06 Palacio v.

Fely Transportation Company

5 SCRA 1011 (August 31, 1962)
Regala, J. / kam

Subject Matter: The Corporate Entity; Piercing the Corporate Veil

Summary: Isabelo Calingasan, with his family, incorporated Fely Transportation Company. Their driver, Alfredo Carillo, ran
over and caused injuries to Mario Palacio. Carrillo was convicted and sentenced with civil liablity in a criminal case. Gregorio
Palacio, Mario’s father, sued Fely separately for civil liability. CFI dismissed the complaint and the appeal to the CA was
certified to SC since it raises purely questions of law.
Fely contended that at the time of the accident, Calingasan was the owner of the jeep thus the complaint for civil
liability should be dismissed. SC held that in this case, Calingasan & Fely can be regarded as one and same person as it appears
that Calingasan incorporated Fely in order to evade his subsidiary liability as Carrillo’s employer. CFI decision reversed and
Calingasan and Fely were ordered to pay civil liability to the Palacios.

Doctrines:
 Fiction of corporate entity not to be used to evade liability. – Where the main purpose in forming the corporation was to
evade one's subsidiary liability for damages in a criminal case, the corporation may not be heard to say that it has a
personality separate and distinct from its members, because 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.

Parties:
Plaintiff-appellants Gregorio Palacio, in his own behalf and in behalf of his minor child, Mario Palacio
Defendant-appellee Fely Transportation Company

Facts: Appeal by the plaintiffs from the CFI’s dismissal of their complaint. Originally taken to the CA, this appeal was certified
to this Court on the ground that it raises purely questions of law.
1. December 1952 – Fely Transportation Company (Fely) hired Alfredo Carillo as driver of jeep AC-687 owned &
operated by Fely.
2. Dec. 24, 1952 11:30am – Carillo ran over Mario Palacio in a negligent, reckless, and imprudent manner while he was
driving at Halcon Street, QC.
3. Mario Palacio suffered a simple fracture of the right temor, hospitalizing him at the Philippine Orthopedic Hospital
from Dec. 24, 1952 to Jan. 8, 1953 and continued to be treated for a period of 5 months after.
4. Gregorio Palacio is a welder and owns a small welding shop and had to abandon his shop because of the injuries of his
child (income of P10.00/ordinary day & P20 to P50 on Sundays). During the treatment of Mario, in order to support
his family, Gregorio was forced to sell one air compressor (heavy duty) & one heavy duty electric drill for a sacrifice
sale of P150.00 which could easily sell at P350.00.
5. May 19, 1954 complaint - Damages: Because of the negligent act of Carillo, plaintiffs were forced to litigate for an
agreed amount of P300.00 for attorney’s fee; and plaintiffs incurred the amount of P500.00 for actual expenses for
transportation, representation, and gathering evidence & witnesses. And that because of the nature of the injuries of
plaintiff Mario, and the fear that the child might become a useless invalid, the herein plaintiff Gregorio Palacio has
suffered moral damages which could be conservatively estimated at P1,200.00.
6. May 23, 1956 – Fely filed a Motion to Dismiss on the ff. grounds: (1) that there is no cause of action against the
defendant company, and (2) that the cause of action is barred by prior judgment. The court deferred judgment on the
Motion to Dismiss until the trial of the case.
7. Answer of Fely (June 20, 1956):
a. complaint states no cause of action against defendant
b. sale & transfer of jeep by Isabelo Calingasan to Fely was made on Dec. 24, 1955, long after driver Carillo was
convicted and served his sentence in a criminal case (CFI QC), where both civil and criminal cases were
simultaneously tried by agreement of the parties in said case.
c. Fely also alleges that filing of this complaint was clearly meant to harass it and thus it was forced to engage the
services of a lawyer for the amount of P500.00.
8. Transcript of the trial of the criminal case show that plaintiffs were unsuccessful in proving the moral damages
incurred and also the actual damages in connection with the case.
- Dispositive of the criminal case: Carillo guilty beyond reasonable doubt of the crime charged in the information
and he is hereby sentenced to suffer imprisonment for a period of 2 Months & 1 Day of Arresto Mayor; to
indemnify the offended party, by way of consequential damages, in the sum of P500.00 which the Court deems
reasonable; with subsidiary imprisonment in case of insolvency but not to exceed 1/3 of the principal penalty
imposed; and to pay the costs.

9. CFI – held that action is barred by the judgment in the criminal case and, that under RPC Art. 103, the person
subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the defendant corporation (Fely).
 10. It appears that Isabelo Calingasan is both the president and general manager of Fely Transportation Company. Palacio
claims that Calingasan merely incorporated Fely in order to evade his civil liability. The incorporators of Fely are
Isabelo Calingasan, his wife, his son, and his two daughters.

Issue: WON Isabelo Calingasan and Fely Transportation Company may be regarded as one and the same person in this suit for
damages? (YES) [See Others/Notes for the other issue tackled by the SC.]

Ratio:
Yes, the SC agrees with the plaintiffs’ contention that Isabelo Calingasan and defendant Fely Transportation may be
regarded as one and the same person.
1. It is evident that Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability
resulting from the conviction of his driver, Carillo. The incorporators of Fely are Calingasan’s family members.
2. Allowing Fely to claim a personality separate and distinct from its members would be to sanction the use of the fiction
of corporate entity as a shield to further an end subversive of justice.
3. Furthermore, the failure of the defendant corporation to prove that it has other property than the jeep (AC-687)
strengthens the conviction that its formation was for the purpose above indicated.
4. Even though Calingasan is not a party in this case, it has been previously held by the Court in Alonso v. Villamor, that it
is possible to substitute him in place of the defendant corporation as to the real party in interest. This is so in order to
avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay.
5. 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.

Dispositive: CFI QC decision REVERSED and defendants Fely & Isabelo Calingasan are ordered to pay, jointly and severally,
the plaintiffs the amount of P500.00 and the costs.

Others/Notes:
Another issue: WON the present action is barred by the judgment of the CFI QC in the criminal case? (NO)
- While there seems 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 is convinced, from the discussion and prayer in the brief
on appeal, that they are insisting on the subsidiary civil liability of the defendant.
- 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 of P500.00.