Atty. Buen Morales

August 17, 1982 Atty. Buen Morales R-717 B.P.I. Bank Building Plaza Cervantes, Manila Sir : This has reference to your letter dated July 20, 1982 requesting the opinion of this Commission on the query posed therein. The abovementioned letter relates that Rajah International filed a case against Infrastructure Construction and Development Corporation for the recovery of sums of money. During the pendency of the case, the respondent corporation and/or its stockholders sold their shareholdings to a group headed by a certain Samuel Dororillo. Prior to the sale, the parties executed a Memorandum of Agreement stating that vendees are not liable for the obligations of the corporation prior to the sale. The said corporation was renamed Infrastructural Construction & Development Corporation under a new management. Rajah International awarded a judgment in the amount of P75,000.00 which became final and executory. The writ of execution issued by the court remains pending since the sheriff wants the opinion of the Securities and Exchange Commission on " whether it is safe for him to levy the assets both movables and immovable of the abovementioned corporation." Without going into the merits of the case and based on the facts presented, please be advised as follows: A corporation is a juridical person. It may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization. (Art. 46, New Civil Code). The obligation and liabilities of a corporation are governed by this general rule: "Unless the liability is expressly imposed by constitutional or statutory provision, or by the chapter, or by special agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or in equity. The reason is that a corporation is a legal entity or artificial person, distinct from the members who compose it, in their individual capacity ; and when it contracts a debt, it is the debt of this legal entity or artificial person the corporation and not the debt of the individual members. (13A Fletcher 6213, emphasis supplied)" With the abovequoted doctrine of separate legal entity, the corporation shall still be liable to its creditor regardless of the change of management, stockholders or corporation name. LexLib In view of the foregoing, the sheriff in the instant case may levy the assets of the respondent corporation. The present stockholders cannot be held liable since the debt of the corporation is not the debt of any of its stockholders unless the fiction of corporate entity is disregarded. Under this doctrine of "piercing the veil of corporate entity", the stockholder shall be considered the same as the corporation who shall be liable for the debt of the latter. However, application of this doctrine is for the court to decide. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner