GR 151438; (July, 2005) (Digest)
G.R. No. 151438 . July 15, 2005.
JARDINE DAVIES, INC., Petitioner, vs. JRB REALTY, INC., Respondent.
FACTS
In 1980, respondent JRB Realty contracted with Aircon and Refrigeration Industries, Inc. for the supply and installation of two Fedders air conditioning units for its Blanco Center building. The installed units with rotary compressors failed to deliver the required cooling capacity. Aircon, in a 1981 letter, committed to replace them with new units using perfected rotary compressors but failed to specify a delivery date. Aircon’s corporate life ended in 1986. In 1990, JRB Realty filed a complaint for specific performance against several defendants, including petitioner Jardine Davies, Inc., alleging that Aircon was its subsidiary.
The Regional Trial Court ruled in favor of JRB Realty, holding Jardine Davies jointly and severally liable with the other defendants for breach of contract. The Court of Appeals affirmed this decision. Jardine Davies appealed, arguing it was not a party to the contract and that Aircon had a separate corporate personality.
ISSUE
Whether petitioner Jardine Davies, Inc. can be held jointly and severally liable for the contractual breach of its former subsidiary, Aircon and Refrigeration Industries, Inc.
RULING
No. The Supreme Court reversed the lower courts’ decisions and dismissed the complaint against Jardine Davies. The legal logic is anchored on the fundamental principle of separate corporate personality. A corporation has a legal identity distinct and separate from its stockholders and from other corporations to which it may be connected. Mere ownership by a single corporation or a subsidiary relationship is not sufficient to justify piercing the corporate veil.
To disregard the separate juridical personality, it must be proven that the corporation was used as a mere alter ego, instrumentality, or conduit to evade an existing obligation, commit fraud, or perpetuate a wrong. In this case, JRB Realty failed to present clear and convincing evidence that Jardine Davies exercised complete control over Aircon in a manner that would justify treating them as one entity. The petitioner was never a party to the contract between JRB Realty and Aircon. Privity of contracts only takes effect between the parties, their successors-in-interest, heirs, and assigns. Absent proof that the corporate fiction was misused for fraudulent or wrongful ends, Jardine Davies, having a separate and distinct legal personality, cannot be held liable for the contractual obligations of Aircon.