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042 Jardine Davies, petitioner, Inc.

v JRB Realty, respondent
GR 151438, 15 July 2005, 463 SCRA 555

Topic: Disregarding the Corporate entity

FACTS:
1. In 1979-1980, JRB Realty, Inc. built a 9-storey building, named Blanco Center, on its land (at 119
Alfaro St., Salcedo Village, Makati City).
2. Blanco Law Firm located at the 2nd floor of Blanco Center needs airconditioning.
3. March 13, 1980, Executive Vice-President of JRB Realty, Jose R. Blanco, accepted the contract
quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (AIRCON),
for 2 sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment (net
total selling price of P99,586.00).
4. 2 brand new packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or
120,000 BTUH were installed by AIRCON.
5. When the units with rotary compressors were installed, they could not deliver the desired
cooling temperature (despite several adjustments and corrective measures, it couldn’t be
perfected).
6. Parties agreed to replace the units.
7. Letter dated March 26, 1981, AIRCON stated that they’d replace the units but couldn’t specify
when.
8. TempControl Systems, Inc. (a subsidiary of AIRCON until 1987) undertook the maintenance of
the units, inclusive of parts and services.
9. October 1987, learned that Maxim Industrial and Merchandising Corporation (MAXIM) was the
new and exclusive licensee of Fedders Air Conditioning USA in the Philippines (for the
manufacture, distribution, sale, installation and maintenance).
10. JRB Realty requested Maxim to honor the obligation of AIRCON (they refused).
11. The 10 year prescription period is almost done so JRB Realty filed an action for specific
performance against AIRCON, Fedders Air Conditioning USA, Inc., MAXIM, and Jardine Davies,
Inc.
12. Only the Jardine Davies filed its Answer (court did not acquire jurisdiction over AIRCON-
corporate life ended on December 31, 1986). Fedders Air Conditioning USA and MAXIM were
declared in default.

RTC (May 17, 1996) – ordered in favor of JRB Realty
CA (March 23, 2000) – affirmed RTC

ISSUE: WON Jardine Davies can be held liable for AIRCON’s unfinished obligation/contractual breach (for
the reason that AIRCON was Jardine’s subsidiary). OR WON it is proper to pierce the veil of corporate
fiction and hold Jardine Davies liable for AIRCON’s contractual breach. ------ NO! They are separate
entities! *see ratio for further discussion

RATIO:
 The records bear out that Aircon is a subsidiary of the petitioner only because the latter
acquired Aircons majority of capital stock. It, however, does not exercise complete control over
Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon.

justify wrong. and vice versa. Inc. hence. which the respondent court considered. But even when there is dominance over the affairs of the subsidiary. (2) such control must have been used by the defendant to commit fraud or wrong. and the latter is an entirely different entity from the petitioner. . the following requisites must be established: (1) control. Inc. to perpetuate the violation of a statutory or other positive legal duty.  Articles of Incorporation of Jardine Davies. there must be proof that the corporation is being used as a cloak or cover for fraud or illegality. Any piercing of the corporate veil has to be done with caution. in the absence of fraud or other public policy considerations. the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience. no management agreement exists between the petitioner and Aircon. . or to work injustice. InVelarde v. Lopez.  Articles of incorporation of Aircon . In applying the doctrine. or dishonest acts in contravention of plaintiffs legal rights.  The existence of interlocking directors. Indeed. The wrongdoing must be clearly and convincingly established.a manufacturing firm. any claim or suit against the latter does not bind the former. protect fraud or defend crime.primarily a financial and trading company.  While it is true that Aircon is a subsidiary of the petitioner. To warrant resort to this extraordinary remedy. is not enough justification to pierce the veil of corporate fiction. It cannot just be presumed.. and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. not merely majority or complete stock control. the Court categorically held that a subsidiary has an independent and separate juridical personality. corporate officers and shareholders. it does not necessarily follow that Aircons corporate legal existence can just be disregarded. distinct from that of its parent company.