Reynoso IV v. CA & General Credit Corporation [345 SCRA 335 (Nov.

22, 2000)]
Separate

Juridical

Entity

Sufficiency of Proof to Pierce the Veil of Corporate Fiction

Facts: Commercial Credit Corporation (CCC), a financing & investment firm, decided to
organize franchise companies in different parts of the country, wherein it shall hold 30%
equity. Employees of CCC were designated as resident managers of the franchise
companies

Bibiano

Reynoso

IV

was

resident

manager

in

CCC-QC.

Due to the DOSRI Rule prohibiting lending of funds by a corporation to its directors,
officers, Share Holders & other persons with related interests therein, CCC decided to
form CCC Equity Corporation, a wholly-owned subsidiary to which CCC transferred its
30% equity in CCC-QC together with 2 seats on the BoD. In the new set-up, several
employees

of

CCC

became

employees

of

CCC-Equity.

A complaint for a sum of money was later field by CCC-QC against Reynoso, who in
the meantime was dismissed from CCC-Equity, & wife for embezzlement of funds which
were used to buy a house in Valle Verde. Reynoso claims the money he used represented
his money placements in CCC-QC shown by 23 checks he issued to CCC-QC.
RTC dismissed the case against Reynoso and found his counterclaim for damages to
be meritorious hence granted it.
For failing to pay the docket fees, CCC-QCs appeal to the IAC was dismissed hence
the RTC decision became final & executory. However, the judgment became remained
unsatisfied prompting Reynoso to file a Motion for Alias Writ of Execution. CCC-QC
opposed saying that its premises & records had been taken over by CCC.
CCC meanwhile became known as General Credit Corporation. So, when the
RTC ordered GCC to file its comment on the petition of Reynoso, it claimed that it was
not a party to the case & Reynoso should direct his claim against CCC-QC. Reynoso

replied saying that CCC-QC is in adjunct instrumentality, conduit & agency of CCC &
invoked the ruling in Ramoso v. GCC where the SC declared that GCC, CCC-Equity &
other franchised companies including CCC-QC were declared as 1 corp. Reynoso
claimed that GCC is just the new name of CCC hence both should be treated as 1
entity. Cases were filed in the RTC of Pasig & QC to levy on the properties of
GCC. CA on the other hand enjoins the auction sale of the properties.
Issue: (1) WON the piercing the veil of corporate fiction was proper.
Held: CA decision reversed and set aside. Injunction against levying on properties of
GCC & their auction sale lifted. The use by CCC-QC of the same name of Commercial
Credit Corporation was intended to publicly identify it as a component of the CCC group
of companies engaged in one & the same business: investment & financing. When the
mother corporation & its subsidiary corporations cease to act in good faith and honest
business judgment, when the corporate fiction is used to perpetuate fraud or promote
injustice, the law steps in to remedy the injustice. The corporate character is not
necessarily abrogated. It continues for legitimate objectives; however pierced, to remedy
injustices.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there us dominance over the affairs of
the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when
used to defeat public convenience, justify wrong, protect fraud, or defend crime.
Thus, the doctrine of piercing the veil of corporate fiction applies in this case.
(When a corporation is a sham, engages in Fraud or other wrongful acts, or is used solel
y for the
personal benefit of its directors, officers, or shareholders, courts may disregard the sepa
rate
corporate existence and impose personal liability on the directors, officers, or sharehol
ders. In otherwords, courts may pierce the "veil" that the law uses to divide the corpora

tion (and its liabilitiesandassets) from the people behind the corporation. The veil creates
a separate, legally recognized
corporate entity and shields the people behind the corporation from personal liability. )
Hence, the corporate fiction has to be disregarded when necessary in the interest of
justice.

Factually & legally, CCC had dominant control of the business operations of CCC-QC:
a.

the exclusive management contract insured that CCC-QC would be managed &

controlled by CCC & not deviate from the commands of the mother corp
b. CCC appointed its own employee as the resident manager of CCC-QC
c.

Salaries, pensions, benefits, etc were from CCC, which later became GCC

d.

Unity of interest, management, control, intensive auditing function of CCC over

CCC-QC,
e.

sharing

of

office

Lawyers of the CCC-QC case were all in-house counsels of CCC

space