By Atty. Josephrally L. Chavez, Jr., CPA, LLM
In Roman 12:19, it is written – Do not avenge yourselves, beloved, but leave room for God’s wrath. For it is written: “Vengeance is Mine; I will repay, says the Lord.” William Shakespeare articulated that: “Talkers are not good doers”. Jean De La Fontaine emitted: “A hungry stomach cannot hear”. John Dryden voiced that: “Who think too little & who talk too much”. George Herbert expressed that: “Show me a liar and I’ll show you a thief”. Willian Penn stated that: “The public must and will be served”. Matthew Henry aired that: “After a storm comes a calm”. And my idol, the great John Lennon intoned that: “You may say I’m a dreamer. But I’m not the only one”.
In Commercial Law parlance, it is elementary that a corporation has a personality distinct and separate from its individual stockholders or members. In fact, even the Civil Code states that a juridical person such as a corporation, the law grants a juridical personality, separate and distinct from that of each shareholder, partner, or member. Simply put, a corporation regarded as a person is different and has a personality distinct from the persons composing it. Thus, e.g. the property of the corporation is not the property of the stockholders.
Parenthetically, a corporation being a juridical person is regarded by law with a personality normally possessed by an individual and is known to be as an artificial being or person. While a corporation is treated as a person, unlike human beings, it does not have any physical existence. It exists only by legal fiction. A corporation exists only because the law says so. Its existence is abstract, theoretical, intangible, or its physical existence is just all in the minds. It is invisible and exists only because the law so provides. However still, a corporation is regarded as a person, an artificial being because of its attributes. [See The Revised Corporation Law, Illustrated and Simplified, A Guide to Passing the Bar, 2020 Edition, by Atty. JLChavez, Jr.] In this view, therefore, corporate affairs, businesses, contracts and transactions, its assets, can only be managed and represented by the persons composing it. In a stock corporation, it is the board of directors manifested through board resolutions.
It is also settled that although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers, such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals if the corporate entity is being used as a cloak or cover for fraud or illegality as a justification for a wrong, as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.
In a long line of cases decided by the Supreme Court, the formulation of the doctrine of piercing the corporate veil is that:
a. When the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation;
b. In fraud cases, or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
c. Is used in alter ego cases, i.e., where a corporation is essentially a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Simply put, the separate juridical personality of a corporation will be disregarded when the wrongdoing is clearly and convincingly established. And as such, the obligations incurred by the corporation, acting through its directors, officers and employees, are no longer its sole liabilities. When the veil of the corporate fiction is pierced, the directors, officers and employees are solidarily liable. And in proper cases, the corporate officer cannot protect himself behind a corporation where he is the actual, present and efficient actor. Simply put again, the culprit cannot hide behind the cloak of the separate corporate personality of the corporation to escape criminal liability.
[This Article is whole heartedly dedicated to my Mother who recently celebrated her 70th birthday, healthy and happy. This alone proves that God is with us! Again, Happy Birthday!!! Truly you are a heaven-sent. Caring, thoughtful, responsible, loving, supportive, motivator and yet all these words are not enough to describe who you are, how you guided us, how you kept us through, how you raised us to be better and to be God-fearing. (Of course, this is alongside with Mr. Josephrally Sr.) May you remain a good example to the four corners of the world, worthy of emulation of being a mother, a wife, a sister, and a friend. I am also proud that you have served our government with all honesty and integrity. Stay home, stay safe and God Bless my beloved Mother!]