The doctrine of separate juridical personality is a foundational principle in corporate law,

which states that a corporation has its own legal personality, separate and
distinct from its stockholders, members, directors, officers, and other
stakeholders.

In the Philippines, this principle is recognized under the Revised Corporation Code of
the Philippines (Republic Act No. 11232), as well as various judicial decisions
interpreting the law. Here, we will explore the nuances of this doctrine, its legal
implications, and related concepts.

CONCEPT:

The doctrine of separate juridical personality establishes that a corporation is an

artificial being created by operation of law. As such, it has rights, duties, and
obligations that are independent of the individuals who compose it. Section 2 of
the Revised Corporation Code states:

“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.”

Thus, a corporation enjoys legal personality separate from its incorporators or

members. It can:

1) Enter into contracts;

2) Sue and be sued;

3) Own and hold property in its own name;

4) Incur liabilities and obligations;

5) Engage in business activities within the scope of its corporate powers.

This principle is central to the protection of the shareholders’ interests and

helps facilitate the efficient operation of businesses. The corporation itself, not
the individuals behind it, is the legal entity responsible for its actions.

LIABILITY FOR ACTS, AND CONTRACTS

A corporation, as a separate legal entity, is responsible for its own acts and
contracts. This means that the corporation itself can enter into agreements, incur
liabilities, and be held accountable for its actions, independent of its
shareholders, directors, or officers.
ACTS - A corporation can be held liable for wrongful acts committed by its
employees or agents when these acts occur within the scope of their
employment. This liability arises under the legal doctrine of vicarious liability, which
holds corporation accountable for the actions of their employees performed during their
employment duties (Article 2180 of the Civil Code)

Vicarious liability is when a supervisory party is liable for the negligent actions of a
third party for whom they are responsible.

EXAMPLE:

Fraudulent Activities: If an employee engages in fraudulent activities within the

scope of their employment, such as falsifying financial records to benefit the
corporation, the company can be held liable for the fraudulent acts.

CONTRACTS - Agreements entered into by authorized representatives bind the

corporation. If a corporation breaches a contract, it can be sued and held liable for
damages

Binding Agreements: When a corporation signs a contract, it is legally bound to fulfill

its obligations as outlined in the agreement.

Breach of Contract: Failure to perform any aspect of the contract without a legitimate
legal excuse can lead to liability for damages.

Damages: The corporation may be required to compensate the other party for losses
resulting from the breach, which can include direct losses and, in some cases,
consequential damages
LIABILITY FOR TORTS AND CRIME

While it's true that a corporation is a legal fiction and operates through its officers and
employees, both the corporation and its responsible officers can be held liable for
torts and crimes under certain circumstances.

TORTS:

Civil wrong that causes harm or injury to a person, for which the injured party can
seek compensation.

CRIME:

A public wrong that violates a law, punishable by the state (e.g., imprisonment,
fine, or community service).

Corporate Liability for Torts:

A corporation can be held liable for tortious acts committed by its employees or
agents if these acts are performed within the scope of their employment and in
furtherance of corporate business. This is based on the doctrine of respondeat
superior, which holds employers accountable for the actions of their employees. For
instance, if an employee, while performing their job duties, negligently causes
harm to a third party, the corporation may be held liable for damages resulting
from the employee's actions.

Corporate Liability for Crime

GEN: A corporation cannot be held criminally liable under the Revised Penal
Code.
Rationale: Crimes under the RPC have the element of intent which corporations
are not capable of, as it has no mind of its own. As a creature of the law, its intention
cannot be determined. It can also not be sent to jail because it has no corporal or
physical existence.

When the crime is punishable by a special law; Atty. Espedido: The special law must
specify that it imposes penalties on the officers of the corporation. To be able to punish
the officers, the law should specifically provide that in case the corporation becomes
liable, the officers shall be directly punishable for the commission of the act or violation,
and that they will suffer the penalty of imprisonment. Otherwise, they cannot be held
liable.

(2) When the penalty imposed is a fine;

A corporation can be made criminally liable by being made to pay a fine. Fines are not
civil obligations, but are penalties.

Instances Where Corporations Can Be Held Liable:

Fraudulent Conduct of Business: If a corporation is used for fraud or for committing

or concealing graft and corrupt practices, it shall be liable for a fine ranging from
₱100,000 to ₱5,000,000.

Unauthorized Use of Corporate Name: The unauthorized use of a corporate name is

penalized with a fine ranging from ₱10,000 to ₱200,000

RIGHTS TO BRING ACTION

In the Philippine corporate framework, the principle of separate juridical personality

dictates that a corporation is a distinct legal entity, independent from its shareholders,
directors, and officers. This separation ensures that the rights and obligations of
the corporation are its own and cannot be directly exercised or claimed by the
individuals associated with it, even if they hold a substantial majority of shares.

Corporation's Rights: The corporation holds its own rights and properties.
Shareholders, regardless of their ownership percentage, cannot personally enforce or
claim these rights. For instance, if a corporation is entitled to profits from a
business venture, individual shareholders cannot demand these profits directly
for themselves.

Shareholders' Rights: Similarly, the personal rights of shareholders, directors, and

officers are separate from those of the corporation. The corporation cannot invoke or
exercise the personal rights of these individuals. For example, if a shareholder has a
personal legal claim against a third party, the corporation cannot pursue this
claim on the shareholder's behalf.

Exception – Derivative Suits:

An exception to this principle is the derivative suit. In situations where the corporation's
rights are violated, and the corporate officers or directors refuse to take action
(perhaps due to conflict of interest or involvement in the wrongdoing), a shareholder
may file a lawsuit on behalf of the corporation. This legal mechanism allows
shareholders to protect the corporation's interests when its own management fails to do
so.

Jurisprudence says:

“A derivative suit is an action filed by stockholders to enforce a corporate action.

It is an exception to the general rule that the corporation’s power to sue is
exercised only by the board of directors or trustees."

AQUISITION OF JURISDICTION

In the Philippines, a corporation is treated as a separate legal entity, distinct from the
people who own or manage it. This means that when someone wants to sue a
corporation, they must follow specific procedures to ensure the corporation is properly
notified.

Serving Summons to a Corporation:

To officially inform a corporation about a lawsuit, a legal document called a "summons"

must be delivered to specific individuals within the company. According to the 2019
Revised Rules of Civil Procedure, the summons should be served to one of the
following officers:

President

Managing partner

General manager

Corporate secretary

Treasurer

In-house counsel

If none of these officers are available, the summons can be given to their respective
secretaries.

Why This Matters:

Serving the summons to these specific individuals ensures that the corporation, as an
independent legal entity, is properly informed about the legal action. This process
respects the corporation's separate legal status and ensures it has the opportunity to
respond to the lawsuit.

In summary, because a corporation is viewed as its own legal "person," the law requires
that legal notices like summonses be delivered to designated officers who can act on
behalf of the corporation.
RECOVERY OF DAMAGES

In the Philippine legal system, a corporation is generally not entitled to moral damages
because, as an artificial entity, it lacks emotions and cannot experience physical
suffering or mental anguish. However, there are notable exceptions where a
corporation may claim moral damages:

Defamation Cases: Under Article 2219(7) of the Civil Code, moral damages may be
recovered in cases of libel, slander, or any other form of defamation. The law
does not distinguish between natural and juridical persons in this context,
allowing corporations to seek moral damages if they are victims of defamatory
acts.

Damage to Reputation: If a corporation's reputation is tarnished, leading to

humiliation in the business community, it may be entitled to moral damages. For
instance, in the case of Filipinas Broadcasting Network, Inc. v. Ago Medical and
Educational Center-Bicol Christian College of Medicine, the Supreme Court recognized
that a corporation could recover moral damages when its reputation is debased,
resulting in social humiliation.

These exceptions acknowledge that while a corporation cannot experience emotions, it

possesses a business reputation that can be harmed, justifying the award of
moral damages in specific circumstances.