Corporate Law Notes: Separate Juridical Personality and Doctrine of Piercing (04/19)

A. Main Doctrine: A Corporation has a personality Separate and Distinct from its Stockholders or Members (Jardine Davies, Inv. v. JRB Realty, Inc. (2005))

1. Sources: Sec. 2; Article 44 Civil Code

Art. 44. The following are juridical persons:

xxx(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law;

2. Importance of Main Doctrine

A corp., upon coming into existence, is invested by law w/ a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. This separate and distinct personality is, however, merely a fiction created by law for conveyance and to promote the ends of justice (Siain Enterprises, Inc. v. Cupertino Realty Corp. (2009))
The first doctrine of legal entity of the separate personality of the corp. may not be made to answer for acts and liabilities of its stockholders or those of legal entities to which it may be connected or vice versa. (Shrimp Specialists Inc. v. Fuji-Triumph Agri-industrial Corp. (2009))

3. Applications

Cases:

National Power Corp. v. CA

No allegation, finding or conclusion regarding particular acts committed by said officers and members of the BOD that showed them to have individually guilty of unmistakable malice, bad faith or ill-motive in their personal dealings with third parties - CANNOT be held personally liable for judgment rendered against the corp.

Development Bank of Philippines v. NLRC

ownership of majority of capital stock and the fact that a majority of directors of a corp. are directors of another corp. created no employer-employee relationship, nor did it make the controlling stockholder liable for employees' claim of the subject corp.

Suldao v. Cimech

A corp.'s authority to act and its liability for its actions are separate and apart from the individuals who owns it
ff. have been held and logical and legal consequence of the application of separate juridical personality

such corp. may NOT be held liable for the obligations of the persons composing it or that its officers
Neither can its stockholders be held liable for the obligations of such corp.
Officers of a corp. are NOT personally liable for their acts as such officers, unless it is shown that they have exceeded their authority
The property of the corp. is NOT the property of its stockholders or members
Nor can the property of event the controlling stockholders or the officers be treated as part of the corp. estate
A suit against a corp. CANNOT be considered as a suit against its stockholders and vice-versa
A mother or holding corp. has NO proprietary interest in the property, rights and interest of the subsidiary or affiliate corp.
But since the separate and distinct personality of a corp. is a fiction created by law for convenience and to prevent injustice, it may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle forr the evasion of an existing obligation, the circumvention of statues, or to confuse legitimate issues
However, the following facts by themselves or in combination, would NOT warrant a disregard of the veil of corp. fiction, absence fraud or other public policy consideration

mere ownership by a single stockholder or by another corp. of all or nearly all of the capital stock of a corp.
having the same address
presence of interlocking incorporators
presence of interlocking directors

Majority equity ownership and interlocking directorship

creates no employer-employee relationship with the other corporation's employees (DBP v. NLRC (1990))
what are NOT of itself sufficient ground for disregarding the separate corporate personality

mere ownership by a single stockholder or by another corporation of all or nearly of the capital stock of a corporation(EDSA Shangri-La Hotel and Resorts, Inc. v. BF Corp. (2008))

A corporate defendant against whom a writ of possession has been issued, CANNOT use the fact that it has obtained controlling equities in the corporate plaintiffs to suspend enforcement of the writ (Silverio Jr. v. Filipino Business Consultants, Inc. (2005))

Mere substantial identity of incorporators of 2 corporations does NOT necessarily imply fraud, nor warrant the piercing of the veil of the corporate fiction. (Laguio v. NLRC (1996))
Having interlocking directors, corporate officers and shareholders (Velarde v. Lopez (2004))

Being Corporate Officer

what are NOT of itself sufficient ground for disregarding the separate corporate personality

Being an officer or stockholder of a corporation(Prisma Construction & Dev. Corp v. Menchavez (2010))
President of the corp.(Booc v. Bantuas (2001))

a corporate officer and his spouse where he entered into and signed the contract clearly in his official capacity (Interstate Estate of Alexander T. Ty v. CA (2001))
The President of the corp. which becomes liable for the accident caused by its truck driver CANNOT be held solidarily liable for the judgment obligation arising from quasi-delict, since the fact alone of being President is NOT sufficient to hold him solidarily liable for the liabilities adjudged against the corp. and its employee. (Secosa v. Heirs of Erwin (2004))
When the compulsory counterclaim filed against corp. officers for their alleged fraudulent act indicate that such corp. officers are indispensable parties in the litigation, the orig. inclusion of the corp. in the suit does NOT thereby allow the denial of a specific counter-claim being filed to make the corp. officers personally liable. (Lafarge Cement Phils. v. Continental Cement Corp. (2004))

Dealings with Corp. and Stockholders

what are NOT of itself sufficient ground for disregarding the separate corporate personality

The fact that majority stockholders had used his own money to pay part of the loan of the corp.

"It is understandable that a shareholder would want to help his corp. and in the process, assure that his takes in the corp. are secured (LBP v. CA (2001))

Use of a controlling stockholder's initials in the corporate name

A corp. may assume any name provided it is lawful, and there is nothing illegal in a corporation acquiring the name or as in this case, the initials of 1 of its shareholders (LBP v. CA (2001))

The mere fact that a stockholder sells his shares of stock in the corp. during the pendency of a collection case against the corp.,

Case:

Remo Jr. v. IAC (1989)

since the disposing stockholder has NO personal obligation to the to the creditor, and it is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires.

PNB v. Ritratto Group, Inc. (2001)

GR: stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary
EX: the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation