### Facts:
1. **Incident**: On March 29, 1979, Violeta M. Borres suffered injuries from an accident, deemed due to the negligence of Phividec Railways, Inc. (PRI).
2. **Corporate Transaction**:
– On May 25, 1979, Philippine Veterans Investment Development Corporation (PHIVIDEC) sold all its interests in PRI to the Philippine Sugar Commission (PHILSUCOM).
– On May 27, 1979, PHILSUCOM established Panay Railways, Inc. (Panay), a wholly-owned subsidiary, to manage the railway assets from PHIVIDEC.
3. **Agreement Clause**: The sale agreement included a clause wherein PHIVIDEC accepted responsibility, exempting PHILSUCOM from liabilities arising before the transfer.
4. **Complaint for Damages**: On January 21, 1980, Borres filed a damage suit against PRI and Panay. Panay, in turn, filed a third-party complaint against PHIVIDEC.
5. **Trial Court Ruling**: Judge Ricardo M. Ilarde of the Iloilo Regional Trial Court ruled PRI liable for negligence, and as PRI was a PHIVIDEC subsidiary, PHIVIDEC was also held responsible.
6. **Appeal**: The Court of Appeals affirmed the trial court’s decision, holding PHIVIDEC accountable despite its argument distinguishing itself from PRI.
7. **Supreme Court Petition**: PHIVIDEC petitioned the Supreme Court, alleging the Court of Appeals committed grave abuse of discretion.
### Issues:
1. Whether the veil of corporate fiction should be pierced to hold PHIVIDEC liable for the actions of its subsidiary, PRI.
2. Whether PHIVIDEC assumed liability for any claims against PRI before the sale, as per their agreement with PHILSUCOM.
### Court’s Decision:
1. **Piercing the Corporate Veil**:
– The Supreme Court upheld that the corporate veil could be pierced when used to defeat public convenience, justify wrong, protect fraud, or defend crime.
– The evidence demonstrated that PRI was under PHIVIDEC’s complete control, thereby justifying the disregard of their separate corporate personalities.
2. **Assumption of Liability**:
– PHIVIDEC explicitly assumed liability for any claims predating the transfer to PHILSUCOM, as stated in their agreement.
– The Supreme Court echoed the lower court’s finding that since the accident occurred before the turnover and PRI ceased operations post-turnover, PHIVIDEC was liable.
3. **Equity and Justice**:
– To prevent injustice and ensure Borres’s rightful claim, the Court concluded that PHIVIDEC and PRI should be treated as the same entity.
### Doctrine:
**Piercing the Veil of Corporate Fiction**:
– The doctrine can be invoked to prevent misuse of corporate structures to avoid liability, perpetrate fraud, or commit other wrongful acts.
– Legal and equitable principles apply, requiring responsible parties to be accountable even if nominally distinct entities.
### Class Notes:
– **Key Elements**:
– **Piercing the Veil**: Used to disregard corporate separateness preventing injustice or fraud.
– **Corporate Control**: Extensive control by a parent company over a subsidiary can justify treating them as one entity for liability purposes.
– **Statutory Provisions**:
– Refer to **Koppel v. Yatco** and **Yutivo Sons Hardware Co. v. Court of Tax Appeals** for principles on ignoring corporate fiction when it leads to unjust outcomes.
### Historical Background:
During a period when large corporate entities frequently structured themselves into multiple subsidiaries, often to limit liability and complicate legal accountability, this case contextualizes the judiciary’s willingness to pierce such corporate veils. It underscores a period emphasizing corporate responsibility and equity, reflecting broader socio-legal responses to corporate conduct in the late 20th century Philippines.
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