G.R. No. 154975 - General Credit Corporation vs. Alsons Development and Investment Corporation

Case Summary (G.R. No. 154975)

Background and Incorporation of Parties

General Credit Corporation (initially Commercial Credit Corporation) was incorporated in 1957 as a finance and investment company with licenses to engage in quasi-banking activities obtained in 1974. CCC Equity Corporation was organized by GCC in November 1994 to take over the operations and management of various GCC franchise companies. Alsons Development and the Alcantara family were shareholders in several GCC franchise companies and sold their shares totaling approximately 101,953 shares to EQUITY for P2,000,000.00 in December 1980.

Promissory Note and Assignment

EQUITY issued a bearer promissory note to Alsons and the Alcantara family dated January 2, 1981, for P2,000,000.00 bearing 18% interest per annum, payable in one year with provisions for damages and litigation costs in case of default. The Alcantara family later assigned their rights in the bearer note to Alsons, who became the sole holder.

Demand for Payment and Filing of Complaint

Demand letters for interest payments were sent to EQUITY, which claimed inability to pay due to lack of assets and financial support from GCC. On January 14, 1986, Alsons filed a complaint for sum of money against EQUITY and GCC before the Regional Trial Court (RTC) of Makati, alleging either the obligation of EQUITY to pay or that GCC should be liable under the doctrine of piercing the corporate veil as EQUITY was its instrumentality.

Trial Court Proceedings and Issues

In its complaint, Alsons impleaded GCC as a party for any judgment against EQUITY under the theory that EQUITY was a mere conduit or instrumentality of GCC. EQUITY, in a cross-claim against GCC, contended it was created to circumvent Central Bank (CB) rules and was financially dependent on GCC, making GCC directly liable. GCC denied such claims, maintaining that it was a separate and distinct entity acting at arm’s length. GCC also filed a counterclaim for damages and attorney’s fees.

Evidence and Findings at Trial Level

Alsons presented substantial documentary evidence, including the bearer promissory note, share purchase deeds, corporate documents, and testimony of CB and GCC officers. The evidence established that EQUITY was organized with minimal capital, shared officers and stockholders with GCC, and operated under the dominance and control of GCC. Letters from GCC’s president indicated that EQUITY’s proceeds from franquise share sales were surrendered to GCC. EQUITY’s president testified and also adopted some of Alsons’ witnesses’ evidence.

Trial Court Decision

The RTC found EQUITY was an instrumentality or adjunct of GCC. It ordered both defendants, jointly and severally, to pay Alsons P2,000,000.00 principal plus 18% interest per annum from January 2, 1981, liquidated damages of 3% monthly from January 2, 1982, attorney’s fees equivalent to 24% of the total obligation, and costs of suit.

Appeal to the Court of Appeals (CA)

GCC appealed, arguing that EQUITY and GCC were distinct corporate persons, that the corporate veil should not be pierced, and that Alsons lacked standing because the promissory note was simulated or altered and inadmissible. GCC further contended that the deeds of sale conclusively established full payment and sought the grant of its counterclaim.

CA Ruling

The Court of Appeals affirmed the RTC decision, holding that there was sufficient basis to pierce the corporate veil between GCC and EQUITY due to their parent-subsidiary relationship and the fraudulent use of corporate form to evade CB regulations. It also found the promissory note authentic, payable to bearer, and owned by Alsons as holder in due course.

Motion for Reconsideration and Oral Argument Denied

GCC’s motions for reconsideration and for oral argument were denied by the CA. The denial was upheld on the basis that the CA may, at its discretion, decide cases on records and memoranda without oral argument. The motions’ denial did not constitute a denial of due process under established jurisprudence.

Supreme Court’s Analysis: Procedural Due Process

The Supreme Court held that the CA did not commit reversible error in denying oral argument as this is within its sound discretion under the Court of Appeals' Internal Rules. Moreover, GCC was sufficiently apprised of the grounds for denial of its motion for reconsideration. The Court emphasized that denial of oral argument is not a violation of due process absent clear prejudice.

Supreme Court’s Analysis: Issues Raised for the First Time on Appeal

The Court noted that several of GCC’s arguments, including the alleged simulation or alteration of the promissory note and the assertion of full payment based on the deeds of sale, were not raised before the trial court. The Court reiterated the well-established rule that issues not raised in the lower court cannot be introduced for the first time on appeal except in cases involving jurisdiction or public policy, which were not applicable here.

Supreme Court’s Analysis: Authenticity and Validity of the Promissory Note

The Court deferred to the factual findings of the trial court and the CA that the bearer promissory note was authentic and duly executed. It underscored the principle that factual findings of lower courts are accorded great respect and may not be disturbed unless arbitrary, unsupported by evidence, or involving grave abuse of discretion. EQUITY itself did not challenge the genuineness of the note.

Supreme Court’s Analysis: Doctrine of Piercing the Corporate Veil

The Court reaffirmed that a corporation is a separate legal personality distinct from its stockholders and affiliated entities. However, this separate personality may be disregarded under the doctrine of piercing the corporate veil in circumstances involving:

Avoidance or evasion of existing obligations through corporate form,
Fraud or wrongful acts concealed behind corporate personality, and
Alter ego or instrumentality cases where one corporation controls and dominates another to the extent that the latter has no separate identity.

Supreme Court’s Findings on Piercing the Veil

Based upon the substantial and largely undisputed evidence, the Court agreed with the

Case Syllabus (G.R. No. 154975)

Background and Procedural History

The petitioner, General Credit Corporation (GCC), now known as Penta Capital Finance Corporation, filed a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to annul and set aside the Decision and Resolution of the Court of Appeals (CA) dated April 11, 2002, and August 20, 2002, respectively.
The appellate court affirmed the November 8, 1990 decision of the Regional Trial Court (RTC) of Makati City in Civil Case No. 12707.
The original case arose from an action for a sum of money instituted by respondent Alsons Development and Investment Corporation (ALSONS) against petitioner GCC and respondent CCC Equity Corporation (EQUITY) involving a bearer promissory note.
GCC appealed the trial court's decision to the CA and, following denial of motions for reconsideration and oral argument by the CA, sought relief from the Supreme Court.

Factual Background

GCC was originally incorporated in 1957 as Commercial Credit Corporation (CCC) and later renamed.
GCC established CCC franchise companies nationwide and held licenses from the Central Bank of the Philippines and the SEC to engage in quasibanking activities.
EQUITY was organized in 1994 by GCC to take over the management of these franchises.
ALSONS and the Alcantara family held shares in GCC franchise companies (e.g., CCC Davao and CCC Cebu).
In December 1980, ALSONS and the Alcantara family sold their shares totaling approximately 101,953 shares to EQUITY for P2,000,000.00.
On January 2, 1981, EQUITY issued a bearer promissory note to ALSONS et al. for P2,000,000.00, bearing 18% annual interest and provisions for damages and litigation costs upon default.
The Alcantara family assigned their rights over the promissory note to ALSONS before the note's maturity.
EQUITY lacked assets or financial support from GCC to pay the interest, prompting letters of demand and eventual litigation by ALSONS.

Issues Presented

Whether the Court of Appeals erred in affirming the trial court’s ruling that EQUITY was an instrumentality or adjunct of GCC, justifying piercing the corporate veil.
Whether ALSONS was the real party-in-interest and the promissory note authentic and enforceable.
Whether the CA committed errors in denying the petitioner’s motions for reconsideration and oral argument.
Whether petitioner GCC’s claims of lack of jurisdiction, estoppel, and counterclaims for exemplary damages and attorney’s fees had merit.

Parties’ Contentions

GCC argued against the application of the doctrine piercing the corporate veil, asserting EQUITY as a distinct entity.
GCC claimed the promissory note was simulated and/or altered and lacked proper authentication.
GCC asserted the full payment of shares via deeds of sale barred ALSONS’ claims.
ALSONS maintained that EQUITY was but a conduit of GCC and thus, GCC should be held liable jointly and severally.
ALSONS also argued the authenticity and enforceability of the bearer promissory note.
GCC challenged t