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IV. Corporate Juridical Personality and Doctrine of Piercing the Veil of Corporate Fiction

1. Main Doctrine: Separate Juridical Personality

Sec. 2. Corporation defined.- A corporation is an artificial being created by operation oflaw, having the right of succession and the powers, attributes and properties expressly

authorized by law or incident to its existence.

a. A corporation is an entity separate and distinct from its stockholders. While not in

fact and in reality to a person, the law treats the corporation as though it were aperson by process of fiction or by regarding it as an artificial person distinct andseparate from its individual stockholders (Remo, Jr. vs. IAC)

b. Tax exemption of the Corporation does not pertain to its individual stockholder.

Dividends issued by a tax exempt corporation to foreign corporations asstockholders are subject to income tax (Manila Gas Corp. vs. Collector)

c. The Corporate debt or credit of the Corporation is not the debt or credit of the

stockholder (Traders Royal Bank vs. CA)

d. A property of the President of the Corporation is not the property of the

Corporation (Cruz vs. Dalisay)

e. When corporate officers and directors are sued merely as nominal parties in their

official capacities, absent any bad faith, malice or ill motives in their personaldealings, they cannot be held personally liable for the judgment rendered againstthe Corporation (NAPOCOR vs CA)

f. Mere ownership by a single stockholder or by another corporation of all or nearly

all capital stocks of the Corporation is not by itself a sufficient ground fordisregarding the separate corporate personality (Liddell and Co. vs Collector)

2. Piercing the Veil of Corporate Fiction

a. When fiction is used as a means of (1) perpetrating a fraud or and illegal act or

as vehicle for the evasion of an existing obligation, (2) the circumvention ofstatutes, (3) the achievement or perfection of a monopoly or (4) generally theperpetration of knavery or crime, the veil which the law covers and isolates thecorporation from the members or stockholders who compose it will be lifted toallow for its consideration merely as an aggregation of individuals. (San JuanStructural vs. CA)

b.

3. Nature and Consequences of Piercing Doctrine

Res Judicata

a. The consequence when the piercing doctrine is applied is that liability will attach

directly to the officers and stockholders of the Corporation. (Umali vs. CA)

b. When a domestic corporation has been declared a dummy corporation of a USbased corporation for taxation purposes, this does not mean that the corporatepersonality of the domestic corporation will be disregarded in other cases and forother purpose. (Koppel (Phil) vs. Yatco)

c. When a corporations legal personality had been pierced in once case, it was

held that the corporation still possessed such separate juridical personality inany other case, or with respect to other issues. (Tantoco vs. Kaisahan ng mgaMangagawa sa La Campaa)

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To Prevent Fraud or Wrong and for No Other Purpose

a. Piercing Doctrine does not apply in a case to declare a foreclosure proceedings as

void if no claims are set against individual stockholders or officers of the 3 differentCorporations involved. The legal corporate entity is disregarded only if it is sought to

hold the officers and stockholders directly liable for a corporate debt or obligation(Umali vs CA)

b. A party seeks the piercing doctrine to prevent him from being evicted from a lot

owned by a Corporation of which he is the stockholder. Claiming that as astockholder of the said corporation, he is considered a co-owner of the propertywhere he is being evicted. The Court did not allow piercing when it was employed to

justify under a theory of co-ownership the continued use and possession bystockholders of corporate properties. (Boyer-Roxas vs. CA)

c. The piercing doctrine cannot be availed of in order to dislodged from the jurisdiction

of the SEC the Petition for Suspension of Payments on the ground that petitioningindividuals (the Yutingcos) should be treated as the real Petitioners to the exclusionof the petitioning corporate debtor. The doctrine of piercing the veil of corporatefiction heavily relied upon by petitioner is entirely misplaced, as said doctrine only

applies when such corporate fiction is used to defeat public convenience, justifywrong, protect fraud or defend crime. (Union Bank vs. CA)

Judicial Prerogativea. Only a court can allow the piercing of the veil of corporate fiction. The Court held that asheriff usurped the power belonging to the court when during execution, he could notlocate any properties of the Corporation and levied, instead, the properties of thePresident of the corporation. (Cruz vs. Dalisay)

4. Classification of Piercing Cases

Three Major Areas in Piercing Casesa. When the Corporate entity is used to commit fraud or to justify a wrong, or to

defend a crime (fraud cases);b. When the corporate entity is used to defeat public convenience, or a mere farce,

since the corporation is merely the alter ego, business conduit or instrumentalityof the a person or another entity (alter ego cases); and

c. When the piercing of the corporate fiction is necessary to achieve justice orequity (equity cases).