Week 3, Case #18 – Zosa, GR No.

151438, July 15, 2005

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.
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.

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 USA’s 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.
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.

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 court did not acquire jurisdiction over
Aircon because it ceased operations 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 Jardine’s 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 court’s ruling.

ISSUE: Whether or not Jardine may be held responsible. – No.