Fiction Theory Of Corporate Personality Essays

Bhanu Srivastava

RMLNLU, Lucknow

“Editor’s Note: The paper deals with the concept of the separate legal identity of a Corporation; which is separate from its shareholders or its directors. The concept is looked at form the point of view of the origin of the separate identity of a Corporation and the need for such a distinction along with the capacity and liability of a Corporation. The various theories of Legal Personality are also discussed in great detail.”

INTRODUCTION

The main object of Law is to regulate the relationship between individuals in the society. The validity of the acts and omissions of persons is determined on the basis of their reasonableness. All those acts which do not adversely affect the interest of others are held to be lawful whereas the acts which interfere with the rights of others are called unlawful. Therefore law enforces certain duties on individuals for the protection of interest of mankind. Therefore rights and duties form the basis of judging the legality of mans act. The law imposes liability for unreasonable and unlawful acts, the enforcement of which is ensured through legal sanctions. The law being concerned with regulating the human conduct the concept of legal sanctions. The law being concerned with regulating the human conduct, the concept of legal personality constitutes an important subject matter of jurisprudence because there cannot be rights and duties without a person.

The separate legal entity concept, as it applied to large joint stock companies, evolved throughout much of the nineteenth century, and in particular, during the period between 1840 and 1880. This evolution was gradual and involved subtle changes that occurred on a number of fronts. Common law developments included the changing nature of shares and the refinement of the internal relationships within a company which served to separate a company from its shareholders and thereby differentiated companies from partnerships. At the same time, companies adapted their capital structures and the ways in which they raised capital so as to make themselves more attractive to investors. These practices also reflected the distinction drawn by the investment sector between joint stock enterprises and partnerships. The separate legal entity concept then, was largely developed by the late nineteenth century insofar as it applied to joint stock companies.

 This project work along with different theories of corporations also examines the well-known case of Salomon v Salomon & Co Ltd and its effect on the evolution of the separate legal entity concept. It is important to consider the role of Salomon’s case in this evolutionary process because the legal principle derived from the case has been the legal basis of the subsequent application of the separate legal entity concept to corporate groups. Salomon’s case is usually regarded as a landmark case which finally established the fundamental principle that a company is a separate legal entity distinct from its members. This core principle of company law has come to be so closely associated with the case that it is widely known as ‗the principle in Salomon’s case‘. According to this widely accepted narrative, Salomon’s case represented a belated but inevitable advance of the law towards clarifying the separate nature of the relationship of shareholders and their company and thereby better serving the needs of business by establishing a more efficient company law that recognised the commercial expectations of the business community.[1]

ORIGINS

The word “person” is derived from the latin wordpersona which meant a mask worn by actors playing different roles in a drama. Until sixth century the word was used to denote the part played by a man in life. Thereafter it began to be used in the sense of a living capable of having rights and duties.

Generally there are two types of person which the law recognises namely natural and artificial. The former refers to human beings while latter to other human beings which law recognised as having duties and rights. One of the most recognised artificial person is a corporation.  In the opinion of many writers the word”  personality” has been restricted to human beings because of the sole reason that they only are subjected to rights and obligations, but in law the scope of word “personality” is wide enough to cover gods, angels, idols, corporation etc. despite of the fact that they are not human beings.

Conversely there may be living persons such as slaves who were not treated as person in law because they were not capable of having rights and duties. Likewise, in Hindu ascetic who has renounced the world ceases to have any proprietary rights and his entire estate is passed on to his heirs and successors and his legal personality is completely lost.

Human beings are no doubt units of society and were in existence prior to evolution of both law and society. Since laws were made by individuals and for them, jural relations between them came to be recognised for legal purposes. Human beings as a legal person, therefore implies a multitude of claims, duties liberties, liabilities etc.

However no sooner than later it was realised that treating only human beings as persons  in law would lead to good deal of needless perplexity, which could be avoided by conferring legal personality on certain jural relations applicable to others  than human beings for the purposes of law.

Definition of legal person:-

Jurists have defined legal persons in different ways,

The German jurist Zitelmana considers “will” as the essence of the legal personality to quote him “personality is the legal capacity of will, the bodylines of men for their personality a wholly irrelevant attribute”

Salmond defines a person as “any being to whom the law regards as capable of rights and duties. Any being that is so capable is a person whether human being or not and nothing that is not so capable is a person even though he be a man”[2]

Gray defines “person” as entity to which rights and duties may be attributed” any being that is capable of holding a right or duty, whether it being a human or not is person in law.[3]

According to Paton, legal personality is a medium through which some such units are created in whom right can be vested.[4]

Therefore persons in juristic terms are of two kinds: natural and legal .the former are human beings while the latter may be real or imaginary, in whom law vests rights and imposes duties and thus attributes personality by way of fiction.

A natural person is a living human being. But all human beings need not necessarily be recognised as persons in law. For example slavery, before abolition of slavery the slaves were considered to be devoid of any legal personality for they could not have any rights and duties. Also persons such as children have restricted rights for they do not have right to vote.

Legal persons on the other hand is a person any subject –matter in which the law attributes legal personality. Legal personality being the creation of law can be conferred on entities other than human beings. As Salmond rightly observed that “law in creating legal persons always does so by personifying some real   things”. He further pointed out that all though all legal personality involves personification the converse is not always true.[5]

Legal persons are therefore artificial beings to which law attributes personality by way of fiction where it does not exist in fact. They are capable of rights and duties like natural persons.

 Hibbert classified legal persons into three different categories:

  • Certain non-living things can be conferred legal personality by personification. The existence of such a legal person is real but its personification is fictitious.
  • A collection of rights and duties may be vested in some real or imaginary beings to whom personality is attributed by law.
  • Fitzgerald, the learned editor of Salmond  jurisprudence writes that legal persons being the arbitrary creations of the law, may be of several kinds the English law however recognises only a few kinds of legal persons .(1) corporations (2) institutions such as trade unions and societies and associations, and (3) the estate of funds.

THE CONCEPT OF SEPARATE LEGAL ENTITY

The principal effects of the formation of a company are twofold. First, its shareholders, and their transferees, become members of an association and are granted rights as such. Pre-eminent among these are, usually, powers of control in the widest sense of an entitlement to participate, by voting, in the management of the company through the appointment and removal of its directors, the distribution of profits and other decisions of the company in general meeting, and also by the power to enforce the company’s regulation. Secondly, and consequently, the members relinquish all proprietary and other interests in the monetary or other consideration which they have given for their shares and which becomes wholly vested in the company. In effect, therefore, the members’ rights of ownership of their assets are completely reconstituted and the powers conferred by membership substituted for powers of direct this result is achieved by.

 Applying to the company three basic principles or groups of principles. First, the legal capacity of the company is restricted or limited in its extent, both by the objects of the company and, more basically, by the common law, to activities which are both lawful and appropriate to the general scope of its purposes. Secondly, within the scope of its particular objects the company is accorded legal capacity for proprietary, contractual and other purposes which is of exactly the same nature as that possessed by natural persons of full capacity. This capacity is entirely separate from, and not derived from or related in any way to, the individuals who ultimately comprise the company’s membership. Thirdly, the company itself is accorded full and independent procedural capacity both vis-h-vis its members and outsiders. From the combination of these principles flow all the well-known practical aspects of separate legal entity. For example, due to its separate proprietary and other capacity the company may enjoy perpetual existence, its usefulness as an entity for accounting purposes is given a legal foundation, and the possibility is opened that its members may limit their liability.

Like the trust, the company enables the proprietary interests of natural persons to be associated and reconstituted in a manner which makes possible a real division of the ownership and control of property. Unlike the trust, however, the company may, to the extent it is empowered, itself possess full and independent capacity to exercise contractual, proprietary and other rights.

Corporate personality:

Meaning

Corporate personality is a creation of law. Legal personality of law is recognised both in English and Indian law. A corporation is an artificial person enjoying in law capacity to have rights and duties and holding property. A corporation is distinguished by reference to different kinds of things which the law selects for personification. The individuals forming the corpus of the Corporations are of two kinds distinguished in English law as corporations aggregate and corporations sole. According to coke persons are of two sorts ( a)persons naturally created by god and persons incorporate or politique by policy of man. A corporate aggregate is a group of co-existing persons and a corporation sole is an incorporated series of successive persons. The former is that which has several members at a time and the latter is that which has one member at a time. Corporations are found only when the successive holders of some public office are incorporated so as to constitute a single, permanent, and legal persons.[6]

Evolution of the notion of corporate personality

In mature systems of law the doctrine of corporate personality is fully developed and a clear –cut distinction is made between the individual who compose a corporation and the corporation itself. If we postulate that the company may have a distinct persona separate from that of is shareholders or directors, it is difficult to attack the logic of this distinction. Whatever may be said of its practical effect? Conversely the acts of two separate departments of a company are in law the act of the same person.[7]

If a group of miners wish to co-operate to secure cheap delivery of coal from the colliery at which they work, they must be careful as to the legal forms they use. if they create an incorporated company to organise the transport a carriers licence must be secured, since the company is carrying goods for hire or reward .but if they merely form an association then each member is regarded as the part owner of the vehicles and the co-owners do not carry their own goods for hire or reward merely because they contribute to the running expenses. The formation of a company introduces a new legal persona which owns vehicles and receives money for coal that does not belong to it[8]

In modern law therefore there is a clear cut distinction between the personality of a company and the personality of its members. The company may engage in juristic acts, sue, and be sued .though all the members change overnight, indeed even if they all die the company remains the same legal persona. But this conception of corporate personality is achieved but slowly.[9]

The first step to evolve is based on family, but no doctrine of group personality is necessary at home the family retained a very strong organisation but no theoretical difficulty arose as its powers were vested in human pater families. Religious and ecclesistical grouping provides another unifying element and we also have the manifold agencies of government such as government such as the counties, hundreds and boroughs of English law. Economic associations such as the merchant guilds create another organisation of the community. But it is futile to expect to find answers to problems phrased in modern language concerning corporate personality, for they were not asked earlier by the lawyers. We have already seen that the state in England reached a high degree of organisation on the very inadequate theory that the state was the king and the king the corporation sole.[10]Duff’s analysis on rule of Roman law reveals how long the road to a fully developed conception of human personality is. Persona was not always used in the sense of legal personality, and there are hundreds of passages where homo could be substituted for persona without any apparent change in the sense. If we find lack of analysis where the individual is concerned it is not surprising to say that “the republican lawyers did not get beyond the first rudiments of that very abstract and artificial conception, corporate personality”.

In the English law there were in thirteenth and fourteenth centuries numerous active groups of whom some were dissolved into their component parts before they became corporations others followed a gradual development to legal personality. When Bracton wrote the notion of corporate personality .it not clearly understood and the evolution was comparatively slow. The inimitable touch of Maitland has enlivened the story of the corporation sole and we see there the great difficulty that exist in securing a clear distinction between the rights of natural man and the rights of corporation sole which it represents. The corporation sole was a useful device for holding of title to church land, but, although logic would require us to recognise that the artificial corporation sole can survive the death of natural person, the medieval lawyers however thought that the artificial corporation was in abeyance if the benefice was as vacant. A statute of limitation speaks of a corporation sole or his predecessor.[11]

Later in the fifteenth century it was felt that the corporation could not sue one of its members, for this was really a case of a man suing himself. By the time coke, it was laid down that the corporation could be created either by a common law, by authority of parliament, by royal charter or by prescription –but there must be some lawful authority of incorporation there must be. Corporation played a large part in development of British empire .as a result of which there were 65000 registered companies in England, but within forty years the number increased to 3, 31,000.

In 1897 Salomon v Salomon & Co Ltd[12], a case concerning the legitimacy of limited liability of a single beneficially owned company according to the companies legislation, created  the concept of the separate legal personality of a company. This idea, often described as a fundamental principle of

Company Law by our judges, exists both as a powerful metaphor and a judicial reality The interaction of these two aspects has in a sense caused the concept to assume a life of its own as a persuasive metaphor which has dictated the course of law focussed around its fulfilment rather than the specific regulative aims of the law in each discrete area. The principle’s application in so many different situations each with utterly different consequences, indicate a sense in which the courts have often merely mapped out the logical consequences of ‘separate legal personality’ with inadequate examinations as to its specific ramifications.

The concept of the corporation as a separate legal personality is, as Farrar describes “essentially a metaphorical use of language, clothing the formal group with a single separate legal entity by analogy with a natural person’] while obviously a fiction, the choice of metaphor or analogy is not entirely arbitrary, and must respond to organisational realities of the corporation as well as conforming with and making intelligible the treatment of organisations as legal actors[13] In this sense the conception of a corporation is both analytical and ideological, descriptive and prescriptive, It is not enough to dismiss the debate over the nature of corporate personality as Dewey did in 1920 by emphasising that corporate rights and Liabilities were the product of the law and that the legal implications or meanings of the corporation was “whatever the law makes it mean”.[14]

The law’s conception that the “company is at law a different person”[15] in some ways seems proper and satisfying, as Dan-Cohen writes, °it at once provides a unifying familiar image of The organisation and expresses those features in virtue of which treating the organisation as a legal actor makes sense .[16]The corporation as a complex organisation requiring regulation in many different situations presents a special problem as Dan Cohen writes:

“The cognitive need for ’epistemic access’ thorough a Unifying metaphor is felt most urgently with respect to organisations because of their ’ontological elusiveness’: hovering between the abstract and the concrete, they evade our grasp by constantly invoking the opposing fears of reductionism and Rectification.”

The metaphor of personality is useful in conceptually facilitating and describing many of the corporation’s traditional and modem corporate attributes. The metaphor was used in Salomon to express the fact that Salomon’s incorporation was legitimate according to legislation and therefore he should be a11owed to benefit from limited liability. The creation of the separate legal person analogy/metaphor was useful in particular to assert this point against the first instance judge mad court of appeal who held respectively that the company was Salomon’s agent and that Salomon was trustee for the company.[17] The language used however, does not add anything to our understanding of the real issues involved and in particular, the analogy with, or metaphor of, person creates some problems which exhibit the typical dangers of metaphorical thinking as Dan-Cohen write:

“By inducing misplaced analogies between individuals and organisations, the metaphor of person easily leads to anthropomorphism: the attribution to organisations of traits and the adoption toward them of attitudes that properly pertain to individuals only. The conception of the company as a person in particular has contributed towards two tendencies: firstly the tendency to treat the normative status of Corporations with similar considerations that ground and determine the legal fights of individual human beings, and secondly, the diversion of judicial attention from the distinctive features of organisations (many of which obviously do not correspond to the idea of ’person’) and from the normative implications of these features”[18].

The courts’ treatment of separate legal personality

The doctrine of “piercing the veil” has been the primary method through which the courts have mitigated the strenuous demands of the logical fulfilment of the separate legal personality concept. The problems with finding some thread of principle through all the decisions basically stem from the false unity of the cases which, while involving vastly different underlying issues, are still linked under the metaphor of the ’veil’ As Blumberg writes ~the conceptual standards of entity law are frequently regarded as universal principles and applied indiscriminately across the entire range of the law o In that way while it is possible, as some writers have done, to analytically organise the cases in this area in various ways, what is needed is a more diagnostic approach which examines why rather than how the area is a problem o The point is not to simply rationalise the disparate cases under some principle, but to point to their essential dissimilarity and criticise the framework around which they are organised. The function of much of the courts’ work in this area is to delineate the legitimate uses of the corporate form° It is obvious that the existing framework, organised as it is around reluctant departure from the demands of a metaphor, is inadequate for the proper articulation of such varied and complex questions.

The primary weakness of most attempt to rational the cases in the area is their tacit acceptance and reliance on the veil metaphor. A more obvious example of this can be seen in an article by Otto lenghi whose self-appointed task is to propose suggestions for some inroads into this jungle of judgments.

Ottolenghi commences his analysis –“the the popular warning of Cardozo J that ’metaphors in law are to be narrowly watched, for starting as devices to liberate thought they end often by enslaving. . However, his analysis is divided and organised around four categories: ’peeping behind the veil’, ’penetrating the veil’, ’extending the veil’, and ’ignoring the veil of each of these categories he argues ’has its own appropriate set of considerations and justifications.

 Such an approach is flawed in its reliance for a legal principled analysis on the concept of the ’veil’. While obviously compromised by the fact that it is ’result-driven’ its assertion that there are considerations appropriate to categories referable to the ’veil’ allies itself to perpetuating the very source of confusion in this area. Any framework that would align Lee v Lee’s Air Farming Ltd[19] (a case about whether the director of a single member family business could legally be allowed to employ myself for the purposes of workers compensation) and Walker v Wimborne[20] (a case on directors’ duties within corporate groups) on the basis of their similar treatment of the corporate veil can only blur any understanding of the area.

The ’categories analysis’ adopted by most writers identifying particular legal categories which have been used to justify piercing the corporate veil has similarly been criticised for being result oriented’ and ’rarely assisting as a guide to predicting when and under what conditions another court will be prepared to lift the veil.

Corporations: Legal Capacity

To the extent that a company is properly authorised to act, what is the nature of the legal capacity which it may exercise? Is it real,” or ‘‘fictitious”? The terms “fictitious” and ‘‘artificial,” as sometimes used to describe companies can only be understood by taking account of the twofold nature of the corporation. It consists both of an association of members, which may  themselves be corporate bodies; and of an entity possessing independently of its membership the legal capacity to exercise proprietary, contractual and other powers. Clearly, as an association of members it has as real an existence as any other formally constituted society, and the above terms must therefore refer primarily to the nature of its legal rights and obligations. It may be thought, for example, that when a company ‘‘ owns or deals in property, or enters into service, sale or other contracts, it does so not in its own right, as a natural person may do, but merely for or on behalf of its members and for their benefit. This being so, the company in reality exists simply as the agent of its members, or as a trustee for them, of property and contractual rights and obligations which in a true sense, taking into account (‘the realities of the situation,” belong to those members.

It follows that on appropriate occasions the courts may or ought to disregard the fiction and deal instead with the company in its true nature as the agent or trustee of its members. To deny this proposition is not to assert that a company can never be the agent or trustee of its members or directors. It can, of course, act as an agent or as a trustee for any other person or persons, including its own members and directors. Whether or not it is acting in such capacity does not depend on the existence of an independent mind to control the company, as was shown in Lee v. Lee’s Air Farming Ltd.,“ but on whether the proprietary, contractual or other rights in question are, as a question of fact, being exercised on behalf of its members.

While this is undoubted, it does not affect the wider proposition that, irrespective of true legal agency, a company may always be held to be the agent or trustee of its members in appropriate circumstances. In oth3er words, in reality, or in substance, all the pro- proprietary, contractual or other rights which may be in the apparent or ‘(fictitious” ownership or possession of a company are in fact held or exercised by it on behalf of its shareholders. This proposition, if it represents the law, must be of fundamental importance and there is, it seems, considerable authority in its support.

Dicta in certain cases suggest that a company may be the agent of its members where one shareholder beneficially owns the entire share capital 7e including, for example, in Pegler v. Craven  and Devlin J.’s somewhat guarded comments that  “ . . . the proposition might in loose talk pass muster in the case of the 100 per cent Shareholder.”

 But it is a proposition which does not appear ever to have been applied to decide a case, and which is contrary to the decision in Salomon v. Salomon 4 Co. Ltd., where the six minority shareholders were all, to all intents and purposes, the mere nominees of Salomon, the majority shareholder. The House of Lords nevertheless specifically rejected the suggestion that the company was the agent of the latter. Further, the dicta to this effect in Pegler v. Craven were subsequently discussed and rejected by a unanimous Court of Appeal in Tunstall v. Steigmann. Subsidiary companies constitute a special case within the preceding category, for by definition they must always be controlled by another company. Again, however, the existence of complete control does not, of itself, establish that the subsidiary is the agent of its holding company. This is confirmed by William Cory Son Ltd. v. Dorman Long 4 Co.., Ebbw Vale U.D.C. v. South Wales Traffic Area Licensing Authority 84 and merchandise transport limited v British transport commission

THEORIES OF CORPORATE PERSONALITY

  1. Fiction theory:- this theory is mainly propounded by Savigny, Salmond, Kelson and Holland . According to this theory a corporation is clothed with a legal personality. The personality of a corporation is different from its members.  Savigny regarded corporations as an exclusive creation of law having no existence apart from its individual members who form the corporate group and whose acts by fiction are attributed to the corporate entity .as a result of this change in the membership does not affect the existence of the corporation or its unity . savigny further pointed out that there is double fiction in case of a corporation. By one fiction the corporation is given a legal entity, by another it is clothed with the will of an individual. Thus, fictitious personality of a corporation has also a will of its own which is different from that of its members.

Kelson also regards legal personality a fiction. To quote his words “it is convenient peg upon which to hang legal rights and duties. Thus a group of persons or a successive series of person is a legal person because it has an imaginary personality by fiction of law”.

Salmond also supports the view that a corporation has a fictitious existence. It is distinct from its members and capable of surviving even after all the members have ceased to exist. Gray justifies fiction theory on the ground that the main object of incorporation is to protect the interest of persons having common objectives. Like fictitious personality, the will of the corporation is also an imaginary creation of law.[21]

The fiction theory thus believes that incorporation is a fictitious extension of personality resorted to for the purpose of facilitating dealings with property owned by a large body of natural persons. The fiction theory, however, answer satisfactorily the civil and criminal liability of corporations. If it is assumed that the will of the corporation is attributed to it by the fiction of law then it leads to infer that it must always be lawful as the will conferred by law can never be for unlawful and illegal ends.

However this theory has been criticised by Sir Fredrick Pollock on the grounds that under English law neither collective liabilities nor collective power can be enjoyed by the body of individuals unless they are duly incorporated under the existing laws. Therefore unincorporated bodies are not treated as legal person.

  1. Realist theory: – also known as organic theory, was propounded by Glerke, a german jurist . He believed that every collective group has a real mind, a real will, and a real power of action. A corporation therefore has a real existence irrespective of the fact whether it is recognised by the state or not. The corporate will of the corporation finds expression through the acts and directions of its directors, employees or agents.  The existence of the corporation is based on reality and not fiction. It is a psychological reality and not physical reality. Gray, however denies the existence of collective will.  He calls it a figment this theory has also been supported by some other jurists like Bluntschli, Beseler Miraglia, Pollock, Maitland and Dr. Jethrow Brown. Dicey also contends that the personality of a group is the reflection of its consciousness and will. Thus group personality is as real as the personality of an individual.

However this theory has been criticised by J.C. Gray as he contended that collective will have no reality, it is nothing more than mere fiction. Salmond also says that even it is assumed that that the group will is reality, the reality of the unitary notional entity which may in law survive the last of its members cannot be conceded to .moreover he further contends that the realist theory cannot be applied in case of a corporation sole because it is simply a series of natural persons whose rights are different from those natural  persons in general and in case of corporation aggregate personality is nothing more than a metaphor and a fiction.[22]

  1. Bracket theory:- Ihering propounded this theory of corporate personality .according to this theory juristic personality is only a symbol to facilitate the working of corporate bodies. Only the members of corporations are “persons” in real sense and a bracket is put around them to indicate that they are to be treated as one single unit when they form themselves into a a corporation .this theory has been advocated by American jurist Hohfeld in a different form, in his view corporate personality is creation of arbitrary legal rules designed to facilitate proceedings by and against an incorporated body in the court of law. His theory has been criticised on the grounds that as it does not specifies as to when the bracket are to be removed and when the corporate mask be lifted for taking note of persons constituting the corporation.
  2. Concession theory:– this theory presupposes that corporation as legal person has has great importance because it is recognised by the state or the law. According to this theory, juristic personality is a concession granted by the state to a corporation. It is entirely at the discretion of the state to recognise or not to recognise a juristic person the theory closely resembles the fiction theory as it also believes that there is no juristic personality apart from the creation of law. It is for this reason that the fiction theory is being accepted by the followers of this theory[23]. This theory deviates from the fiction theory in as much as it emphasis on the discretionary power of the state in matter of recognising the corporate personality of the corporation. Some critics consider the theory dangerous because of its over emphasis on the discretionary power of the state in regard to recognition of a corporation or not. In this view it may lead to dictatorship and arbitrary restrictions on corporate bodies, particularly the political entities.[24]
  3. Purpose Theory:-This theory was propounded by Brinz, on the view that corporations are treated as persons for certain specific purposes. The assumption that only living persons can be the subject matter of rights and duties would have derived imposition of rights and duties on corporations which are non living entities .it therefore became necessary to attribute “personality” to corporations for the purposes of being capable of having rights and duties.

These different theories were analysed by Dr. Friedmann who concluded that almost all of the theories had a political significance and their role in attending the legal problems has been secondary.

Advantages and disadvantages of separate legal entity concept[25]

Legal protection

 Forming a corporation offers legal protection because the business owner becomes a separate entity from the incorporated company, Inc. notes. This distinction protects business owners from personal lawsuits and corporate liabilities and secures their personal assets. A C corporation can be sued since it serves as its own entity. That means the company and all of its assets and equity are exposed to risks, while the owners remains safe.

Liability and Taxation

“Since a corporation is a separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation,” according to Business Accent. This means that shareholders are not personally liable for any company debt and creditors cannot go after their personal assets for business debts. Similarly, shareholders only pay taxes on any profits paid to them as salaries, bonuses or dividends and the corporation itself pays corporate rate taxes on any additional profits at the lower corporate rate.

Perpetual Existence

The main advantage of a corporation is its perpetual existence. Since the corporation is a separate legal entity from any of its owners, it does not dissolve when one owner leaves. If a shareholder dies, the company may transfer her shares in the same way as any other property, and the corporation is not negatively affected. This also allows a shareholder to disconnect from the corporation by selling all of her shares without ending the corporation. Keep in mind that when deciding to dissolve a company there are procedures and paperwork required.

Disadvantages

While a corporation offers many advantages, those same qualities can also make life more difficult. It costs money to incorporate your business, as “start up, operating and tax costs are not required of most other structures,” reports Business.gov. Corporations have rules to follow and you must adhere to the formalities of organizing and running the company. Increased business regulations lead to a large amount of paperwork required to both incorporate and keep accurate tax, business and monetary records as required by la

Liability of corporations[26]

Corporations are legal persons .it means that they have rights and liabilities .so far as rights are concerned there is no difficulty in their enforcement .But the liabilities of corporations present very complicated problems. How are the liabilities of an entity which is treated as person only by a fiction of law to be enforced against it? This problem shall be discussed under three headings:-

  1. Liability of a corporation in contract: For entering into a contract two things are important i.e. the form of the contract and the capacity of the parties, a corporation has no material existence therefore it always through its agents. It signifies its assent through seal. Therefore the presence of the seal is considered as evidence of the assent of the body corporate. The power of the corporation to enter into contract is limited by the statute .and anything beyond the words of the statute is rendered as ultra vires. Therefore the corporation formed under a statute is liable only for the acts done within the ambit of the statute.
  2. Liability of corporations of torts: as observed earlier a corporation always acts through its agents therefore the liability of the corporation for the torts is based on the principle of vicarious liability. A corporation is liable for the acts of its servants done in the course of employment but this rule applies only to those acts which are intra vires the corporation. Two things are taken into consideration while imposing the liability upon the corporation i.e. whether the act was done by the authority of the corporation or the act was done without the authority of corporation for the acts done with authority the corporation is liable but for the acts done without the authority the corporation could not be made liable.
  3. Liability for criminal acts:- the earlier view was that the corporation cannot be made liable for criminal offences for the theoretical difficulties like how to attribute mens rea to the corporations and how can a corporation be punished. The procedural difficulties have been now been removed partly by legislations and partly by judicial decisions and in the recent years the corporations have been made liable for the criminal acts .for instance:- in the case of D.P.P. v Kent and Sussex contractors[27] where the manager of the company has sent in false returns for the purpose of obtaining petrol coupons the court held the company liable and said that though the act was done through the manager the company was liable for the acts. In another case of Moor v Bresler Ltd. The court held the company liable for the criminal acts of the secretary. Moreover a suit can be filed against the company in the capacity of juristic person.

CONCLUSION

Therefore from the analysis of the studies of different theories on corporate personality undertaken as a part of this project it can be concluded that the concept of separate legal entity is of great importance as it imposes rights and duties on non living persons by attributing legal personality to them. Clothed with the legal personality these corporations can own, use and dispose of property in their own name. Moreover in case of any dispute such conferment of title of legal personality enables the entity to sue or be sued in its own name. Therefore in the light of above statements the concept of separate legal entity cannot be regarded as a sham concept, though not real but not fully fictitious as well.

Edited by Amoolya Khurana

[1] /Thesis.pdf last accessed on 28th march 2014.

[2] Fitzerland p.j.”salmond on jurisprudence (12th edition) p:299.

[3] Dr n.v. paranjape “studies in jurisprudence legal theory,5th edition, central law agency.

[4] Id.

[5] Supra (1)

[6] P.J.Fitzgerland, “Salmond on jurisprudence”,Ed. 12.universal law publishing co.pvt.ltd.pg 66.

[7] Harrods ltd v lemon (1931) K.B. 157           

[8] Warzel v hughton (1937) K.B. 380

[9] G.W. PATON “A TEXTBOOK ON JURISPRUDENCE” Ed.4, Oxford University Press.

[10] G.W. PATON.,”A TEXTBOOK ON JURISPRUDENCE”,ED.4TH ,oxford university press.

[11] Id.

[12] [18971 AC 22 HL

[13] Dan-Cohen M, Righzs, Persons and Organisa¢ions: A Legal Theory For Bureaucratic

Society, University of California Press, Berkeley (1987) at 44

[14] Dewey, ’The Historical Background of Corporate Legal Personality” 35 Yale Law

JOURNAL ,(1926) 655 at 656.

[15] Lord MacNaughten in Salomon at 51.

[16]  in Farmers Loan & Trust Co v Pierson

[17] Per Vaughan Williams J [1895] 2 Ch at 323,  Lindley LJ at 336.

[18] http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1081&context=blr

[19] (1961) AC 12

[20] (1976) 137 CER 1

[21] V.N. Paranjape,”studies in jurisprudence legal theory”, central law agency.p 330

[22] Id.

[23] Dicey A.V. “the law of the constitution”, Ed. 8th

[24] V.N. Paranjape,”studies in jurisprudence legal theory”, central law agency.p 330

[25]http://smallbusiness.chron.com/advantages-disadvantages-forming-corporation-3896.html, “advantages and disadvantages of a corporation. last accessed: 30th march 2014.

[26] Dr. B.N. Mani Tripathi,” jurisprudence Legal Theory” ed.17th ,Allahabad law agency

[27] 1944 K.B. 146

The active version of this website has moved to: http://people.umass.edu/derrico/corporateperson.html


This essay originally appeared in Rethinking MARXISM Volume 9, Number 2 (Summer 1996/97), pp. 99-113.
© 1997 by author and Association for Economic and Social Analysis, University of Massachusetts-Amherst (USA 01054)

Remarx


Corporate Personality and Human Commodification


Peter d'Errico

At the top of the city
in a glass-chromed room
an attorney assures the board of directors
that the corporation is the person
against which any or all action may be taken,
not against each and every director joint or several.
The multiheaded person exhales dry-iced victory
as counsel backs out the door
descending floor after floor
to wait for a cab in the cold.
Nearby a breathing bundle of rags
sits on a grate of steam
and waits just waits
wondering where warmth went.

—Ruth Knight, "Persons"

Our image world crawls with naked bodies that build up flourishing worlds of stimuli for voyeurism and the brain sensuality of the capitalist wish society... Because the commodity society can only function on the basis of disembodiment, its members are consumed by a hunger for images of the body, including one's own body image.

—Sloterdijk, Critique of Cynical Reason

[I]n so far as we believe in law, we condemn existence.

—Goodrich, Reading the Law


[*100] My purpose in this essay is to explore the doctrine of "corporate personality," to deconstruct the metaphor of legal "being," to reveal it "as an intersection of competing discourses… as a point of fracture in which different systems of signs are transposed, translated and articulated" (Goodrich 1986, 220).

The concept that a corporation is a "person" is the legal core of corporate power. When the U.S. Supreme Court overturned New Hampshire's attempt to turn Dartmouth College into a public institution (Dartmouth College v. Woodward, 17 U.S. Reports 518 [1819]), the Court subordinated a state legislature to an "artificial being": the college corporation. The Court held that a charter from the British Crown creating the college was a contract protected from legislative impairment by the federal constitution. The Court said that the college corporation provided for the maintenance of property rights by "a perpetual succession of individuals… capable of acting… like one immortal being." The Court's comment that "[i]ts immortality no more confers on it political power… than immortality would confer such power… on a natural person" denied human experience as it postulated an artificial world of legal "being."

Two Approaches to Legal Personality

By the late nineteenth century, corporations had become major institutions. Their legal conceptualization as "artificial" hardly fitted the reality of their power. Large manufacturing corporations and railroads rivaled governments. Corporate legal battles were not limited to preservation of their charters but extended to ever wider attempts to deploy property and exercise coercive force. Assertions of corporate power independent of the state and challenging the terms of corporate legal existence "positively traumatized legal thinking" and created "a crisis of legal imagination" at the turn of the century (Mark 1987, 1445).

Frederic William Maitland pointed out in 1900 that "in the second half of the nineteenth century corporate groups of the most various sorts have been multiplying all the world over at a rate that far outstrips the increase of natural persons, and a large share of all our newest law is law concerning corporations." He went on to say that "something not unworthy of philosophic discussion would seem to lie in this quarter: either some deep-set truth which is always bearing fruit, or else a surprisingly stable product of mankind's propensity to feign" (1958, xii).

Maitland's comments appeared in the introduction to his translation of Otto Gierke's history of political theory in the Middle Ages. Gierke's presentation of Germanic concepts of "organic" group life offered the possibility of a "deep-set truth" that corporate entities exist prior to and independent of the state. Far from being "artificial" creatures of the state, corporations might be seen as "real" legal persons deriving their powers and legitimacy from their own internal processes as human "fellowships" or associations.

Maitland suggested that this Germanic concept of "real" corporate personality might legitimize the economic and political reality that was emerging in America and England. It would allow law to take the side of the corporation against the state, [*101] not simply where the state had already provided for specific protections but in a generalized way, on behalf of self-directed corporate autonomy, a form of group sovereignty. As the source of their own legitimacy, "real" legal "persons" would be in a position to negotiate with the state. "Fictional" legal persons, on the other hand, were dependent on state authority for their existence and legitimacy. They were subsumed in state sovereignty. Their existence was entirely "feigned" by the law.

The "fiction" concept of corporate personality claims a Roman pedigree. Gierke refers to a tradition snaking back through the Middle Ages to Pope Innocent IV (pontificate 1243-54) who relied on phrases in Justinian's Digest to declare that church "bodies" could own property as "persons." The difference between the Roman and German traditions, as Maitland pointed out, is between an abstract institution existing only in contemplation of law and a "living group" existing as a sovereign expression of its members.

Maitland's translation brought Gierke's vision of the "organic" viewpoint of corporate associations to English-speaking jurists, who were looking for an alternative to the "fiction" conception to rationalize the overwhelming economic and political power being marshaled by corporations. This "organic" view, though it did not triumph in its own right in American law, fueled debate about whether corporations depend on the state or are directly legitimized by a human right of free association.

The jurisprudential debate came to its "crisis" as corporate power intensified throughout the last half of the nineteenth century and political opposition emerged from Populist legislatures. Populists enacted a variety of legal obstacles to corporate business. "States' rights" were asserted against "foreign" corporations, license fees set for doing corporate business within a state, bond requirements established, and other measures taken that, from a national corporate point of view, threatened economic "balkanization" (Graham 1955, 166).

Corporations challenged Populist restrictions with a barrage of litigation claiming equal protection and due process rights under the Fourteenth Amendment. Corporate lawyers aimed at stretching the federal Constitution to create a national market free from state regulation. U.S. Supreme Court Justice Hugo Black once pointed out that "of the cases in this Court in which the Fourteenth Amendment was applied during the first fifty years after its adoption, less than one-half of one percent invoked it in protection of the negro race, and more than fifty percent asked that its benefits be extended to corporations" (Connecticut General Co. v. Johnson, 303 U.S. Reports at 90 [1938]).

The railroad provisions of California's Constitution of 1879 were a high-water mark of anticorporate Populist law. These included an elected Railroad Commission and State Board of Tax Equalization, and a provision prohibiting deduction of railroad mortgage costs for property tax purposes. This provision aimed at distinguishing between mortgages for personal property (e.g., homes) and mortgages for business capitalization. Targeting of railroad mortgages was explained by reference to the fact that "railroads, unlike other property, were mortgaged for more than cost, yet still paid handsome dividends" (Graham 1955, 180). The activities of the Board [*102] of Tax Equalization applying the mortgage provision led to confrontation in federal court with the Southern Pacific Railroad.

The ensuing litigation, Santa Clara County v. Southern Pacific Railroad (118 U.S. Reports 394 [1886]), resulted in a clear victory for corporate partisans. The U.S. Supreme Court declared the railroad to be a "person" within the meaning of the Fourteenth Amendment, a much broader protection than provided to Dartmouth College. Fourteenth Amendment recognition of corporate personality provided corporations with a generalized freedom to use property in opposition to state government restrictions: "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does" (396).

However satisfying to corporate lawyers, the concept was troubling for jurisprudence. As Maitland suggested, the growing power and increasing recognition of corporate "persons" demanded attention to the philosophical foundation of legal personality itself. Was corporate personality an expression of "some deep-set truth" or simply a "product of mankind's [read the law's] propensity to feign"? Was the corporate person "real" or "artificial"? On this question depended the legitimacy of the state, as well as of the corporate entities.

John Dewey argued in 1926 that questions about the nature of corporate personality were not only about corporations and the state but about people. The dilemma that had emerged for jurisprudence spread beyond the dichotomy between "real" and "fictional" legal entities to include the domain of law's treatment of "natural persons." The terminology of jurisprudence was betraying its difficulty in coming to terms with human existence as well as human association.

[E]ven if it were true, as it is not, that "natural person" is a wholly unambiguous term, to term a "natural" person a person in the legal sense is to confer upon it a new, additive and distinctive meaning… The root difficulty in present controversies about "natural" and associated bodies may be that while we oppose one to the other, or try to find some combining union of the two, what we really need to do is to overhaul the doctrine of personality which underlies both of them (Dewey 1926, 657-58).

Before midcentury, jurisprudential trauma was resolving into a consensus that corporations and "natural persons" were, insofar as law was concerned, basically the same. The "crisis" of legal imagination in grappling with corporate personality was settling into an agreement no longer to ask difficult questions about the "essence" of personality. In place of a definition of legal personality, jurisprudence moved toward an approach that is dominant as the twentieth century comes to an end: the analysis of "interests" with an eye to "costs" and "benefits." Dewey's "plea" resonated in jurisprudential circles and presaged the future. "As far as the historical survey implies a plea for anything, it is a plea for disengaging specific issues and disputes which arise from entanglement with any concept of personality which is other than a re-[*103] statement that such and such rights and duties, benefits and burdens, accrue and are to be maintained and distributed in such and such ways, and in such and such situations" (1926, 669; emphasis in original).

The Supreme Court's refusal to hear argument in Santa Clara about its extension of Fourteenth Amendment jurisprudence was a prime example of Dewey's assessment of the law's lack of need for theory. "There is no general agreement regarding the nature in se of the jural subject; courts and legislators do their work without such agreement, sometimes without any conception or theory at all regarding its nature; it can be shown that recourse to some theory has more than once operated to hinder rather than facilitate the adjudication of a special question of right or obligation" (Dewey 1926, 660).

The circuit court in Santa Clara did not avoid discussion of an underlying jurisprudence. Its opinion confidently presented corporate personality as a legitimate and necessary aspect of economic "leadership" in society, rather than as a form of economic domination as the Populists argued. The decision announced broad constitutional protection for corporate persons within a description of society as a system of market relations.

The circuit court opinion opened with a preliminary statement of the conclusion to be reached: "The principle which justifies… a discrimination in assessment and taxation, where one of the owners is a railroad corporation and the other a natural person, would also sustain it where both owners are natural persons" (Santa Clara County v. Southern Pacific Railroad, 18 Federal Reporter at 396 [1883]).

The court thus asserted, in a converse syllogism, that where law prohibits discrimination between human beings ("natural persons"), no discrimination may be made between human beings and corporations. The court's justification for this proposition was set out in a series of hypothetical statements describing varieties of discrimination. The text moved from discrimination based on human characteristics to discrimination based on characteristics of human economic behavior to discrimination involving strictly economic categories:

It would be a singular comment upon the weakness and character of our republican institutions if the valuation and consequent taxation of property could vary according as the owner is white, or black, or yellow, or old, or young, or male, or female… Strangely, indeed, would the law sound in case it read that in the assessment and taxation of property a deduction should be made for mortgages thereon if the property be owned by white men or by old men, and not deducted if owned by black men or by young men; deducted if owned by landsmen, not deducted if owned by sailors; deducted if owned by married men, not deducted if owned by bachelors; deducted if owned by men doing business alone, not deducted if owned by men doing business in partnerships or other associations; deducted if owned by trading corporations, not deducted if owned by churches or universities; and so on, making a discrimination whenever there was any difference in the character or pursuit or condition of the owner. To levy taxes upon a valuation of property thus made is of the very essence of tyranny, and has never been done except by bad governments in evil times, exercising arbitrary and despotic power (396).

[*104] Note the semantic structure of the opinion. The distinction between individual economic activity and the activity of economic organizations was smoothly elided. Differences of economic function were neatly equated with human differences. Signs of natural human difference—race, sex, age—were intertwined with signs denoting types of institutions and forms of business organization. In this way the doctrine of legal personality admitted no distinction between humans and human organizations, between biology and politics—one was included within the other. Human existence was subsumed in the abstract realm of political economy. This semantic movement reached its foreordained conclusion: the concept of human equality in the Fourteenth Amendment not only extended to the nonhuman but prohibited any distinction between human and nonhuman, between humans and corporations.

The Santa Clara decision transposed the specific political relationship of the Fourteenth Amendment to the emancipation of black slaves into a generic logic of nondiscrimination. The court's decision was organized as a panegyric, eulogizing the Fourteenth Amendment (in generic terms) and articulating the activity of law in religious imagery:

With the adoption of the [Fourteenth] amendment the power of the state to oppress any one under any pretense or in any form was forever ended; and henceforth all persons within their jurisdiction could claim equal protection under the laws…. This protection attends every one everywhere, whatever be his position in society or his association with others, either for profit, improvement, or pleasure. It does not leave him because of any social or official position which he may hold, nor because he may belong to a political body, or to a religious society, or be a member of a commercial, manufacturing, or transportation company. It is the shield which the arm of our blessed government holds at all times over every one, man, woman, and child, in all its broad domain, wherever they may go and in whatever relations they may be placed (398).

The opinion described a community in which the mode of belonging was based on legal recognition. "Natural persons" were included in this community only to the extent that human existence was determined to have legal significance. The decision simultaneously excluded the humanity of Populist dissent as an "other," outside the community, and reinforced the power of corporate economic organization within the community.

The court refused to discuss Populist objections to vast aggregations of wealth. Instead, it simply asserted that these aggregations have a beneficial impact on people's lives: "the aggregate wealth of all the… companies engaged in business, or formed for religious, educational, or scientific purposes, amounts to billions upon billions of dollars… and furnishes employment, comforts, and luxuries to all classes, and thus promotes civilization and progress… the persons composing them—amounting in the aggregate to nearly half the entire population of the country" (405).

Populist battles against corporate power were derailed in the name of freedom from state tyranny. The corporate person was portrayed as a benevolent Titan, allied with humanity in a struggle for material prosperity and endangered by foolish legislation. There was no acknowledgment in the court's opinion of any dangers posed to humanity by this alliance.

[*105] The Political Economy of Corporate Personality

The doctrine of full-fledged corporate personality in legal discourse coincided with the historical separation of finance capital from industrial management. Two types of property were presented by an emerging fragmentation of corporate political economy: one, the physical assets of the corporation, operated by its managers; the other, the claim of investors to a share in profits generated by such operation.

The position of investors, so different from the individual proprietors envisioned in classical theories of market society, was exposed by the Populist distinction between property owned for use and property owned for profit. The tax provisions of the 1879 California Constitution, by changing the mode of assessment in order to get at the "going value" of the railroads (as contrasted with the cash value of their assets), levied on the profit-generating capacity of the railroads. This change threatened not only the railroads but the whole system of finance capital which underwrote and depended on the profitability of corporate concentration.

Railroad lawyers seem to have been particularly prescient about the matter: "Property"—heretofore tangible property—had to be equated to "earning power" or "exchange value" or, as one of the pioneer Southern Pacific Railroad briefs put it (in a truly inspired and prophetic typographical error), the phrase in the Fourteenth Amendment had to be read as "deprived of… profit without due process of law" (Graham 1955, 164).

The sensitivity of railroad lawyers to the significance of a conception of property as exchange-value may be traced to the needs of their real clients, that is, not the railroad managers with their inventories of rails and rolling stock but the investors with their shares of stock. Railroad finance had begun to transform investment banking generally (Werner 1981, 1639; Ireland, Griss-Spell, and Kelly 1987, 157-59), and this wider interest was at stake in the corporate battle against populism. The property in profits sought separation from the property in assets to protect the owners of the profits from any claims that might arise by virtue of the management of the corporate assets. (This is the core meaning of the "limited liability" of corporate investors.) Corporate personality provided the legal vehicle for this political-economic distinction, becoming the constitutional basis for judicial protection of both kinds of property, both kinds of owners, both kinds of power—management and investment—from legislative (Populist) interference.

The conservative press of the day was quick to applaud the Santa Clara decision, greeting it with accolades and pressing the legal reasoning to a clear political-economic conclusion: "the law will continue to guarantee to capital invested in partnerships or associations or any form of corporate effort the same rights it would have if managed separately by individual owners" (Graham 1955, 194). Note the comment that the decision protects capital and guarantees its rights. The result of the corporate personality decision was not simply to protect corporate property against the state but to personify capital itself within a general system of market economy. The concept of the corporate person also had the effect of enhancing the power of corpo-[*106] rate managers against stockholders. The corporate "legal person," doctrinally separated from its owners, required managerial guidance almost as a ward needs a guardian. The diminished role of stockholders in corporate management became the source of concern about "power without property" (Berle and Means 1932) and of various contemporary debates about "corporate social responsibility" (Stone 1975).

American Progressives and Legal Realists approached the displacement of individual by corporate persons as a problem for jurisprudence generally. Maitland had made available Germanic notions of "group will" and suggested a legal framework that would admit groups to the status of real persons, but the fracture of management from ownership left the corporate person with a split personality not amenable to the Germanic concept. United States jurists preferred to rely on the Roman-derived "fictional person" doctrine, and solved the problem of what to do with "natural persons" by dismissing them from law except insofar as they might fit within this fiction. There were to be no "real" legal persons (except the state itself). In Dewey's words, "for the purposes of law the conception of 'person' is a legal conception; put roughly, 'person' signifies what law makes it signify" (1926, 655). The only reason there was any confusion about this was that "extraneous influences" had been introduced into legal practice, including "a mass of non-legal considerations: considerations popular, historical, political, moral, philosophical, metaphysical and, in connection with the latter, theological" (655).

Clearly, the "pragmatists" of the day were of a mind to separate law from the rest of life, excluding all discourses not pertaining to "the strictly legal sphere." The fact that this legal sphere itself carried metaphysical and theological pedigrees was overlooked. After World War II, "the place of the corporation in law had ceased to be controversial, and both theoreticians and practitioners concerned themselves instead with organizational theory and economic analysis of corporate behavior. The corporation as a legal institution ceased to be of interest…. As a result, a modern lawyer knows only that a corporation is considered a legal person but finds that terminology devoid of content" (Mark 1987, 1441).

Legal theory in the United States today is dominated by an "economic analysis of law" premised on the theory that law "uncannily follows economics" (Barzelay and Smith 1987, 84) in pursuit of economic rationalization and efficient wealth maximization. This "cost-benefit" jurisprudence ironically mirrors Karl Marx's formulation of the relation between law and economy: that law is an ideological "superstructure" on an economic "base" (Marx 1977, 175n). What Marx saw as the domination of society by a ruling class, capitalist theorists celebrate as social progress.

On the one side, "economic analysis of law" provides only an apology for legal personality. On the other side, Marx's "base-superstructure" image fails to explain the power of legal discourse generally. As Marx acknowledged, "The influence exercised by laws on the preservation of existing conditions of distribution, and the effect they thereby exert on production has to be examined separately." The manuscript of the originally planned part 7 of volume 1 of Capital, not published until [*107] 1933, breaks off into fragments at precisely the point where Marx states that "the relations of production, are themselves produced" (1977, 1065).

We need to explain both the reflection of economic practice in legal doctrine and the dependence of economic practice on the force of law. We may do this through an approach derived from the "commodity theory" of law and economy (Pashukanis 1978; Balbus 1977).

The doctrine of the "reasonable man" provides a helpful starting point. The "reasonable man" signifies a legal ideal of human cognition and self-control. It serves as a standard by which legal authorities assess the behavior of real persons: "Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a reasonable and prudent man would not do" (Missouri, K & T. Ry. Co. of Texas v. Hannig, 43 Southwest Reports at 509 [1897]).

The "reasonable man" is deployed by law in opposition to existential human behavior. The whole purpose of the legal person is to mask the existential person, to subdue it. A contributory negligence decision from the New Mexico Court of Appeals illustrates this:

The fact that plaintiff subjectively did not consider his actions dangerous is not the issue…. The issue is would a reasonable prudent person anticipate the danger of using his foot to dislodge a clog in an area where there were moving parts of the machine which would cause serious injury…. Plaintiff asserts that there was an issue of fact as to "[w]hat effect the custom of the community had on the standard of care when all the witnesses testified it was the common custom in the community to do what plaintiff did"…. In determining whether the particular acts of a plaintiff constitute negligence, the test is not the frequency with which other men commit such acts but whether the plaintiff at the time of the occurrence, used that degree of care which an ordinarily careful person would have used… Custom in and of itself is not conclusive. It must meet the standard of ordinary care (Karl Cox, Jr. v. Karl Cox v. J. I. Case Company, 89 New Mexico Reports at 556-57 [1976]).

Forcibly (through "law enforcement") superimposing an abstract realm of legal personality on the existential reality of human beings, law constitutes a society of abstract beings related by abstract rationality, in opposition to real communities of "natural" human beings related by situational, existential rationality. It is not surprising to find that this law is more congenial to corporate persons than to humans on the relevance of "community custom" in defining "reasonableness":

The "reasonable man" is, of course, a fictional character borrowed from tort law…. Because the reasonable man personifies the community ideal of reasonable behavior, evidence of customary conduct of those similarly situated may be probative in determining his behavior…. Here, the Commission would…assert the authority to decide what a reasonable prudent employer would do under particular circumstances, even though in an industry of multiple employers, not one of them would have followed that course of action…. Where the reasonable man is used to interpolate specific duties from general OSHA regulations, the character and purposes of the Act suggest a [*108] closer identification between the projected behavior of the reasonable man and the customary practice of employers in the industry (B & B Insulation, Inc. v. Occupational Safety and Health Review Commission, 583 Federal Reporter 2d at 1364 [1978]).

We see here the interdependence of law and economy as arenas of thought and action. The doctrines of legal personality reflect economic practices, while these practices in turn rely upon enforcement of the doctrines for their effectivity.

Seventy-seven years after Santa Clara, in Bell v. Maryland, (378 U.S. Reports 226 [1963]) the operation of corporate personality in human affairs came again under scrutiny in the Supreme Court. This time it was not human discrimination against corporations but corporate discrimination among humans that provoked the legal controversy. Civil rights activists had been convicted of "criminal trespass" for their "sit-in" at a segregated restaurant. The Court reversed the convictions and remanded the case to state court for further interpretation of state laws regarding property and public accommodations. Justice Douglas dissented from the Court's refusal to declare a right of public accommodation under the Fourteenth Amendment. He criticized the argument under criminal trespass law that "a person's 'personal prejudices' may dictate the way in which he uses his property":

With all respect, that is not the real issue. The corporation that owns this restaurant did not refuse service to these Negroes because "it" did not like Negroes. The reason "it" refused service was because "it" thought "it" could make more money by running a segregated restaurant…. Here, as in most of the sit-in cases before us, the refusal of service did not reflect "personal prejudices" but business reasons…. Moreover, when corporate restaurateurs are involved, whose "personal prejudices" are being protected? The stockholders'? The directors'? The officers'? The managers'? The truth is, I think, that the corporate interest is in making money, not in protecting "personal prejudices" (Bell v. Maryland, 245-46).

One year later, after refusing to declare a constitutional right in Bell, the Supreme Court considered the constitutionality of the federal Civil Rights Act of 1964. The decision in that case, Heart of Atlanta Motel v. United States {379 U.S. Reports 241 [1964]}, noted that a "fundamental object" of the Act was "to vindicate 'the deprivation of personal dignity that surely accompanies denials of equal access to public establishments" ( 250). But, as in Bell, the Heart of Atlanta Court declined to enter into a Fourteenth Amendment jurisprudence of human rights and dignity. Instead, the Court explored an alternative constitutional basis—the power of Congress to regulate interstate commerce:

[T]he record of [the Act's] passage through each house is replete with evidence of the burdens that discrimination by race or color places upon interstate commerce…. Negroes in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same…. [O]ften they have been unable to obtain accommodations and have had to call upon friends to put them up overnight…. [T]here was evidence that this uncertainty stemming from racial discrimination had the effect of discouraging travel on the part of a substantial portion of the [*109] Negro community…. This was the conclusion…also of the Administrator of the Federal Aviation Agency who wrote…that it was his "belief that air commerce is adversely affected by the denial to a substantial segment of the traveling public of adequate and desegregated public accommodations" (252-53).

This legislative history, the Court stated, "has brought us to the conclusion that Congress possessed ample power in this regard, and we have therefore not considered the other grounds relied upon…. [S]ince the commerce power is sufficient for our decision here we have considered it alone" (250). In short, Heart of Atlanta upheld the constitutionality of the 1964 Civil Rights Act not because of black people's status as human persons, but because of their status as objects in commerce.

The Court's commodified definition of civil rights aimed at equality by virtue of the fact that the market equalizes everything: money is the universal equivalent, through which all things are made fungible. The essence of commodification is the transformation of unique individuality into generic form. In this case, the uniqueness of black people's historical relation to the Constitution was transformed into the generic form of the consumer in a market economy.

The jurisprudence of Heart of Atlanta was not about value in human terms of the freedom to travel or to eat in public. It was about economic value (in terms of the gross national product) to be derived from an expansion of interstate commerce. This market-based civil rights in the promised land of the "Great Society" translated human values into an abstract context. It rested on and reinforced a system of human relations in which people are subordinated to property and have "rights" and "freedoms" only on the basis of marketability.

Just as the historical "freedom" for medieval peasants to leave the feudal manor involved their introduction into wage labor, so the "freedom" of black people to "move in commerce" involved subjugation to the cost-benefit calculations of market jurisprudence. The commerce clause version of civil rights said no more than that those who have sufficient money to pay for what the market offers must be permitted to participate in that market. This is the "equality" of commodified human relations.

It has been argued that interpretation of the Fourteenth Amendment in terms of an abstract equality actually undermined the struggle of black people to achieve political and economic freedom. On the one hand, the exclusion from legal discourse of the unique historical relation of black people to the Civil War amendments blocked utilization of those amendments as a specific legal reparation for slavery. On the other hand, enforcement of a market-based civil rights "integration" policy has repeatedly destroyed the human community basis for black economic advancement.

Thus, black aspirations are trapped within the ambiguities of the constitutional meaning of the equal protection clause. Continued agitation and leadership confrontations on this issue…are not only fruitless but counterproductive. The traditional civil rights leadership that aims at perpetuating this mode of agitation is detrimental to future development in the political, economic, educational, and cultural dimensions of the black cause (Cruse 1987, 379; emphasis in original).

[*110] It has also been argued that an economistic, commodity definition of freedom undermines human community in general, and not only the community of those who have been specifically oppressed: "this kind of economics [market exchange] has the greatest difficulty in reflecting the reality of human community and the value of communal institutions. Its necessary tendency seems to be to destroy the idea of public action, indeed the idea of community itself" (White 1986, 191).

Political Reflections

Corporate personality is far more than a symbolic device to permit law to deal with associations of people. Corporate personality consists of and depends on a generalized substitution of juridical persons for real people. The doctrines of "legal personality" present social relations as a product of legal institutions, dependent on enforcement of an authoritative (legal) discourse, rather than as inherent in "natural" existence.

These themes are mirrored in mass media where corporate sponsors dictate a normalizing of human anxiety and insecurity, alleviated by the joy and satisfaction of commodity consumption. Advertising promotes the image that life itself is the province of corporate persons: "We bring good things to life," and "GE restores your faith in your own two hands" (General Electric); "Come home to NBC" (National Broadcasting Company); "Life's Worth Litton" (Litton Industries). Real human individuality is replaced by a commodified individualism: "Be yourself," say the ads. "Buy this (mass-produced product)."

Legal personality is the result of a "generative and creative act of meaning" (Goodrich 1986, 221) in a process of political-economic persuasion and seduction. The prospect for achieving a life of "natural sociability" is bound up with how and whether people understand the signs, the rationality, and the metaphysics of the discourses that deny and obscure this possibility. A loss of faith in the conventional meaning of the Fourteenth Amendment does not require abandonment of the idea of a free society; rather, it makes possible a renewed discourse about freedom and equality. "Nihilism in the context of legal studies simply means loss of faith in the community of legal doctrine and refusal to succumb, acquiesce or otherwise believe in the foundational myths of legal doctrine and legal regulation" (Goodrich 1986, 217).

The moment may be ripe for "nihilism as…an affirmative…will to create new values, new modes of organization and of collective belonging" (214). "The very values and assumptions about society upon which corporatism ultimately rests, functional specialization and hierarchical organization, security and prevision, 'productivism' and efficiency, economic growth and mass consumption as ends in themselves, are being called into question" (Schmitter 1979,40-41); some may move with the suggestion for "some experimentation with the sort of dispersed, nonspecialized, nonhierarchic, 'hived-off,' voluntaristic units, autonomously responsible for allocating their values and resolving their conflicts, an interest system…tentatively identified as syndicalist" (41). Others will notice that "[t]he corporation forms the clos-[*111] est attempt of the white man to socialize his individualism and become a tribal man" (Deloria 1969, 225). Few will still believe with Durkheim that "corporations…provide the answer to overcoming modern man's moral and spiritual malaise, integrating him into society through new communal bonds" (Schmitter 1979, 32).

Fascism may remain as the most thorough subsumption of "natural persons" into legal personality:

The Fascist State…had to act so as to have in its presence only individuals and groups whose position had been declared legal: individuals thus acquired the character of citizens, and their groups, the character of "juridical persons"—legal associations…. [T]hese recognized syndicalist associations…are…regarded as…active and passive…, that is to say, having both rights and duties…. But those whom the recognized syndicates represent are not mere citizens…. [T]heir position is…more specifically that of passive "juridical persons" (Bottai 1931, 34-35).

The medieval origins of corporation law were an arena of state-building. The emerging nation-states proclaimed themselves "sovereign" over populations of individuals. The states were hostile to corporate associations intermediate between the sovereign and the people. The "intended victim of the would-be sovereign prince was…feudal society itself," with its "segmenting and parceling process" (Strauss 1986, 243). For their part, such associations asserted traditions anterior to the state and formed regional alliances against the centralizing tendencies promoted by the discourse of Roman law.

Because corporate power in the United States is legally separate from state power ("private" versus "public"), the situation is superficially more akin to the late medieval structure of corporate "estates" as "cobearers of central power" (245) than to twentieth-century fascism's "corporative conception of the State" (Bottai 1931, 30). However, since the basis of contemporary corporate power is not local, landed traditions as in feudalism but highly centralized market position, the overall result of the situation is actually quite similar to the fascist "inclusion of economy in the State…, the identification of politics with economics" (39) with the qualification that in an increasingly global corporate form it appears that the "state" is included within the "economy."

A system based on personal property and formal equality of all "persons" produces a corporate managerial class whose plans and desires become the integrating mechanism of society, without explicitly mandating this mechanism. Liberty of ownership becomes de facto the ownership of liberty, while de jure universal freedom prevails. As Justice Douglas remarked in dissent in Bell v. Maryland:

Affirmance [of the lower court decision] would make corporate management the arbiter of one of the deepest conflicts in our society: corporate management could then enlist the aid of state police, state prosecutors, and state courts to force apartheid on the community they served, if apartheid best suited the corporate need; or, if its profits would be better served by lowering the barriers of segregation, it could do so (264, emphasis in original).

[*112] Foucault has said that "the soul is the prison of the body" (1977, 30). Perhaps it is the notion that a corporation has no soul (from Innocent IV, lifted into English law by Sir Edward Coke and Blackstone) that has allowed the corporate person to so far outstrip its human origins that it now threatens to consume the earth in a mad war for global domination. Perhaps the antidote to law's soulless corporation is human self-awareness and mutual association not for profit. Whatever the merits of these speculations, the fact remains that the subsumption of "natural persons" within "legal personality"—the ruling idea of the ruling institutions in our day—is synonymous with the denial of existence, the sacrifice of life.

References

Balbus, I. 1977. "Commodity Form and Legal Form: An Essay on the 'Relative Autonomy' of the Law." Law and Society 11 (Winter): 571-88.

Barzelay, M. and Smith, R. M. 1987. "The One Best System? A Political Analysis of Neoclassical Institutionalist Perspectives on the Modern Corporation." In Corporations and Society: Power and Responsibility, ed. W. J. Samuels and A. S. Miller, 81-110. Westport, CT: Greenwood Press.

Berle, A. and Means, G. 1932. The Modern Corporation and Private Property. New York: Macmillan.

Bottai, G. 1931. "The Corporative State." In What Is Fascism and Why? ed. T. Sillani, 30-39. New York: Macmillan.

Cruse, H. 1987. Plural but Equal: A Critical Study of Blacks and Minorities and America's Plural Society. New York: William Morrow.

Deloria, V., Jr. 1969. Custer Died for Your Sins. New York: Avon.

Dewey, J. 1926. "The Historic Background of Corporate Legal Personality." Yale Law Journal 35 (6): 655-73.

Foucault, M. 1977. Discipline and Punish. Trans. A. Sheridan. New York: Vintage.

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Goodrich, P. 1986. Reading the Law. Oxford: Basil Blackwell.

Graham, H. J. 1955. "An Innocent Abroad: The Constitutional Corporate 'Person.'" U.C.LA. Law Review 2 (2): 155-211.

Ireland, P.; Grigg-Spall, I.; and Kelly, D. 1987. "The Conceptual Foundations of Modern Company Law." Journal of Law and Society 14 (Spring): 149-65.

Knight, Ruth. 1986. "Persons." Unpublished.

Maitland, F. W. 1958. Introduction to Political Theories of the Middle Ages, by 0. Gierke. Boston: Beacon Press.

Mark, 0. A. 1987. "The Personification of the Business Corporation in American Law." University of Chicago Law Review 54: 1441-83.

Marx, K. 1977. Capital. Vol. 1. New York: Vintage.

Pashukanis, E. 1978. Law and Marxism: A General Theory. Trans. B. Einhorn. London: Ink Links.

Schmitter, P. C. 1979. "Still the Century of Corporatism?" In Trends toward Corporatist Intermediation, ed. P. C. Schmitter and G. Lehmbruch, 7-52. Beverly Hills: Sage.

Sloterdijk, P. 1987. Critique of Cynical Reason. Minneapolis: University of Minnesota.

Stone, C. D. 1975. Where the Law Ends: The Social Control of Corporate Behavior. New York: Harper.

[*113] Strauss, G. 1986. Law, Resistance, and the State. Princeton: Princeton University Press.

Werner, W. 1981. "Corporation Law in Search of its Future." Columbia Law Review 81: 161166.

White, J. B. 1986. "Economics and Law: Two Cultures in Tension." Tennessee Law Review 54: 161-202.


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