MEMORANDUM

TO: ABC, President, Bank A.

FROM: Janelle Kristen Tabuzo, Intern law office C,D.

SUBJECT: Separate and Juridical Personality.

DATE: 29 February 2020

Purpose:

You asked for my advice regarding the possible defense that Bank A can make against the client who
paid to Mr. B who has been absent without official leave.

Facts:

This information is requested by President ABC of Bank A regarding the possible defense that the bank

can make against its client who made payments to Mr. A, who was not authorized to receive the same. It

appears thereto, that the said branch manager went to the house of the client in order to ask for payment

regarding the client’s existing loan. The client right there and then paid for the loan, and he then asked the

branch manager to sign a paper that payment has been duly made. When the bank asked the client to pay for

his existing loan, the client asserted that he should not be held accountable for such loan because payment has

already been affected through Mr. A, the branch manager.

It has come to our attention of President ABC that the said Mr., A, the branch manager has not been

serving his duties in the bank, and hence it is presumed that Mr. A has been absent without official leave till

present.

Issue:

Whether or not the bank should be liable for the acts of Mr. A., the branch manager.
Brief Answer

No. As stated under the Corporation Code, a corporation is a juridical entity and may only act through

the authority of the board of directors and no person, not even its officers can validly bind a corporation.

Rules Governing representation of Board Members

As stated, a Corporation can only act through the authority of its directors and no person even its officers

can bind a corporation if the board of directors did not give them any authority to do so. A corporation, is a

judicial entity and may act through its board of directors, which exercises almost all corporate powers, lays

down all corporate business policies and is responsible for the efficiency of management. The general rule is

that, in the absence of authority from the board of directors, no person not even its officers can validly bind a

corporation.1

SEC. 23. The Board of Directors or Trustees. — Unless

otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted, and all property of such corporations
controlled and held by the board of directors or trustees x x x.2

Rules Governing Separate and Juridical Personality.

It is elementary and fundamental principle of corporation law that a corporation is an entity separate

and distinct from its stockholders and from other corporations to which it may be connected. However, this

rule is not absolute and that the corporate veil can be pierced when the notion of legal entity is used to defeat

public convenience, justify wrong, protect fraud or defend crime.” the law will regard the corporation as an

association of persons or in the case of two corporation merge them into one. Another rule is when the

corporation is the mere alter ego or business conduit of a person it may be disregarded. 3The separate and

juridical personality has its basis on Article 44(2) of the Civil Code which provides that “other corporation,

1Cebu Mactan Members Center v Masahiro Tsukahara, G.R. NO 159624, (2009).

2[Corporation Code] , Batas Pambansa Blg. 68 §23

3 Yutivo Sons Hardware vs CTA , G.R. L-13202, (1961)
institutions and entities for public interest or purpose, created by law; their personality begins as soon as they

have been constituted according to law. 4

Analysis

The separate and distinct liability of the corporation prevents it from being liable for the acts of its

stockholders. As mentioned earlier, a corporation as a juridical personality separate and distinct from that of

its stockholders. However, there are certain instances where the corporation can be held liable for the acts of

its stockholders. The first instance is when its legal existence is used to defeat fraud, perpetrate a crime and

justify a wrong .Another instance is when a corporation is a mere alter ego of its stockholder, hence the defense

of separate and juridical personality cannot be warranted under this circumstance.

It should also be known that a corporation can only act through its board of directors. If in case the

person acted without the authority of the board of directors, his action cannot bind the corporation.

In the present scenario, the bank is a corporation, and that it cannot be bound by the act of the branch

manager because the former was not authorized by the board of directors. It is also evidently shown that the

said branch manager has been absent without leave till present. Therefore, this would mean that the act of such

branch manager cannot bind the corporation since the corporation never authorized the same.

The separate and juridical personality of the bank also prevents it from being sued. In the present case,

none among the following exemptions would justify the piercing of the corporate veil which would treat the

personality of the corporation and the branch manager as one entity.

Conclusion/Recommendation

The bank can further seek from its client the payment due to its loan. The bank cannot be held liable
for the negligence of its client. The client should have known that paying under suspicious circumstance such
as paying at his residence would have meant that there is fraud in the transaction because it was out of the
ordinary.

The bank can invoke the doctrine of separate and juridical personality in order to not be held liable
with its branch manager. It can further argue that the branch manage was not given the authority by the board
of directors to act on behalf of the corporation. Hence, this would mean that the branch manager acted in his

4 An Act to Ordain the Civil Code of the Philippines, [Civil Code of the Philippines], Republic Act 386, Article 44
personal capacity, and any unlawful act that he does will not bind the bank. Therefore, the only remedy of the
client is to seek reimbursement from the branch manager and that he cannot argue that payment has already
been made since the branch manager was not authorized to receive the same.