GCC VS ALSONS

FACTS
1957, General C
redit Corp (GCC) , formerly Commercial Credit Corp, established CCC Franchise
Companies in different urban centers in the country, and was able to secure from
Central Bank a license to engage in quasi-banking activities.

In 1994, CCC Equity Corp (EQUITY) was organized for the purpose of , amon other
things, taking over the operations and management of the various franchise
companies.Alsons Development and Investment Corp (ALSONS) and Conrado, Nicasio,
Editha and Ladiswala, all surnamed Alcantara, and Alfredo Borja (Alcantara Family) ,
each owned , just like GCC, shares in the GCC Franchise Companies (CCC Davao,
CCC Cebu)

In 1980, ALSONS and Acantara Family sold their shares to EQUITY for P2 Million.

In 1981, EQUITY issued ALSONS et al a bearer promissory note for P2M with 1 year
maturity date at 18% interest p.a. with provisions for damages and litigation costs in
case of default.

1985, Alcantara Family assigned its rights and interests over the bearer not to
ALSONS. Letters of demand were sent to EQUITY through its President WILFREDO
LABAYEN, who pleaded inability to pay stipulated interest, EQUITY no longer having
assets.

In 1986, ALSONS filed a complaint for sum of money against EQUITY and impleaded
GCC before RTC of Makati, alleging that EQUITY is a mere conduit of GCC.
EQUITY filed a cross-claim against GCC, it contends that it was purposely organized
by GCC to avoid CB Rules on DOSRI limitations and it only acted as intermediary for
loan transactions between GCC and its franchises and the investing public; that it is
solely dependent on GCC for its funding requirements.

GCC filed an answer to the cross-claim, stressing that it is distinct and separate entity
from EQUITY

Trial Court: ruled in favor of ALSONS and ordered EQUITY and GCC to pay the note
with interests and damages.

CA : Affirmed the decision of TC

ISSUE:
WON the veil of corporate fiction be pierced to hold the officers of EQUITY and GCC
liable.

HELD:

The Court agrees with the disposition of the appellate court 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; 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.

Whether the separate personality of the corporation should be pierced hinges on

obtaining facts, appropriately pleaded or proved. However, any piercing of the
corporate veil has to be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when necessary in the interest of
justice. After all, the concept of corporate entity was not meant to promote unfair
objectives. 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.

DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION:

A corporation is an artificial being vested by law with a personality distinct and
separate from those of the persons composing it as well as from that of any other
entity to which it may be related. The first consequence of the doctrine of legal entity of
the separate personality of the corporation is that a corporation may not be made to
answer for acts and liabilities of its stockholders or those of legal entities to which it
may be connected or vice versa. The notion of separate personality, however, may be
disregarded under the doctrinepiercing the veil of corporate fictionas 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.