General Credit Co. v. Alsons Development and Investment Co

CASE DIGEST: CORPORATION LAW

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Docket Number: Date: Ponente:

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION), petitioner, vs. ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION, respondents. G.R. No. 154975 January 29, 2007 Garcia, J.

Facts: Petitioner General Credit Corporation (GCC), formerly known as Commercial Credit Corporation (CCC), established CCC franchise companies in urban areas around the country. To further its business, it secured a license before the Central Bank (CB) and the Securities and Exchange Commission (SEC) to also engage in quasi-banking activities. On the other hand, respondent CCC Equity Corporation (Equity) was established by GCC to take over the operations of their franchises. Meanwhile, respondent Alsons Development (Alsons) and the Alcantara family owned a total of 101,953 shares of GCC franchises. The Alcantara family assigned its rights and interests of its shares to Alsons, making the latter the sole owner of the total shares. Eventually, Alsons decided to sell these shares to Equity, which the latter promised to pay. Because of Equity’s failure to pay, Alsons then filed a complaint for sums of money against Equity and GCC. Equity claims that GCC should be liable for the payment of shares since it has always been dependent on GCC on its business operations. However, GCC claims that it has no liability on the payment of stocks, being a separate entity from Equity.

Cecille Carmela T. de los Reyes Corporation Law under Atty. Marian Ivy Reyes-Fajardo

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CASE DIGEST: CORPORATION LAW

Issue: The issue in this case is whether or not the doctrine of piercing the veil of corporate fiction be applied to Equity Corporation? Or in other words, whether Equity and GCC should both be regarded merely as an aggregate of persons doing business enterprise? Court Ruling: The Court held that the corporate veil of Equity Corporation be pierced. The Court cites three basic areas where piercing the veil of corporate fiction is allowed. First, when it is used to defeat public convenience to evade existing operations or “equity piercing”; second, in fraud cases where it is used to justify a wrong or “fraud piercing” and third, in alter ego cases where the corporation is organized as to make it merely an instrumentality agency. In this case, the Court has the right to pierce GCC’s corporate veil because evidence point to the following facts: first, Equity is but an instrumentality of GCC and has always been dependent on the latter for its operations, second, the commonality of directors, stockholders and sharing of office between the two companies shows that they should clearly be regarded merely as an aggregate of persons in a business enterprise; third, the establishment of Equity is primarily for GCC to circumvent Central Bank rules specifically the Anti-Usury Law, using it as a conduit to its non-quasi bank affiliates; and lastly, the funds invested by Equity to GCC franchises are from GCC funds as well. Applying the three basic areas of corporate veil piercing, GCC clearly defeated public convenience when it established Equity to extend credit to its investors which in turn is not allowed by the law; it justified a wrong by fraudulently evading the Anti-Usury Law established by the Central Bank to quasi-banking businesses, and lastly, Equity was but a mere instrumentality of GCC for it to get away with its obligations.

Cecille Carmela T. de los Reyes Corporation Law under Atty. Marian Ivy Reyes-Fajardo

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