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The corporation is used as a vehicle to perpetrate fraud or illegal activity. The doctrine of piercing the
veil will tell you that the court can disregard the corporate entity to remove the barrier between the
directors and officers so that they can be made liable civilly or criminally due to the fraud or illegal acts
they have committed.
Ruling:
The heirs of Uy argue that the latter could not be held personally liable to iBank for the loan of Hammer
as an officer and stockholder of the said corporation. Basic is the rule in corporation law that a corporation
being an entity merely created by operation of law, being an artificial being, is considered as an entity that
has a separate juridical personality and distinct from the stockholders or members composing it such that
the liabilities of the corporation will remain to be the liabilities of the corporation and does not become
the liabilities of the directors, officers, and employees. Nevertheless, this legal fiction may be disregarded
if the corporation is used as a vehicle to perpetrate fraud or illegal activity, or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.
Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur: (1) the complainant must allege 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; and (2) the complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith.
In this case, Uy was not alleged and less proven to commit an act that would permit the piercing of the
corporate veil. A reading of the complaint of iBank regarding Uy did not demand that she would be held
liable to pay the deficiency of Hammer because she was the corporate officer who committed bad faith
or gross negligence in the performance of her duties such that the lifting of the corporate mask would be
merited. It was simply stated that, Uy and her husband Chua, acted as surety of Hammer, as evidenced
by her signature on the Surety Agreement which was later found by the RTC to have been forged.
