GR 85266; (January, 1990) (Digest)
G.R. No. 85266 ; January 30, 1990
PHILIPPINE VETERANS INVESTMENT DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS and VIOLETA MONTELIBANO BORRES, respondents.
FACTS
Violeta M. Borres was injured in an accident on March 29, 1979, due to the negligence of Phividec Railways, Inc. (PRI). PRI was a wholly-owned subsidiary of the Philippine Veterans Investment Development Corporation (PHIVIDEC). On May 25, 1979, PHIVIDEC sold all its rights and interests in PRI to the Philippine Sugar Commission (PHILSUCOM). The sale agreement contained a stipulation wherein PHIVIDEC held PHILSUCOM harmless from any claim or liability arising from acts or omissions prior to the turn-over. PHILSUCOM subsequently created Panay Railways, Inc. to operate the acquired assets.
Borres filed a complaint for damages against PRI and Panay Railways. The Regional Trial Court held PRI negligent and liable for damages. It further ruled that PHIVIDEC, as the parent corporation, should answer for PRI’s liability. The Court of Appeals affirmed this decision, applying the doctrine of piercing the corporate veil. PHIVIDEC appealed, arguing it and PRI were separate and distinct corporate entities.
ISSUE
Whether the corporate veil of PRI can be pierced to hold its parent corporation, PHIVIDEC, liable for the damages awarded to Borres.
RULING
Yes, the corporate veil can be pierced. The Supreme Court sustained the Court of Appeals. The legal fiction of a separate corporate personality may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The Court cited established precedents, including Koppel v. Yatco and Yutivo Sons Hardware Co. v. Court of Tax Appeals, which hold that when a corporation is merely an alter ego or business conduit of another, the separate entities may be treated as one.
In this case, several factors justified piercing the veil. First, PHIVIDEC had complete control over PRI as its wholly-owned subsidiary. Second, the sale agreement demonstrated PHIVIDEC’s express assumption of liability for any claims arising prior to the turn-over, such as Borres’s accident. Third, after the sale and turn-over, PRI effectively ceased its railway operations, which were taken over by PHILSUCOM’s new subsidiary. This made PRI a mere continuation of PHIVIDEC’s controlled enterprise for the purpose of this liability. To rule otherwise would leave the injured private respondent without recourse, allowing the corporate fiction to be used as a shield to evade a just obligation. Therefore, PHIVIDEC and PRI were correctly treated as one entity, making PHIVIDEC solely liable for the damages. The petition was denied.