RAMOSO et al vs. COURT OF APPEALS

(Dashboard Case Digest) I swear I could utter a hundred dashboard confessionals on how fuckin' hard to chew these case digests...

Here's what you should know about piercing the veil. Piercing the Veil is not applicable by just merely theorizing. Piercing the veil of corporate fiction is of course allowed in order to remedy a wrong done, but consequently it cannot be used when there is no wrong committed, as in we're merely asking the court to pierce to justify a theory na "E etong kumpanya na to eh ito din may-ari eh... isa lang yan." You can't just say that.

Of course we all know that the burden of proof is always on the one who is accusing. You have to properly plead your cause in front of the courts. So.. you need proof and you need to go through the process.

So.. I hope I have effectively established that the burden of proving otherwise is on the party seeking to have the court pierce the veil of the corporate entity. Di lang ganun kadali yon..

Alright here's the case:

Avelina Ramoso et al are investors and majority stock holders of franchise branches of Commercial Credit Corporation (CCC), a lending and investment firm. Now CCC contracted with its franchise branches for these branches to assign its receivables to CCC. To those who are not in the know, Receivables are asset designation applicable to all debts, unsettled transactions and other monetary obligations owed to a company by its debtors or customers. It's somewhat a sort of assignment like the Assignment & Novation in Obligations & Contracts. 

Now take note.. this practice was discontinued by CCC due to a Central Bank prohibition called the DOSRI Rule where corporations or banks are prohibited from lending funds to directors, officers, stockholders and persons with related interests (such as the investors herein stated). This regulation and set guidelines are set to make sure that lendings by banks or other financial institutions to its own directors, officers, stockholders or related interests are above board. 

So probably CCC was thinking "How can I circumvent this damn regulation?" This is where CCC incorporated CCC Equity, a wholly owned subsidiary to manage the franchise branches. Then CCC later changed its name to General Credit Corporation (GCC). (so I bet you could smell somethin' fishy here). 

Okay to make it all clear... here's what happened. In view of said hindrance (Central Bank Regulation), what CCC did was it divested itself of its shareholdings in the franchise companies. It incorporated CCC Equity in order to take over the administration of the franchise companies under new management contracts. Thereafter, CCC changed its name to General Credit Corporation (GCC). But in the meantime, CCC continued providing a discounting line for receivables of the franchise companies through CCC Equity. Did it become clear?... or.. muddy clear. Trust me I know the feeling.

Ramoso et al saw this differently. They alleged that they discovered several bad business practices being conducted by GCC, and that such questionable practices actually divested GCC of its assets thereby placing the franchise branches at a disadvantage, that GCC through CCC Equity mismanaged the franchise branches thereby causing imminent losses to the investors. 

Ramoso et al then sued GCC before the Securities and Exchange Commission. The SEC hearing officer ruled in favor of Ramoso et al. thereby piercing the veil of corporate fiction declaring that the franchise branches GCC and CCC Equity are one and the same corporation, and that as such, the franchise branches in whom Ramoso et al invested are not liable to the obligations incurred by GCC. 

The SEC en banc interpreted this differently and reversed the ruling of the hearing officer. Thus Ramoso et al petitioned for appeal before the CA. But the CA however, affirmed the SEC en banc ruling.

ISSUE:

Does this warrant a piercing? Is there a veil of corporate fiction to be pierced in the first place anyway? 

RULING:

NO. Court said Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a conduit of GCC. As found by the SEC en banc Ramoso et al were not able to prove that CCC Equity was incorporated in order to perpetrate fraud against them. 

The truth about this is that the petitioners had signed the continuing guaranty of the franchise company's bad debts in their individual acts, and their liabilities arose out of the regular financing venture of the franchise companies, and there was no evidence these bad debts were fraudulently incurred. 

Whether the existence of the corporation should be pierced depends always 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. It was not shown that the debts incurred by GCC were actually incurred in bad faith. 

The thing was there was a pending case relating to the liability of Ramoso et al as guarantors - I think that will be the proper forum to raise their respective liability as regards said debts. But with regards the piercing of this corporate veil? I doubt. So there's no piercing here.

Ramoso et al lost this case.