Palacio vs. Fely Transportation Company

A corporation may be held subsidiarily liable for the felonies committed by its employee in the discharge of duties, and the corporate veil may be pierced where the corporation was formed to evade the employer's subsidiary civil liability. The doctrine of separate corporate personality cannot be used as a shield to further an end subversive of justice, and the court may substitute the real party in interest in place of the corporation to avoid multiplicity of suits.

The plaintiffs Gregorio Palacio, in his own behalf and in behalf of his minor child Mario Palacio, filed a complaint for damages against Fely Transportation Company arising from a vehicular accident. The defendant corporation's president and general manager was Isabelo Calingasan, who was also the original owner of the jeep involved in the accident. The case involves the interplay between Article 103 of the Revised Penal Code on subsidiary liability of employers and the doctrine of separate corporate personality.

Gregorio Palacio, a welder by occupation and owner of a small welding shop, filed a complaint on May 15, 1954, in his own behalf and in behalf of his minor child Mario Palacio, against Fely Transportation Company. The complaint alleged that about December 1952, the defendant company hired Alfredo Carillo as driver of AC-787 (687), a jeep owned and operated by the defendant company. On December 24, 1952, at about 11:30 a.m., while driving AC-687 at Halcon Street, Quezon City, Carillo negligently, recklessly, and imprudently ran over Mario Palacio, causing the child a simple fracture of the right tenor (sic), complete third. Mario was hospitalized at the Philippine Orthopedic Hospital from December 24, 1952, to January 8, 1953, and continued treatment for five months thereafter.

Gregorio Palacio alleged that because of his child's injuries, he abandoned his welding shop where he derived income of P10.00 a day for the support of his big family. During the period his child was hospitalized and under treatment, he was forced to sell one air compressor (heavy duty) and one heavy duty electric drill for a sacrifice sale of P150.00, which could easily have sold for P350.00. The plaintiffs also claimed P300.00 for attorney's fees, P500.00 in actual expenses for transportation and representation, and P1,200.00 in moral damages due to fear that the child might become a useless invalid.

The defendant filed a Motion to Dismiss on May 23, 1956, on grounds of no cause of action and bar by prior judgment. The court deferred determination of the motion until trial. In its answer filed June 20, 1956, the defendant alleged as affirmative defenses that the complaint stated no cause of action and that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo had been convicted and had served his sentence in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City, where both civil and criminal cases were simultaneously tried by agreement of the parties.

During the trial, plaintiffs presented the transcript of the stenographic notes of the criminal case as Exhibit "A". Gregorio Palacio testified that Mario is his son; that as a result of Carillo's reckless driving, his child was injured and hospitalized; that he watched his child at night and his wife during the day; that he could not work during that period; that before the injury he earned P10.00 a day on ordinary days and P20 to P50 on Sundays; and that he had to sell his compressor and electric drill for P150 only, though they could have been sold for P300 at the lowest price. In the criminal case, attempts to prove moral damages, attorney's fees, and expenses were unsuccessful.

The Court of First Instance of Quezon City found Alfredo Carillo guilty beyond reasonable doubt and sentenced him to imprisonment of Two Months and One Day of Arresto Mayor, to indemnify the offended party by way of consequential damages in the sum of P500.00, with subsidiary imprisonment in case of insolvency, and to pay costs. The lower court in the civil case held that the action was barred by the judgment in the criminal case and that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages was Isabelo Calingasan, the employer, and not the defendant corporation.

• Subsidiary Liability of the Corporation: Plaintiffs contended that the defendant corporation should be made subsidiarily liable for damages in the criminal case because the sale of the jeep to it after the conviction of Alfredo Carillo was merely an attempt on the part of Isabelo Calingasan, its president and general manager, to evade his subsidiary civil liability.
• Corporate Veil: Plaintiffs argued that the incorporators of Fely Transportation Company are Isabelo Calingasan himself, his son, and daughters, and that the intention of Calingasan in incorporating the company was to evade his civil liability as a result of the conviction of his driver of vehicle AC-687 then owned by him.
• Bar by Prior Judgment: Plaintiffs contended that the lower court erred in holding that their cause of action is barred by prior judgment.

• No Cause of Action: Defendant alleged that the complaint states no cause of action against it.
• Prior Judgment: Defendant alleged that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo had been convicted and had served his sentence in Criminal Case No. Q-1084, in which both the civil and criminal cases were simultaneously tried by agreement of the parties.
• Subsidiary Liability of the Employer: Defendant maintained that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabelo Calingasan, the employer, and not the defendant corporation.

• Subsidiary Liability of the Corporation: Whether the defendant corporation should be held subsidiarily liable for damages arising from the criminal conviction of its driver Alfredo Carillo.
• Piercing the Corporate Veil: Whether the corporate fiction of Fely Transportation Company should be disregarded where the corporation was formed to evade Isabelo Calingasan's subsidiary civil liability.
• Bar by Prior Judgment: Whether the plaintiffs' cause of action is barred by the judgment in the criminal case.

• Subsidiary Liability of the Corporation: Yes. The defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency.
• Piercing the Corporate Veil: Yes. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person, and the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice.
• Bar by Prior Judgment: No. The present action is not barred by the judgment of the Court of First Instance of Quezon City in the criminal case, because the subsidiary liability proceeds precisely from the judgment in the criminal action where the accused was found guilty and ordered to pay an indemnity.

• Subsidiary Liability of the Corporation: The Court agreed with the plaintiffs' contention that the defendant corporation should be made subsidiarily liable. Under Article 103 of the Revised Penal Code, the subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties. Since Alfredo Carillo was found guilty and ordered to pay an indemnity of P500.00 which he could not pay on account of insolvency, the subsidiary liability attached to his employer.

• Piercing the Corporate Veil: The Court found that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability resulting from the conviction of his driver. This conclusion was borne out by the fact that the incorporators of Fely Transportation are Isabelo Calingasan, his wife, his son, and his two daughters. The Court cited La Campana Coffee Factory vs. Kaisahan ng mga Manggagawa, holding that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. The failure of the defendant corporation to prove that it has other property than the jeep AC-687 strengthened the conviction that its formation was for the purpose of evading liability. Citing Alonso vs. Villamor, the Court held that it can substitute Isabelo Calingasan in place of the defendant corporation as to the real party in interest, in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay, pursuant to Section 2, Rule 17 of the Rules of Court.

• Bar by Prior Judgment: The Court sustained the plaintiffs' third assignment of error and held that the present action is not barred by the judgment in the criminal case. While there seemed to be some confusion on the part of the plaintiffs as to the theory on which the case is based — whether ex-delito or quasi ex-delito (culpa aquiliana) — the Court was convinced from the discussion and prayer in the brief on appeal that they were insisting on the subsidiary civil liability of the defendant. The record showed that plaintiffs merely presented the transcript of the stenographic notes taken at the hearing of the criminal case, which Gregorio Palacio corroborated, in support of their claim for damages. This ruled out the defense of res judicata, because such liability proceeds precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in the sum of P500.00.

• Piercing the Corporate Veil — The doctrine that a corporation has a personality separate and distinct from its members, but this fiction may be disregarded when it is used as a shield to further an end subversive of justice. The Court applied this doctrine where the corporation was formed by Isabelo Calingasan, his wife, son, and two daughters, primarily to evade Calingasan's subsidiary civil liability arising from the conviction of his driver. The Court held that the defendant corporation should not be heard to invoke its separate corporate personality when doing so would sanction the use of the corporate fiction to evade liability.

• Subsidiary Liability of Employers (Article 103, Revised Penal Code) — The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties. The Court applied this provision to hold both the corporation and Isabelo Calingasan jointly and severally liable for the P500.00 indemnity that the driver Alfredo Carillo could not pay due to insolvency.

• Substitution of Real Party in Interest — Under Section 2, Rule 17 of the Rules of Court, the court may substitute the real party in interest in place of the defendant corporation to avoid multiplicity of suits and save the parties unnecessary expenses and delay. The Court applied this doctrine, citing Alonso vs. Villamor, to substitute Isabelo Calingasan in place of the defendant corporation.

• "We believe that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice." — This passage articulates the Court's application of the doctrine of piercing the corporate veil, holding that the corporate fiction cannot be used to evade liability.

• "This rules out the defense of res judicata, because such liability proceeds precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in the sum P500.00." — This passage explains why the subsidiary civil liability is not barred by prior judgment, as it derives from the criminal conviction itself.

• "And while it is true that Isabelo Calingasan is not a party in this case, yet, as held in the case of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of the defendant corporation as to the real party in interest." — This passage establishes the Court's authority to substitute the real party in interest to avoid multiplicity of suits.

• La Campana Coffee Factory vs. Kaisahan ng mga Manggagawa, G.R. No. L-5677, May 25, 1953 — Cited as authority for the principle that the corporate fiction cannot be used as a shield to further an end subversive of justice.
• Alonso vs. Villamor, 16 Phil. 315 — Cited as authority for the Court's power to substitute the real party in interest in place of the defendant corporation.
• Cuyugan vs. Dizon, 79 Phil. 80 — Cited in support of the Court's authority to substitute the real party in interest.
• Quison vs. Salud, 12 Phil. 109 — Cited in support of the Court's authority to substitute the real party in interest.

• Article 103, Revised Penal Code — Provides that the subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties. The Court applied this provision to hold the corporation and Isabelo Calingasan subsidiarily liable for the driver's indemnity.
• Section 2, Rule 17, Rules of Court — Provides for the substitution of the real party in interest. The Court applied this rule to substitute Isabelo Calingasan in place of the defendant corporation to avoid multiplicity of suits.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and Makalintal, JJ., concurred. Reyes, J.B.L., J., took no part.