- It dictates that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it. (Queensland-Tokyo Commodities, Inc., et al. vs. Thomas
George)
- The general rule is that a corporation has a personality separate and distinct from that of its
stockholders and other corporations to which it may be connected. (Suldao vs. Cimech
System Construction, Inc.)
- Under this doctrine, the court looks at the corporation as a mere collection of individuals or
an aggregation of persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group.
- Another formulation of this doctrine is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or as one and the same. (Pantranco Employees
Association vs. NLRC)
- The corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a wrong to
shield or perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as identical. (Livesey vs.
Binswanger)
- It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected.
But this separate and distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of separate juridical
personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise
when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.
- Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity
of the instrumentality may be disregarded. The control necessary to invoke the rules is not
majority or even complete stock control but such domination of finances, policies, and
practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be kept in mind that the
control must be shown to have been exercised at the time of the acts complained of took
place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made. (Pacific Rehouse Corp. vs. CA)
What factors would be considered by the Court in piercing the veil of two corporations?
What are the factors of identity that may be considered in the application of the doctrine?
- In the case of Heirs of Fe tan Uy, et al., the following factors are considered:
1. Stock ownership by one or common ownership of both coporations;
2. Identity of directors and officers;
3. The manner of keeping corporate books and records; and
4. Methods of conducting the business.
- Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity
of the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation, has to speak, no separate mind, will or existence
of its own, and is but a conduit of its principal. It must be kept in mind that the control must
be shown to have been exercised at the time the acts complained of took place. Moreover,
the control and breach of duty must proximately cause the injury or unjust loss for which
the complaint is made. (Pacific Rehouse)
- The doctrine provides that a corporation will be stopped from denying the agent’s authority
if it knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, and it holds him out of the public as possessing the power to do those
acts. (Advance Paper Corp. vs. Arma Traders Corp)
- If a corporation knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, it holds the agent out to the public as possessing the power
to do those acts; thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be stopped from denying the agent’s authority. (Rural Bank of
Milaor vs. Ocfemia)
- A banking corporation is liable to innocent third persons where the representation is made
in the course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetuate fraud upon his principal or some person, for his own ultimate
benefit. (Prudential Bank and Trus Co. vs. Abasolo)
- Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such officer has certain limited
powers in the transaction of the usual and ordinary business of the corporation. In the
absence of a charter or bylaw provision to the contrary, the president is presumed to have
the authority to act within the domain of the general objectives of its business and within
the scope of his or her usual duties. (Advance Paper)
- If the principal did not commit any acts or conduct which a third party knew and relied upon
in good faith as a result of the exercise of reasonable prudence. Moreover, the agent’s acts
or conduct must have produced a change of position to the third party’s detriment. (Banate
vs. Phil. Countryside Rural Bank, Inc.)
- Apparent authority is determined only by the acts of the principal and not by the acts of the
agent – the principal is not responsible where the agent’s own conduct and statements have
created the apparent authority. (Sargasso Construction and Development Corp, et al. vs.
Philippine Ports Authority)
- Apparent authority is determined only by the acts of the principal and not by the acts of the
agent. (Banate)
- All stocks issued by the corporation are presumed equal with the same privileges and
liabilities, provided that the AoI is silent on such differences. (CIR vs. CA)
- The owners of a corporate organization are its stockholders and they are to be distinguished
from its directors and officers. In a corporation, the management of its business is generally
vested in its board of directors, not its stockholders. Stockholders are basically investors in a
corporation. They do not have a hand in running the day-to-day business operations of the
corporation unless they are at the same time directors or officers of the corporation.
- Before a stockholder may be held criminally liable for acts committed by the corporation, it
must be shown that he had knowledge of the criminal act committed in the name of the
corporation and that he took part in the same or gave his consent to its commission,
whether by act or inaction.
- Sec. 31 of the Corporation Code expressly lays down the officers’ liability for damages
arising from their gross negligence or bad faith in directing corporate affairs.
- It enunciates a rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund only by way of analogy or methapor.
As between the corporation itself and its creditors it is a simple debtor, and as between its
creditors and stockholders its assets are in equity fund for the payment of its debts. (Halley)
- Subscriptions to the capital of a corporation constitute a fund to which creditors have a right
to look for satisfaction of their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the payment of its
debts. (Velasco vs. Poizat)
What is BJR?
- It provides that the BoD or Trustees has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation with the scope of its
charter. (Filipinas Port Services vs. Go)
- As to its corporate and management decisions, the state will generally not interfere with the
same. Questions of policy and of management are left to the honest decision of the officers
and directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the business manager of
the corporation, and so long as it acts in good faith, its orders are not reviewable by the
courts. (PSE vs. CA)
- Courts and other tribunals are wont to override the business judgment of the board mainly
because, courts are not in the business of business, and the laissez faire rule or the free
enterprise system prevailing in our social and economic set-up dictates that it is better for
the State and its organs to leave business to the businessmen; especially so, when courts are
ill-equipped to make business decisions.
- Sec 23 of the Corporation Code provides that unless otherwise provided therein, the
corporate powers of all corporations formed under the Code shall be exercised, all business
conducted and all property of the corporation shall be controlled and held by a board of
directors.
- The social contract in the corporate family to decide the course of the corporate business
have been vested in the board and not with courts. (Yong vs. Tiu)
- The courts cannot undertake to control the discretion of the board of directors about
administrative matters as to which they have legitimate power of action. Thus, the court has
no jurisdiction to interfere with the management of the corporation by the BoD, and the
enactment of a resolution by the members of the BoD of the corporation. (Asso. Of Int’l
Shipping Lines, Inc. vs Phil. Ports. Authority)