G.R. No. 85266, 30 January 1990
Violeta M. Borres, private respondent herein, was injured in an accident due to the negligence of Phividec Railways, Inc. (PRI). The accident occurred on March 29, 1929.
On May 25 of that year, petitioner sold all its rights and interests in the PRI to the Philippine Sugar Commission (PHISLSUCOM). Two days later, PHILSUCOM caused the creation of a wholly-owned subsidiary, the Panay Railways, Inc., to operate the railway assets acquired from PRIVIDEC.
Hence, Borres filed a complaint for damaged against PRI and Panay Railways, Inc and alleged that upon the sale of PHILSUCOM of PRI, the corporate name of PRI was changed to Panay Railways, Inc.
Both the trial court and the appellate court held PRI negligent and so liable to the plaintiff and was also held that the same was a wholly-owned subsidiary of PRIVIDEC and thus should be held to answer PRI’s liability.
Hence, this petition.
Whether or not piercing of corporate fiction is called for in this case.
YES, the court sustained the respondents.
When PRI was sold by PRIVIDEC to PHILSUCOM, the legal fiction of PRI as a separate corporate entity disappeared. By such, PRIVIDEC had expressly assumed liability for any claim arising out of any act or transaction “prior to the turn-over”.
The court held that the transfer of the shares of stocks of PRI to PHILSUCOM did not divest PRIO of its juridical personality or of its capacity to direct its own affairs and conduct its own business under the control of its own board of directors. It is answerable for its own obligations which cannot be passed on to the petitioner as its own liability.
The rule is that, where it appears that two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat them as identical.
It is clear from the evidence of record that by virtue of the agreement between PRIVIDEC and PHILSUCOM, particularly the stipulation exempting the latter from any claim or liability arising from any act or transaction prior to the turn-over, PRIVIDEC expressly assumed liability for any claim against PRI.
Hence, PRIVIDEC cannot evade its liability for the injuries sustained by the private respondents.
*Case digest by Radolf Zell Adasa JD-IV, Andres Bonifacio Law School, SY 2019-2020