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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 of

law, 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 a
person by process of fiction or by regarding it as an artificial person distinct and
separate 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 as
stockholders 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 personal
dealings, they cannot be held personally liable for the judgment rendered against
the 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 for
disregarding 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 of
statutes, (3) the achievement or perfection of a monopoly or (4) generally the
perpetration of knavery or crime, the veil which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals. (San Juan
Structural vs. CA)

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 US
based corporation for taxation purposes, this does not mean that the corporate
personality of the domestic corporation will be disregarded in other cases and for
other purpose. (Koppel (Phil) vs. Yatco)
c. When a corporation’s legal personality had been pierced in once case, it was
held that the corporation still possessed such separate juridical personality in
any other case, or with respect to other issues. (Tantoco vs. Kaisahan ng mga
Mangagawa sa La Campaña)
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 different
Corporations 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 a
stockholder of the said corporation, he is considered a co-owner of the property
where 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 by
stockholders 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 petitioning
individuals (the Yutingcos) should be treated as the real Petitioners to the exclusion
of the petitioning corporate debtor. The doctrine of piercing the veil of corporate
fiction heavily relied upon by petitioner is entirely misplaced, as said doctrine only
applies when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime. (Union Bank vs. CA)

Judicial Prerogative
a. Only a court can allow the piercing of the veil of corporate fiction. The Court held that a
sheriff usurped the power belonging to the court when during execution, he could not
locate any properties of the Corporation and levied, instead, the properties of the
President of the corporation. (Cruz vs. Dalisay)

4. Classification of Piercing Cases

Three Major Areas in Piercing Cases

a. 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 instrumentality
of the a person or another entity (alter ego cases); and
c. When the piercing of the corporate fiction is necessary to achieve justice or
equity (equity cases).