GR 154975; (January, 2007) (Digest)
G.R. No. 154975; January 29, 2007
General Credit Corporation (now Penta Capital Finance Corporation), Petitioner, vs. Alsons Development and Investment Corporation and CCC Equity Corporation, Respondents.
FACTS
Petitioner General Credit Corporation (GCC) established various franchise companies. Respondent CCC Equity Corporation (EQUITY) was later organized by GCC to take over the management of these franchises. In December 1980, respondent Alsons Development and Investment Corporation (ALSONS) and the Alcantara family sold their shareholdings in these franchise companies to EQUITY for P2,000,000.00. EQUITY issued a bearer promissory note for the amount. ALSONS later acquired full rights to the note.
EQUITY defaulted on its obligation. ALSONS filed a sum of money case against both EQUITY and GCC before the RTC, seeking to pierce the corporate veil and hold GCC liable as EQUITY’s alter ego. EQUITY, in its answer, alleged it was a mere conduit organized by GCC to circumvent Central Bank DOSRI rules and was entirely dependent on GCC for funding. The RTC ruled in favor of ALSONS, holding GCC solidarily liable with EQUITY. The Court of Appeals affirmed the decision.
ISSUE
Whether the corporate veil of EQUITY should be pierced to hold GCC solidarily liable for EQUITY’s obligation to ALSONS.
RULING
Yes, the Supreme Court affirmed the lower courts’ rulings, applying the doctrine of piercing the corporate veil. The legal logic is that while a corporation is a separate legal entity, this fiction may be disregarded when it is used as a cloak for fraud, illegality, or to evade a just obligation. The Court found that EQUITY was not only a subsidiary but a mere instrumentality of GCC. The evidence showed GCC organized EQUITY to manage its franchises and, crucially, to circumvent Central Bank regulations on DOSRI limitations. Furthermore, EQUITY was undercapitalized and entirely dependent on GCC for its financial needs, operating not with independence but as a mere arm or alter ego of its parent company. GCC’s control over EQUITY was so pervasive that it stripped EQUITY of its separate corporate existence. Therefore, to prevent injustice and to hold the controlling entity accountable for using the corporate form to evade liability, the veil was justly pierced, making GCC solidarily liable for EQUITY’s debt to ALSONS.