Reynoso IV v. CA

BIBIANO O. REYNOSO, IV, petitioner,
vs.
HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.

345 SCRA 335
Nov. 22, 2000

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-QC’s 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:

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.

A court judgment becomes useless & ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the judgment creditor who after protracted litigation, has been found entitled to positive relief.  Courts have been organized to put an end to controversy.  This should not be negated by an inapplicable and wrong use of the fiction of the corporate veil.

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.

Factually and legally, CCC had dominant control of the business operations of CCC-QC:

1. The exclusive management contract insured that CCC-QC would be managed & controlled by CCC & not deviate from the commands of the mother corporation;
2. CCC appointed its own employee as the resident manager of CCC-QC;
3. Salaries, pensions, benefits, etc were from CCC, which later became GCC;
4. Unity of interest, management, control, intensive auditing function of CCC over CCC-QC, sharing of office space; and
5. Lawyers of the CCC-QC case were all in-house counsels of CCC