Bibiano Reynoso IV vs Court of Appeals

Business Organization Corporation Law Piercing the Veil of Corporate Fiction

Reynoso was the branch manager of Commercial Credit Corporation Quezon City (CCCQC), 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 Reynosos 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 fiction1.
ISSUE: Whether or not GCC is correct.
HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCCs 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.

1 Piercing the veil of corporate fiction means that while the corporation cannot be generally held liable
for acts or liabilities of its stockholders or members, and vice versa because a corporation has a
personality separate and distinct from its members or stockholders, however, the corporate existence
is disregarded under this doctrine when the corporation is formed or used for illegitimate purposes,
particularly, as a shield
to perpetuate fraud, defeat public convenience, justify wrong, evade a just and valid obligation or
defend a crime.