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General Rule: a corporation is an entity separate and distinct from its stockholders and from other

corporations to which it may be connected.


Except: Doctrine of Piercing the Corporate Veil
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.
The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: 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 a 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 aninstrumentality, agency, conduit or adjunct of another
corporation.

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or
unjust loss complained of.63

SECTION 31 - A director, trustee, or officer of a corporation may be made solidarily liable with it for all
damages suffered by the corporation, its stockholders or members, and other persons in any of the
following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful
corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto";87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.

A director or officer shall only be personally liable for the obligations of the corporation, if the following
conditions concur:

(l)the complainant alleged in the complaint that the director or officer assented to patently unlawful
acts of the corporation, or that the officer was guilty of gross negligence or bad faith;

(2) the complainant clearly and convincingly proved such unlawful acts, negligence or bad faith

The possible probative factors of identity which could justify the application of the doctrine of piercing
the corporate veil are:

(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;

(3) The manner of keeping corporate books and records; and

(4) Methods of conducting the business.68

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