a. Doctrine of Separate Juridical Personality

Corporate Fiction

A corporation has a personality separate and distinct from the persons composing it. (Civil Code, Art. 44(3)¹; PNB v. Andrada Electric & Engineering Co., G.R. No. 142936, 17 April 2002²).

Doctrine of Separate Juridical Personality

A corporation is a juridical entity with a legal personality separate and distinct from those acting for and on its behalf, and, in general, from the people comprising it; the obligations incurred by the corporation, acting through its directors, officers and employees are its sole liabilities (Santos v. NLRC, G.R. No. 101699, 13 March 1996)³.

While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the corporate property, his interest in such property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person (Magsaysay-Labrador v. COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, G.R. No. 58168, 19 December 1989)⁴.

Liability for Torts and Crimes

• On Torts

A corporation is civilly liable in the same manner as natural persons for torts, because the rules governing the liability of a principal for a tort committed by an agent are the same whether the principal be a natural person or a corporation, and whether the agent be a natural or artificial person. That a principal is liable for every tort which he expressly directs or authorizes, is just as true of a corporation as a natural person (PNB v. CA, G.R. No. L-27155)⁵.

A corporate officer who caused the tort act to be committed in the name of the corporation is also personally liable as a joint-tortfeasor.

The failure of the corporate employer to comply with a legal duty, such as under the Labor Code⁶ to grant separation pay to employees constitutes tort and its stockholder who was actively engaged in the management of the business should be held personally liable (Naguiat v. NLRC, G.R. No. 116123, 13 March 1997)⁷.

A corporation can be held liable for the tortious acts of a corporate officer, in the absence of a prior express direction from the BOD, if such was connected to the business of the corporation.

• On Crimes

General rule: Corporations cannot commit felonies under the RPC for it is incapable of the requisite intent to commit these crimes.

A corporation cannot be imprisoned, but it may be held liable under a special law that expressly imposes liability on a juridical person and prescribes an applicable penalty, such as a fine (RCC, Secs. 161, 165–167). Liability of responsible natural persons depends on the statute.

A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.

Exceptions: If the crime is committed by a corporation, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefore. However, the corporation may be charged and prosecuted for a crime if the imposable penalty is fine (Ching v. Secretary of Justice, G.R. No. 164317, 6 February 2006)⁸.

When a law expressly provides that a corporation may be proceeded against criminally, the responsible officer will be held personally liable for the crimes committed by the corporation. However, such liability will only attach to the officer when the corporation is directly required by law to do an act in a given manner, and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally (Sia v. Court of Appeals, G.R. No. 108222, 5 May 1997)⁹. For example:

• Under the Anti-Money Laundering Act¹⁰, juridical persons are also defined as offenders.
• The RCC provides situations where corporations are liable for criminal sanctions:
• SEC. 161¹¹. Violation of Duty to Maintain Records, to Allow their Inspection or Reproduction;
• SEC. 165¹². Fraudulent Conduct of Business;
• SEC. 166¹³. Acting as Intermediaries for Graft and Corrupt Practices;
• SEC. 167¹⁴. Engaging Intermediaries for Graft and Corrupt Practices

Recovery of Moral Damages

General rule: A corporation cannot recover moral damages as it cannot suffer physical suffering and mental anguish (Prime White Cement Corp. v. Intermediate Appellate Court, G.R. No. L-68555, 19 March 1993)¹⁶.

Exception: A corporation with a good reputation, if besmirched, is allowed to recover moral damages upon proof of existence of factual basis of damage (actual injury) and its causal relation (Crystal v. Bank of the Philippine Islands, G.R. No. 172428, 28 November 2008)¹⁷.

The following Constitutional rights apply to a corporation:

• Due process - The due process clause is universal in its application to all persons without regard to any differences of race, color, or nationality. Private corporations, likewise, are “persons” within the scope of the guaranty insofar as their property is concerned.” (Smith v. Natividad, G.R. No. 15574, 17 September 1919)¹⁸.
• Equal protection of the law (Smith v. Natividad, G.R. No. 15574, 1919)
• Unreasonable searches and seizures - (Stonehill v. Diokno, G.R. No. L-19550, 19 June 1967)¹⁹.

In organizing itself as a collective body, the corporation waives no constitutional immunities applicable to it. Its property cannot be taken without compensation; can only be proceeded against by due process of law; and is protected against unlawful discrimination (Bache & Co. (Phil.), Inc. v. Ruiz, G.R. No. 32409²⁰, citing Hale v. Henkel, 201 U.S. 43, 50 L.Ed. 652²¹.).

Note: The right against self-incrimination has no application to juridical persons. (Bataan Shipyard & Engineering Co., Inc. v. PCGG, G.R. No. L-75885, 27 May 1987)²²

• The right against self-incrimination refers only to testimonial compulsion;
• A corporation cannot testify; and
• The State can freely open the books of the corporation to ensure that it does not exceed its powers

Implications of the Existence of the Corporate Veil or a Separate and Distinct Juridical Personality

• Controlling interest of and/or dealings in shareholdings

Ownership of a majority of capital stock and the fact that majority of directors of a corporation are the directors of another corporation creates no employer-employee relationship with the latter’s employees (Development Bank of the Philippines v. NLRC, G.R. No. 86932, 27 June 1990²³; Adalia B. Francisco and Merryland Development Corporation v. Mejia, G.R. No. 141617, 14 August 2001)²⁴.

The mere fact that a stockholder sells his shares of stock in the corporation during the pendency of a collection case against the corporation, does not make such stockholder personally liable for the corporate debt, since the disposing stockholder has no personal obligation to the creditor, and it is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires (Remo, Jr. v. IAC, G.R. No. L-67626)²⁵.

Mere substantial identity of the incorporators of the two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. In the absence of clear and convincing evidence to show that the corporate personalities were used to perpetuate fraud, or circumvent the law, the corporations are to be treated as distinct and separate from each other (Laguio v. NLRC, G.R. No. 108936, 4 October 1996)²⁶.

• Transaction amongst the corporation and stockholders

The transfer of the corporate assets to the stockholder is not in the nature of a partition but is a conveyance from one party to another (Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, G.R. No. L-18216, 30 October 1962).²⁷

Note: A corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities which it may be connected and vice-versa (Arb Construction Co., Inc. v. Court of Appeals, G.R. No. 126554, 31 May 2000)²⁸.

• Pertaining to privileges enjoyed

The tax privileges enjoyed by a corporation do not extend to its stockholders. A corporation has a personality distinct from that of its stockholders, enabling the taxing power to reach the latter when they receive dividends from the corporation. It must be considered as settled in this jurisdiction that dividends of a domestic corporation which are paid and delivered in cash to foreign corporations as stockholders are subject to the payment of the income tax, the exemption clause to the charter [of the domestic corporation] notwithstanding. (Manila Gas Corporation. v. Collector of Internal Revenue, G.R. No. L-42780)²⁹.

• Assumption as a corporate officer

Being an officer or stockholder of a corporation does not by itself make one’s property also of the corporation, and vice-versa, for they are separate entities, and that shareholders are in no legal sense the owners of corporate property which is owned by the corporation as a distinct legal person (Good Earth Emporium Inc v. COURT OF APPEALS and ROCES-REYES REALTY INC, G.R. No. 82797, 27 February 1991)³⁰.

The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation, since that president, as an individual, and the corporation, are separate entities (Cruz v. Dalisay, A.M. No. R-181-D)³¹.

• Properties, obligations and debts

A corporation has no legal standing to file a suit for recovery of certain parcels of land owned by its members in their individual capacity, even when the corporation is organized for the benefit of the members (Sulo NG Bayan Inc v. Gregorio Araneta, Inc., G.R. No. L-31061, 17 August 1976)³².

The corporate debt or credit is not the debt or credit of the stockholder nor is the stockholder’s debt or credit that of the corporation (Traders Royal Bank v. Court of Appeals, G.R. No. L-78412, 26 September 1989)³³.

Stockholders have no personality to intervene in a collection case covering the loans of the corporation on the ground that the interest of shareholders in corporate property is purely inchoate (Saw v. CA, G.R. No. 90580)³⁴.

The interests of payees in promissory notes cannot be off-set against the obligations between the corporations to which they are stockholders absent any allegation, much less, even a scintilla of substantiation, that the parties interest in the corporation are so considerable as to merit a declaration of unity of their civil personalities (CKH Industrial and Development Corporation and Rubi Saw v. Court of Appeals, G.R. No. 111890, 7 May 1997)³⁵.

Even when the foreclosure on the assets of the corporation was wrongful and done in bad faith, the stockholders of the corporation have no standing to recover for themselves moral damages. Otherwise, it would amount to the appropriation by, and the distribution to, such stockholders of part of the corporation’s assets before the dissolution of the corporation and the liquidation of its debts and liabilities (APT v. CA, G.R. No. 121171)³⁶.

Where real properties included in the inventory of the estate of a decedent are in the possession of and are registered in the name of the corporations, in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of said corporations should stand undisturbed (Lim v. CA, G.R. No. 124715)³⁷.

• Third-parties to corporate acts

The fact that respondents are not stockholders of the disputed corporations does not make them non-parties to the case. In this case, it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners, and that the former acquired the properties sought to be reconveyed to FGSRC in violation of directors-petitioners’ fiduciary duty to FGSRC.

The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical if, as alleged in the present case, the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders (Gochan v. Young, G.R. No. 131889, 2001).