Week 3, Case #18 Zosa, GR No.
. 151438, July 15, 2005 court did not acquire jurisdiction over Aircon because it ceased operations
PETITIONER: Jardine Davies Inc.
RESPONDENT: JRB Realty Inc.
DOCTRINE:
1. Piercing the Veil of Corporate Fiction. A Corporation is an artificial being
invested by law with a personality separate and distinct from its stockholders
and from other corporations to which it may be connected. The doctrine
applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.
2. A subsidiary has an independent and separate juridical personality, distinct
from that of its parent company, hence, any claim or suit against the latter
does not bind the former and vice versa.
FACTS:
JRB Realty Inc. built a nine-storey building named Blanco Center in
Salcedo Village, Makati. At the 2nd fl. of the building was Blanco Law Firm
which needed an airconditioning system. In 1980, EVP Jose Blanco entered
into a contract with Pres. AG Morrison of the Aircon and Refrigeration
Industries Inc. (Aircon), for two sets of Fedders Adaptomatic airconditioning
equipment. Thereafter, two sets of aircon were delivered and installed by
Aircon. When the units were installed, they could not deliver the desired
cooling temperature. JRB Realty conceded that Fedders Air Conditioning
USAs technology had not yet been perfected.
The parties agreed to replace the units. Aircon stated that it would be
replacing the units with new ones at earliest possible time. Regrettably, it
could not specify a date when delivery could be effected.
TempControl System, Inc (a subsidiary of Aircon until 1987),
undertook the maintenance of the units, inclusive of parts and services. JRB
Realty learned through newspaper ads that Maxim Industrial and
Merchandising Corp (Maxim) was the new and exclusive licensee of Fedders
Air Conditioning USA Inc. in the Philippines for the manufacture, distribution,
sale, installation and maintenance of Fedders airconditioners.
JRB requested that Maxim honor the obligation of Aircon but Maxim
refused. Considering that the 10-year period of prescription was fast
approaching, on Jan 29, 1990, an action for specific performance with
damages was filed by JRB against Aircon, Fedders Air Conditioning USA Inc,
Maxim, and petitioner Jardine Davies Inc. Jardine Davies was impleaded
considering that Aircon was a subsidiary of Jardine.
Of the four defendants, only Jardine filed its Answer; that it is a
separate entity from the Aircon and that it is not a party to the contract. The
while Fedders Air and Maxim were declared in default.
When Aircon and JRB entered into a contract in 1980, Aircon was a
subsidiary of Jardine. Records from SEC reveal that as per Jardines Dec 31,
1986 Financial Statements, the company acts as general manager of its
subsidiaries. Applying the doctrine of piercing the veil of corporate fiction, the
trial court ruled in favor of JRB Realty. Court of Appeals affirmed the trial
courts ruling.
ISSUE: Whether or not Jardine may be held responsible. No.
DECISION:
[see doctrine no. 1] To warrant resort to this extraordinary remedy, there must
be proof that the corporation is being used as a cloak or cover for fraud or
illegality, or to work injustice.
In this case, there is no evidence that Aircon was formed with the
intention of defrauding its creditors or evading its contracts and obligations.
There was nothing fraudulent in the acts of Aircon. Aircon, as a
manufacturing firm of air conditioners, complied with its obligation of
providing two air conditioning units for the second floor of the Blanco Center
in good faith, pursuant to its contract with the respondent. Unfortunately, the
performance of the air conditioning units did not satisfy the respondent
despite several adjustments and corrective measures.
After enjoying ten (10) years of its cooling power, respondent cannot
now complain about the performance of these units, nor can it demand a
replacement thereof.
It bears stressing that the petitioner was never a party to the
contract. Privity of contracts take effect only between parties, their
successors-in-interest, heirs and assigns. The petitioner, which has a
separate and distinct legal personality from that of Aircon, cannot, therefore,
be held liable.
IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed
decision of the Court of Appeals, affirming the decision of the Regional Trial
Court is REVERSED and SET ASIDE. The complaint of the respondent is
DISMISSED. Costs against the respondent.