Avelina G. Ramosoet. Al vs. Court of Appeals, General Credit Corp. (Formerly
Commercial Credit Corp.), et. Al
G.R. No. 117416. December 8, 2000
Facts:
1. CCC made proposals to several investors for the organization of franchise companies in different localities.
2. Petitioners invested and bought majority shares of stocks, while CCC retained minority holdings.
3. Management contracts were executed between each Franchise Company and CCC.
4. In 1974, CCC attempted to obtain a quasi-banking license from Central Bank of the Philippines.
5. But there was a hindrance because Section 1326 of CBs Manual of Regulations for Banks and Other Financial Intermediaries.
6. In view of said hindrance, what CCC did was divest itself of its shareholdings in the franchise companies.
7. It incorporated CCC Equity to take over the administration of the franchise companies under new management contracts.
8. In the meantime, CCC continued providing a discounting line for receivables of the franchise companies through CCC Equity.
9. Thereafter, CCC changed its name to General Credit Corporation (GCC).
10. Upon investigation, petitioners allegedly discovered the dissipation of the assets of their respective franchise companies. Among the alleged fraudulent schemes by GCC involved transfer or assignment of its uncollectible notes and accounts; utilization of spurious commercial papers to generate paper revenues; and release of collateral in connivance with unauthorized loans.
11. Petitioners filed a suit.
12. The hearing officer ordered piercing the corporate veil of GCC, CCC Equity, and the franchise companies.
13. He later declared that GCC was not liable to individual petitioners for the losses, since as investors they assumed the risk of their respective investments.
Issue:
Whether or not the piercing of the veil of corporate fiction is justified
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Ruling:
No. Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded... The control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.
In any given case, except express agency, estoppel, or direct tort, three elements must be proved:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The second element required for the application of the instrumentality rule is not present in this case.
Allegations have not been reasonably supported by said evidence at hand with the Commission.
Mere control on the part of GCC through CCC Equity over the operations and business policies of the franchise companies does not necessarily warrant piercing the veil of corporate fiction without proof of fraud.
For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
There was neither fraud nor mismanagement in the control exercised by GCC and by CCC Equity, over the franchise companies. Whether the existence of the corporation should be pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter ego of the individual stockholders is insufficient. The presumption is that the stockholders or officers and the corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the court pierce the veil of the corporate entity.
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