DOCTRINE OF SEPARATE PERSONALITY

 Mere ownership by a single stockholder or by another corporation of all or nearly

all of the capital stock of corporations is not in itself sufficient ground for
disregarding the separate corporate personality.
 A corporation’s authority to act and its liability for its actions are separate and
apart from the individuals who own it.
 The so-called veil of corporation fiction treats as separate and distinct the affairs
of a corporation and its officers and stockholders.
 As a general rule, a corporation will be looked upon as a legal entity unless and
until a sufficient reason to the contrary appears. When the notion of legality is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons.
 The general doctrine of separate personality provides that a corporation has a
legal personality separate and distinct from that of the people comprising it.
 By virtue of that doctrine, stockholders of a corporation enjoy the principle of
limited liability the corporate debt is not the debt of the stockholder.
 Thus, being an officer or stockholder of a corporation does not make one’s
property the property of the corporation.
o Bustos vs. Millians Shoe, Inc. (GR No. 185025, April 24, 2017)
 Being an officer or a stockholder of a corporation does not make
one’s property the property of the corporation.
o Secosa vs, Heirs of Francisco (GR No. 160039, June 29, 2004)
o Reliable Industrial and Commercial Security Agency, Inc. vs. CA (GR No.
190924)

DOCTRINE OF PIERCING THE VEIL OF CORPORATE EXISTENCE

 Allows a corporation’s separate personality to be disregarded under certain
circumstances.
 Applicable in circumstances where the corporation is used to commit something
contrary to policy, morals, etc.
 This doctrine is not the general rule. The general rule is that the corporation is a
separate personality from the owners, shareholders, etc. The doctrine of piercing
the veil of corporate existence is only an exception.
 How to invoke the veil of corporate existence?
o Present clear and convincing evidence.
 Why? Because a presumption is being rebutted.
 The presumption of good faith.
 Any application of the doctrine should be done with caution. A court should be
mindful of the milieu where it is to be applied.
 3 areas where the doctrine can be applied:
1. Defeat public convenience as when the corporate fiction is used as. A vehicle
for the evasion of an existing obligation.
2. Fraud cases are when the corporate entity is used to justify a wrong, protect
fraud or defend a crime;
3. Alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person.
 When a corporate director, trustee, or officer is held solidarily liable:
o Under these circumstances:
1. Patently unlawful acts of the corporation.
2. Act in bad faith or gross negligence in directing corporate affairs.
3. Guilty of conflict of interest to the [prejudice of the corporation, its
stockholders, members, etc.
o Consent in the issuance of watered stocks or who having knowledge
thereof did not
 Alter Ego Theory (Instrumentality Theory)
1. Control- not mere stock control, but complete domination
2. Such control is used to commit fraud, perpetuate the violation of the law
3. Causes harm, injury, or unjust loss to other people.
 Test:
1. Control/Instrumentality test
2. Fraud Test
3. Harm Test
 Can the “piercing of corporate veil” apply to non-stock corporations?
o Yes.
 Can it apply to natural persons?
o Yes.
 Other forms of piercing the corporate veil:
o It can also apply conversely/ “Reverse piercing of corporate veil”
 Makes the corporation liable for the debt of the shareholders.
 Does a corporation have a right to moral damages?
o General rule: NO. Because they do not have feelings, they cannot
experience serious anxiety, mental anguish, and moral shock.
 Exception: Good reputation of a corporation