the corporate veil among GCC, CCC Equity, and the franchise companies to hold them liable for losses.
The SEC Hearing Officer initially ordered the piercing of the corporate veil and declared the franchise companies and individual guarantors not liable for the bad accounts. However, the SEC En Banc reversed this, finding piercing improper. The Court of Appeals affirmed the SEC En Banc decision.
ISSUE
Whether the corporate veil among GCC, CCC Equity, and the franchise companies should be pierced.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals. Piercing the corporate veil is not justified. The doctrine is an exception applied only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Mere ownership by a single stockholder or control of a subsidiary by a parent corporation does not, by itself, justify disregarding separate juridical personalities. Petitioners failed to present clear and convincing evidence that GCC used its control to commit fraud or a wrong against them. The corporate setup, including the transfer of shares to CCC Equity, was primarily to comply with banking regulations, not for a fraudulent purpose.
Furthermore, the Court clarified that the SEC correctly ruled it lacked jurisdiction over the core issue of enforcing the suretyship agreements for the bad accounts. The controversy did not arise from intra-corporate relations but from a creditor-debtor relationship over discounted receivables, a matter properly within the jurisdiction of regular courts. Allegations of fraud, without sufficient proof, do not warrant the extraordinary remedy of piercing the corporate veil. The decisions of the SEC and the Court of Appeals, finding no merit in the petition, were upheld.