G.R. Nos. 116124-25 – 399 Phil. 38 – 345 SCRA 335 – Mercantile Law – Piercing the Veil of Corporate Fiction
Bibiano Reynoso IV was the branch manager of Commercial Credit Corporation – Quezon City (CCC-QC), a branch of Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain questionable commercial practices being facilitated by CCC which caused its branches, like CCC-QC, to rack up debts. Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for estafa and qualified theft against Reynoso. The criminal cases were dismissed and Reynoso was exonerated and at the same time CCC-QC was ordered to pay Reynoso’s counterclaims which amounted to millions. A writ of execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now claims that it has already closed and that its assets were taken over by the mother company, CCC.
Meanwhile, CCC changed its name to General Credit Corporation (GCC).
Reynoso then filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a separate and distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate fiction.
ISSUE: Whether or not GCC is correct.
HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCC’s change of name to GCC was made in order to avoid liability. CCC-QC willingly closed down and transferred its assets to CCC and thereafter changed its name to GCC in order to avoid its responsibilities from its creditors. GCC and CCC are one and the same; they are engaged in the same line of business and single transaction process, i.e. finance and investment. When the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.
