Doctrine of Corporate Entity

Gallagher v Germania Brewing Co.

DOCTRINE: To allow the set-off in the case at bat, it will be tantamount to totally
ignoring the legal doctrine, or fiction, that a corporation is an entity separate and distinct
from the body of its stockholders. It has been absolutely essential, for the administration
of justice, to treat a corporation as a collective entity, without regard to its individual
shareholders. If the rights or liabilities of a corporation could be affected by the acts of
the stockholders, except when acting in the corporate name, it can easily be seen into
what confusion and chaos corporate affairs would inevitably fall.

Issue: Whether or not the claims of Barge and VanderHorck can be equitable set-off
against the claims of Gallagher as against Germania Brewin Corp.?
Held:No. Their claims against Westphal are not subjects of equitable set-off to a claim
against the defendant corporation.

In the case at bar, to allow such set-off would be tantamount to totally ignoring the legal
doctrine that a corporation is an entity separate and distinct from the body of its
stockholders. The recognition of a corporation as a collective entity without regard to its
individual shareholders has been absolutely essential for the administration of justice. If
the rights or liabilities of a corporation could be affected by the acts of the stockholders,
except when acting in the corporate name, it can easily be seen into what confusion
and chaos corporate affairs would inevitably result in.

Magsaysay - Labrador v CA

Doctrine:

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
property, his interest in the corporate 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.

ISSUE: Whether or not petitioners can intervene in the case?

Ruling: 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 property, his interest in the corporate 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.
When can a shareholder intervene in a case involving the corporation as a separate
entity?

Note: As a rule, Doctrine of Corporate entity applies and shareholders cannot intervene
in cases involving the corporation unless:

If it is shown that the movant has legal interest in the matter in litigation or
otherwise qualified, and consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or
whether the intervenors rights may be protected in a separate proceeding or not.

Shareholders cannot intervene if:

the interest is indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in sheer
expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.

Stockholders of Guanzon v Reg of Deeds

Doctrine: A corporation is a juridical person distinct from the members composing it.
Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members.

ISSUE: Whether or not properties registered in the name of the corporation are owned
by it as an entity separate and distinct from its members.

Yes. A corporation is a juridical person distinct from the members composing it.
Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal
property they do not represent property of the corporation. The corporation has property
of its own which consists chiefly of real estate. A share of stock only typifies an aliquot
part of the corporation's property, or the right to share in its proceeds to that extent
when distributed according to law and equity, but its holder is not the owner of any part
of the capital of the corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a co-owner or tenant in common
of the corporate property.

Caram v CA

Doctrine: Shareholders/Investors, even upon showing that they benefited from the
services rendered by a claiming party, they cannot be held personally liable otherwise,
all the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable
also with the petitioners for the claims of the private respondent.

Issue: Whether or not petitioners themselves are also and personally liable for
expenses incurred for the organization of the corporation.

Ruling: No. In the light of these circumstances, we hold that the petitioners cannot be
held personally liable for the compensation claimed by the private respondent for the
services performed by him in the organization of the corporation. To repeat, the
petitioners did not contract such services. It was only the results of such services that
Barretto and Garcia presented to them and which persuaded them to invest in the
proposed airline. The most that can be said is that they benefited from such services,
but that surely is no justification to hold them personally liable therefor. Otherwise, all
the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable
also with the petitioners for the claims of the private respondent.

Tramat Mercantile v CA

DOCTRINE : Personal liability of a corporate director, trustee or officer along (although

not necessarily) with the corporation may so validly attach, as a rule, only when --

1. He assents (a) to a patently unlawful act of the corporation, or

(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other
persons;

2. He consents to the issuance of watered stocks or who, having knowledge

thereof, does not forthwith file with the corporate secretary his written objection
thereto;

3. He agrees to hold himself personally and solidarily liable with the

corporation; or

4. He is made, by a specific provision of law, to personally answer for his

corporate action.

ISSUE: Whether or not Ong (officer of TRAMAT) acting in his capacity as a corporate
officer may be held jointly and severally liable with the corporation which was found
liable by a competent court.

Ruling:

It was, nevertheless, an error to hold David Ong jointly and severally liable with
TRAMAT to de la Cuesta under the questioned transaction. Ong had there so acted, not
in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and
separate personality. As such, it should only be the corporation, not the person acting
for and on its behalf, that properly could be made liable thereon.

Palay, Inc. v. Clave (1983) 124 SCRA 640

Doctrine: A corporation is invested by law with a personality separate and distinct from
those of the persons composing it. As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it
may be connected and vice versa.

ISSUE:
1. Whether the doctrine of piercing the veil of corporate fiction has application to the
case.
2. Whether petitioner On Stott can be held solidarity liable with petitioner Corporation for
the refund of the installment payments made by respondent Dump it.
RULING:
The doctrine of piercing the veil of corporate fiction has no application to the case.
Consequently, petitioner Onstott cannot be held solidarity liable with petitioner
Corporation for the refund of the installment payments made by respondent Dumpit.
A corporation is invested by law with a personality separate and distinct from those of
the persons composing it. As a general rule, a corporation may not be made to answer
for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa.
However, the veil of corporate fiction may be pierced when: it is used as a shield to
further an end subversive of justice; or for purposes that could not have been intended
by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or
defend crime; or to perpetrate fraud or con fuse legitimate issues; or to circumvent the
law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole
benefit of the stockholders. In this case however, there are no badges of fraud on the
part of the petitioners. They had literally relied, although mistakenly, on paragraph 6 of
the contract with respondent when they rescinded the contract to sell extra judicially.
Although On Stott appears to be the controlling stockholder, there being no fraud, he
cannot be made personally liable.
San Juan Structural v CA

Doctrine: A corporation is a juridical person separate and distinct from its stockholders
or members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockhlders or members without
express authorization from the corporations Board of Directors.

Acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind
the corporation, unless it has ratified such acts or is estopped from disclaiming them.
Issues:
(1) Whether or not there was a valid contract existing between San Juan and Motorich.
Ruling: (1) No. The contract entered into between Nenita and San Juan cannot bind
Motorich, because the latter never authorized nor ratified such sale. A corporation is a
juridical person separate and distinct from its stockholders or members. Accordingly,
the property of the corporation is not the property of its stockholders and may not be
sold by them without express authorization from the corporations BoD. This is in
accordance with Sec. 23 of the Corporation Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its
by laws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation
and its officers or agents, subject to the AoI, by laws, or relevant provisions of law. A
corporate officer or agent may represent and bind the corporation in transactions with
3rd persons to the extent that the authority to do so has been conferred upon him, and
this includes powers which have been intentionally conferred, and also such powers as,
in the usual course of the particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to believe that it has
conferred. Furthermore, persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to
establish it. Unless duly authorized, a treasurer, whose powers are limited, cannot bind
the corporation in a sale of its assets.

Dulay Enterprises v CA

Doctrine: Exception to rule that sale of property must be approved by all the members
by the BOD: a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to
bind the corporation for the action of its president. At any rate, a corporate
action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the corporation after
having knowledge of the meeting.

Issue: Whether the sale of the mortgaged property without approval of all the members
of the Board of Directors is valid.

Ruling: Petitioner corporation is classified as a close corporation and

consequently a board resolution authorizing the sale or mortgage of the
subject property is not necessary to bind the corporation for the action of its
president. At any rate, a corporate action taken at a board meeting without
proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the
secretary of the corporation after having knowledge of the meeting which, in
this case, petitioner Virgilio Dulay failed to do.

"Sec. 101. When board meeting is unnecessary or improperly held. Unless

the by-laws provide otherwise, any action by the directors of a close
corporation without a meeting shall nevertheless be deemed valid if:
"1. Before or after such action is taken, written consent thereto is signed by
all the directors; or
"2. All the stockholders have actual or implied knowledge of the action and
make no prompt objection thereto in writing; or
"3. The directors are accustomed to take informal action with the express or
implied acquiesce of all the stockholders; or
"4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
"If a directors' meeting is held without proper call or notice, an action taken
therein within the corporate powers is deemed ratified by a director who
failed to attend, unless he promptly files his written objection with the
secretary of the corporation after having knowledge thereof."