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RepublicofthePhilippines
SUPREMECOURT

SECONDDIVISION

G.R.No.151438July15,2005

JARDINEDAVIES,INC.,Petitioners,
vs.
JRBREALTY,INC.,Respondent.

DECISION

CALLEJO,SR.,J.:

BeforeusisapetitionforreviewoftheDecision1oftheCourtofAppeals(CA)inCAG.R.CVNo.54201affirming
in toto that of the Regional Trial Court (RTC) in Civil Case No. 90237 for specific performance and the
ResolutiondatedJanuary11,2002denyingthemotionforreconsiderationthereof.

Thefactsareasfollows:

In19791980,respondentJRBRealty,Inc.builtaninestoreybuilding,namedBlancoCenter,onitsparcelofland
locatedat119AlfaroSt.,SalcedoVillage,MakatiCity.AnairconditioningsystemwasneededfortheBlancoLaw
Firmhousedatthesecondfloorofthebuilding.OnMarch13,1980,therespondentsExecutiveVicePresident,
Jose R. Blanco, accepted the contract quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration
Industries, Inc. (Aircon), for two (2) sets of Fedders Adaptomatic 30,000 kcal (Code: 10TR) air conditioning
equipmentwithanettotalsellingpriceofP99,586.00.2Thereafter,two(2)brandnewpackagedairconditioners
of10tonscapacityeachtodeliver30,000kcalor120,000BTUH3wereinstalledbyAircon.Whentheunitswith
rotary compressors were installed, they could not deliver the desired cooling temperature. Despite several
adjustmentsandcorrectivemeasures,therespondentconcededthatFeddersAirConditioningUSAstechnology
for rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been
perfected.Thepartiestherebyagreedtoreplacetheunitswithreciprocating/semihermeticcompressorsinstead.
InaLetterdatedMarch26,1981,4Airconstatedthatitwouldbereplacingtheunitscurrentlyinstalledwithnew
ones using rotary compressors, at the earliest possible time. Regrettably, however, it could not specify a date
whendeliverycouldbeeffected.

TempControlSystems,Inc.(asubsidiaryofAirconuntil1987)undertookthemaintenanceoftheunits,inclusiveof
partsandservices.InOctober1987,therespondentlearned,throughnewspaperads,5thatMaximIndustrialand
Merchandising Corporation (Maxim, for short) was the new and exclusive licensee of Fedders Air Conditioning
USA in the Philippines for the manufacture, distribution, sale, installation and maintenance of Fedders air
conditioners. The respondent requested that Maxim honor the obligation of Aircon, but the latter refused.
Considering that the tenyear period of prescription was fast approaching, to expire on March 13, 1990, the
respondenttheninstituted,onJanuary29,1990,anactionforspecificperformancewithdamagesagainstAircon
& Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial & Merchandising
CorporationandpetitionerJardineDavies,Inc.6Thelatterwasimpleadedasdefendant,consideringthatAircon
wasasubsidiaryofthepetitioner.Therespondentprayedthatjudgmentberendered,asfollows:

1. Ordering the defendants to jointly and severally at their account and expense deliver, install and place in
operationtwo
brand new units of each 10tons capacity Fedders unitary packaged air conditioners with Fedders USAs
technology perfected rotary compressors to always deliver 30,000 kcal or 120,000 BTUH to the second floor of
theBlancoCenterbuildingat119AlfaroSt.,SalcedoVillage,Makati,MetroManila

2.OrderingdefendantstojointlyandseverallyreimburseplaintiffnotonlythesumsofP415,118.95forunsaved
electricityfrom21stOctober1981to7thJanuary1990andP99,287.77forrepaircostsofthetwoserviceunits
from7thMarch1987to11thJanuary1990,withlegalinterestthereonfromthefilingofthisComplaintuntilfully
reimbursed,butalsolikeunsavedelectricitycostsandlikerepaircoststherefromuntilPrayerNo.1aboveshall
havebeencompliedwith
3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00 attorneys fees and other costs of
litigation,aswellasexemplarydamagesinanamountnotlessthanorequaltoPrayer2aboveand

4.Grantingplaintiffsuchotherandfurtherreliefasshallbejustandequitableinthepremises.7

Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over Aircon
because the latter ceased operations, as its corporate life ended on December 31, 1986.8 Upon motion,
defendantsFeddersAirConditioningUSAandMaximweredeclaredindefault.9

OnMay17,1996,theRTCrendereditsDecision,thedispositiveportionofwhichreads:

WHEREFORE,judgmentisherebyrenderedorderingdefendantsJardineDavies,Inc.,FeddersAirConditioning
USA,Inc.andMaximIndustrialandMerchandisingCorporation,jointlyandseverally:

1. To deliver, install and place into operation the two (2) brand new units of Fedders unitary packaged
airconditioningunitseachof10tonscapacitywithrotarycompressorstodeliver30,000kcalor120,000BTUHto
thesecondflooroftheBlancoCenterbuilding,ortopayplaintiffthecurrentpricefortwosuchunits

2.ToreimburseplaintifftheamountofP556,551.55asandfortheunsavedelectricitybillsfromOctober21,1981
uptoApril30,1995andanotheramountofP185,951.67asandforrepaircosts

3.TopayplaintiffP50,000.00asandforattorneysfeesand

4.Costofsuit.10

ThepetitionerfileditsnoticeofappealwiththeCA,allegingthatthetrialcourterredinholdingitliablebecauseit
wasnotapartytothecontractbetweenJRBRealty,Inc.andAircon,andthatithadapersonalityseparateand
distinctfromthatofAircon.

OnMarch23,2000,theCAaffirmedthetrialcourtsrulingintotohence,thispetition.

Thepetitionerraisesthefollowingassignmentoferrors:

I.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR THE ALLEGED CONTRACTUAL
BREACHOFAIRCONSOLELYBECAUSETHELATTERWASFORMERLYJARDINESSUBSIDIARY.

II.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE
COURT OF APPEALS ERRED IN NOT DECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2)
AIRCONDITIONINGUNITSTOJRBASHAVINGBEENSUBSTANTIALLYCOMPLIEDWITHINGOODFAITH.

III.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE
COURTOFAPPEALSERREDINNOTDECLARINGJRBSCAUSESOFACTIONASHAVINGBEENBARREDBY
LACHES.

IV.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE
COURT OF APPEALS ERRED IN FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY
EXPENSES.

V.

THECOURTOFAPPEALSERREDINHOLDINGJARDINELIABLETOPAYATTORNEYSFEES.

VI.

THECOURTOFAPPEALSERREDINNOTHOLDINGJRBLIABLETOJARDINEFORDAMAGES.11

Itisthewellsettledrulethatfactualfindingsofthetrialcourt,asaffirmedbytheCA,areaccordedhighrespect,
even finality at times. However, considering that the factual findings of the CA and the RTC were based on
speculationandconjectures,unsupportedbysubstantialevidence,theCourtfindsthattheinstantcasefallsunder
oneoftheexceptedinstances.Thereis,thus,aneedtocorrecttheerror.
ThetrialcourtruledthatAirconwasasubsidiaryofthepetitioner,andconcluded,thus:

PlaintiffsdocumentaryevidenceshowsthatatthetimeitcontractedwithAircononMarch13,1980(Exhibit"D")
andonthedatetherevisedagreementwasreachedonMarch26,1981,AirconwasasubsidiaryofJardine.The
phrase "A subsidiary of Jardine Davies, Inc." was printed on Aircons letterhead of its March 13, 1980 contract
withplaintiff(Exhibit"D1"),aswellastheAirconsletterheadofJardinesDirectorandSeniorVicePresidentA.G.
Morrison and Aircons President in his March 26, 1981 letter to plaintiff (Exhibit "J2") confirming the revised
agreement.AirconsnewspaperadsofApril12and26,1981andapressreleaseonAugust30,1982(Exhibits
"E,""F"and"L")alsoshowthatdefendantJardinepubliclyrepresentedAircontobeitssubsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardines December 31,
1986and1985FinancialStatementsthat"Thecompanyactsasgeneralmanagerofitssubsidiaries"(Exhibit"P").
JardinesConsolidatedBalanceSheetasofDecember31,1979filedwiththeSEClistedAirconasitssubsidiary
byowning94.35%ofAircon(Exhibit"P1").Also,AirconsreportorialGeneralInformationSheetasofApril1980
andApril1981filedwiththeSECshowthatJardinewas94.34%ownerofAircon(Exhibits"Q"and"R")andthat
outofsevenmembersoftheBoardofDirectorsofAircon,four(4)arealsoofJardine.

Defendant Jardines witness, Atty. Fe delos SantosQuiaoit admitted that defendant Aircon, renamed Aircon &
RefrigerationIndustries,Inc."isoneofthesubsidiariesofJardineDavies"(TSN,September22,1995,p.12).She
alsotestifiedthatJardinenominated,elected,andappointedthecontrollingmajorityoftheBoardofDirectorsand
thehighestofficersofAircon(Ibid,pp.10,1314).

TheforegoingcircumstancesprovidejustifiablebasisforthisCourttodisregardthefictionofcorporateentityand
treatdefendantAirconaspartoftheinstrumentalityofcodefendantJardine.12

Therespondentcourtarrivedatthesameconclusionbasingitsrulingonthefollowingdocuments,towit:

(a)Contract/Quotation#78No.801639datedMarch03,1980(Exh.D1)

(b)NewspaperAdvertisements(Exhs.E1andF1)

(c)LetterdatedMarch26,1981ofA.G.Morrison,PresidentofAircon,toAtty.J.R.Blanco(Exh.J)

(d)NewsitemsofBulletinTodaydatedAugust30,1982(Exh.L)

(e)BalanceSheetofJardineDavies,Inc.asofDecember31,1979listingAirconasoneofitssubsidiaries(Exh.
P)

(f)FinancialStatementofAirconasofDecember31,1982and1981(Exh.S)

(g)FinancialStatementofAirconasofDecember31,1981(Exh.S1).13

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts conveniently
heldthepetitionerliablefortheallegedomissionsofAircon,consideringthatthelatterwasitsinstrumentalityor
corporatealterego.Thepetitionerisnowbeforeus,reiteratingitsdefenseofseparateness,andthefactthatitis
notapartytothecontract.

Wefindmeritinthepetition.

Itisanelementaryandfundamentalprincipleofcorporationlawthatacorporationisanartificialbeinginvestedby
lawwithapersonalityseparateanddistinctfromitsstockholdersandfromothercorporationstowhichitmaybe
connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an
association of persons or in case of two corporations, merge them into one, when this corporate legal entity is
usedasacloakforfraudorillegality.14Thisisthedoctrineofpiercingtheveilofcorporate
fictionwhichappliesonlywhensuchcorporatefictionisusedtodefeatpublicconvenience,justifywrong,protect
fraudordefendcrime.15Therationalebehindpiercingacorporationsidentityistoremovethebarrierbetween
thecorporationfromthepersonscomprisingittothwartthefraudulentandillegalschemesofthosewhousethe
corporatepersonalityasashieldforundertakingcertainproscribedactivities.16

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircons corporate
legalexistencecanjustbedisregarded.InVelardev.Lopez,Inc.,17theCourtcategoricallyheldthatasubsidiary
hasanindependentandseparatejuridicalpersonality,distinctfromthatofitsparentcompanyhence,anyclaim
orsuitagainstthelatterdoesnotbindtheformer,andviceversa.Inapplyingthedoctrine,thefollowingrequisites
mustbeestablished:(1)control,notmerelymajorityorcompletestockcontrol(2)suchcontrolmusthavebeen
usedbythedefendanttocommitfraudorwrong,toperpetuatetheviolationofastatutoryorotherpositivelegal
duty,ordishonestactsincontraventionofplaintiffslegalrightsand(3)theaforesaidcontrolandbreachofduty
mustproximatelycausetheinjuryorunjustlosscomplainedof.18

TherecordsbearoutthatAirconisasubsidiaryofthepetitioneronlybecausethelatteracquiredAirconsmajority
ofcapitalstock.It,however,doesnotexercisecompletecontroloverAirconnowherecanitbegatheredthatthe
petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the
petitionerandAircon,andthelatterisanentirelydifferententityfromthepetitioner.19

JardineDavies,Inc.,incorporatedasearlyasJune28,1946,20isprimarilyafinancialandtradingcompany.Its
ArticlesofIncorporationstatesamongmanyothersthatthepurposesforwhichthesaidcorporationwasformed,
areasfollows:

(a)Tocarryonthebusinessofmerchants,commissionmerchants,brokers,factors,manufacturers,andagents

(b) Upon complying with the requirements of law applicable thereto, to act as agents of companies and
underwritersdoingandengaginginanyandallkindsofinsurancebusiness.21

On the other hand, Aircon, incorporated on December 27, 1952,22 is a manufacturing firm. Its Articles of
Incorporationstatesthatitspurposeismainly

Tocarryonthebusinessofmanufacturersofcommercialandhouseholdappliancesandaccessoriesofanyform,
particularlytomanufacture,purchase,sellordealinairconditioningandrefrigerationproductsofeveryclassand
description as well as accessories and parts thereof, or other kindred articles and to erect, or buy, lease,
manage, or otherwise acquire manufactories, warehouses, and depots for manufacturing, assemblage, repair
andstoring,buying,selling,anddealingintheaforesaidappliances,accessoriesandproducts.23

The existence of interlocking directors, corporate officers and shareholders, which the respondent court
considered,isnotenoughjustificationtopiercetheveilofcorporatefiction,intheabsenceoffraudorotherpublic
policy considerations.24 But even when there is dominance over the affairs of the subsidiary, the doctrine of
piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify
wrong,protectfraudordefendcrime.25Towarrantresorttothisextraordinaryremedy,theremustbeproofthat
thecorporationisbeingusedasacloakorcoverforfraudorillegality,ortoworkinjustice.26Anypiercingofthe
corporate veil has to be done with caution.27 The wrongdoing must be clearly and convincingly established. It
cannotjustbepresumed.28

In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its
creditorsorevadingitscontractsandobligations.TherewasnothingfraudulentintheactsofAirconinthiscase.
Aircon,asamanufacturingfirmofair
conditioners,compliedwithitsobligationofprovidingtwoairconditioningunitsforthesecondflooroftheBlanco
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. In a
Letter29datedOctober22,1980,therespondentevenconcededthatFeddersAirConditioningUSAhasnotyet
perhaps perfected its technology of rotary compressors, and agreed to change the compressors with the semi
hermetictype.Thus,Airconsubstitutedtheunitswithserviceableoneswhichdeliveredthecoolingtemperature
needed for the law office. After enjoying ten (10) years of its cooling power, respondent cannot now complain
abouttheperformanceoftheseunits,norcanitdemandareplacementthereof.

Moreover, it was reversible error to award the respondent the amount of P556,551.55 representing the alleged
30%unsavedelectricitycostsandP185,951.67asmaintenancecostwithoutshowinganybasisforsuchaward.
To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of
certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual
amount of loss.30 The respondent merely based its cause of action on Aircons alleged representation that
Fedders air conditioners with rotary compressors can save as much as 30% on electricity compared to other
brands.OfferedinevidencewerenewspaperadvertisementspublishedonApril12and26,1981.Therespondent
thenrecordeditselectricityconsumptionfromOctober21,1981uptoApril3,1995andcomputed30%thereof,
whichamountedtoP556,551.55.TheCourtrulesthatthisamountishighlyspeculativeandmerelyhypothetical,
andforwhichthepetitionercannotbeheldaccountable.

First. The respondent merely relied on the newspaper advertisements showing the Fedders windowtype air
conditioners,whicharefardifferentfromthebigcapacityairconditioningunitsinstalledatBlancoCenter.

Second. After such print advertisements, the respondent informed Aircon that it was going to install an electric
metertoregisteritselectricconsumptionsoastodeterminetheelectriccostsnotsavedbythepresentlyinstalled
unitswithsemihermeticcompressors.Contrarytotheallegationsoftherespondentthatthiswasinpursuanceto
their Revised Agreement, no proof was adduced that Aircon agreed to the respondents proposition. It was a
unilateralactonthepartoftherespondent,whichAircondidnotobligeorcommititselftopay.

Third. Needless to state, the amounts computed are mere estimates representing the respondents selfserving
claimofunsavedelectricitycost,whichistoospeculativeandconjecturaltomeritconsideration.Nootherproofs,
reportsorbasesofcomparisonshowingthatFeddersAirConditioningUSAcouldindeedcutdownelectricitycost
by30%wereadduced.

Likewise,thereisnobasisfortheawardofP185,951.67representingmaintenancecost.Therespondentmerely
submitted a schedule31 prepared by the respondents accountant, listing the alleged repair costs from March
1987uptoJune1994.Suchevidenceisselfservingandcannotalsobegivenprobativeweight,consideringthat
there are no proofs of receipts, vouchers, etc., which would substantiate the amounts paid for such services.
Absent any more convincing proof, the Court finds that the respondents claims are without basis, and cannot,
therefore,beawarded.

WesustainthepetitionersseparatenessfromthatofAirconinthiscase.Itbearsstressingthatthepetitionerwas
never a party to the contract. Privity of contracts take effect only between parties, their successorsininterest,
heirsandassigns.32Thepetitioner,whichhasa
separateanddistinctlegalpersonalityfromthatofAircon,cannot,therefore,beheldliable.

INVIEWOFTHEFOREGOING,thepetitionisGRANTED.TheassaileddecisionoftheCourtofAppeals,
affirmingthedecisionoftheRegionalTrialCourtisREVERSEDandSETASIDE.Thecomplaintoftherespondent
isDISMISSED.Costsagainsttherespondent.

SOORDERED.

ROMEOJ.CALLEJO,SR.
AssociateJustice

WECONCUR:

REYNATOS.PUNO

AssociateJustice

Chairman

MA.ALICIAAUSTRIAMARTINEZDANTEO.TINGA
AssociateJusticeAssociateJustice

MINITAV.CHICONAZARIO

AssociateJustice

ATTESTATION

Iattestthattheconclusionsintheabovedecisionwerereachedinconsultationbeforethecasewasassignedto
thewriteroftheopinionoftheCourtsDivision.

REYNATOS.PUNO
AssociateJustice
Chairman,SecondDivision

CERTIFICATION

PursuanttoSection13,ArticleVIIIoftheConstitutionandtheDivisionChairmansAttestation,itisherebycertified
thattheconclusionsintheabovedecisionwerereachedinconsultationbeforethecasewasassignedtothe
writeroftheopinionoftheCourtsDivision.

HILARIOG.DAVIDE,JR.

ChiefJustice

Footnotes
1 Penned by Associate Justice Demetrio G. Demetria, with Associate Justices Ramon A. Mabutas, Jr.
(retired)andJoseL.Sabio,Jr.,concurring.

2Exhibit"D,"Records,p.223.

3(Kcal)kilocalories,(BTUH)BritishThermalUnits,TSN,26July1995,p.13.

4Exhibit"J,"Records,p.233.

5Exhibit"V,"Records,p.321.

6Records,p.1.

7Records,pp.89.

8Exhibit"T,"Records,p.318.

9Records,p.77.

10Records,p.536.

11Rollo,p.17.

12Records,pp.534535.

13Rollo,p.39.

14DevelopmentBankofthePhilippinesv.CourtofAppeals,G.R.No.126200,16August2001,363SCRA,
307,citingYutivoSonsHardwarev.CourtofTaxAppeals,1SCRA160(1961).

15Id.at319.

16Velardev.Lopez,Inc.,G.R.No.153886,14January2004,419SCRA422.

17Ibid.

18Id.at431.

19TSN,22September1995,p.13.

20Exhibit"6,"Records,p.391.

21Exhibit"6A,"Records,p.402.

22Records,p.420.

23Exhibit"7B,"Records,p.414.

24Velardev.Lopez,Inc.supra.

25ReynosoIVv.CourtofAppeals,G.R.Nos.11612425,22November2000,345SCRA335.

26Galavs.ElliceAgroIndustrialCorporation,G.R.No.156819,11December2003,418SCRA431.

27ReynosoIVv.CourtofAppeals,supra.

28DBPv.CA,supra.

29Exhibit"G."Records,pp.229230.

30IntegratedPackagingCorporationv.CourtofAppeals,G.R.No.115117,8June2000,333SCRA170.

31Exhibit"U,"Records,p.319.
 32Josefav.ZhandongTradingCorporation,G.R.No.150903,8December2003,417SCRA269.

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