Jurisprudence - Theories of Legal Personalities
Vijay Sardana
Advocate, Delhi High Court
Advocate, Delhi High Court
INTRODUCTION:
The decision of House of Lords in Salomon v A Salomon
& Co. Ltd had a lasting influence on incorporation law. It is often credited
with the principle of the separate legal entity of the corporation distinct from
the members.
Though there is no doubt that the Salomon case had a play
a significant role in company law, the decision, in this case, was hardly the
origin of the separate legal entity principle. The legal entity of beings other
then the human has long been recognized prior to 1897, in which the Salomon the case was decided.
The jurisprudence theories on juristic person had been
established since the early Roman law to justify the existence of a legal person
other than the human. The State, religious bodies and education institutions
had long been recognized as having legal entity distinct from the members.
The acceptance of the corporate personality of a
company basically means that another non-human entity is recognized to assume a
legal entity. This can be seen from the many theories of jurisprudence on
corporate personality. Majority of the principal jurisprudence theories on
corporate personality contended that the legal entity of the corporation is
artificial. The fiction, concession, symbolist and purpose theories supported
the contention that the existence of the corporation as a legal person is not real. It
only exists because the law of the state-recognized it as a legal person and it
is recognized either for certain purpose or objectives. The fiction theory, for
example, clearly stated that the existence of the corporation as a legal person is
purely fiction and that the rights attached to it totally depend on how much
the law imputes upon it by fiction.
THE
COMMON-LAW PERSPECTIVES:
Generally, there are two types of a person which the law
recognized, namely the natural and artificial person. The former is confined
merely for human beings while the latter is generally referred to any being
other than human being which the law recognized as having duties and rights.
One of the most recognized artificial persons is the corporation.
Legal scholars, particularly the jurists, have always
explored the issue on the recognition of the corporation as a legal person. In the
study of jurisprudence, the separate legal personality of the corporation is based
upon theories, which are concentrated upon the philosophical explanation of the
existence of personality in beings other than human individuals.
W. Friedman stated that: “All law exists for the sake
of liberty inherent in each individual; therefore the original concept of
personality must coincide with the idea of man.”
Even though there are many theories which attempted to
explain the nature of corporate personality, none of them is said to be
dominant. It is claimed that while each theory contains elements of truth, none
can by itself sufficiently interpret the phenomenon of the juristic person.
Nonetheless, there are five principal theories, which are used to explain
corporate personality, namely, the fiction theory, realist theory, the purpose
theory, the bracket theory and the concession theory.
THE
FICTION THEORY:
The fiction theory of corporation is said to be
promulgated by Pope Innocent IV (1243-1254). This theory is supported by many
famous jurists, particularly, Savigny and Salmond. According to this
theory, the legal personality of entities other than human beings is the result
of fiction. Hence, not being a human being, a corporation cannot be
a real person and cannot have any personality on its own. Originally, the
outward form that corporate bodies are fictitious personality was directed at
ecclesiastic bodies. The doctrine was used to explain that the ecclesiastic
colleges or universities could not be excommunicated or be guilty of a delict
as they have neither a body nor a will. The famous case of Salomon v A Salomon Co Ltd is a proof
of the English court adoption of the fiction theory. In this case, Lord
Halsbury stated that the important question to decide was whether in truth an
artificial creation of the legislature had been validly constituted. It was
held that as the company had fulfilled requirements of the Companies Act, the
company becomes a person at law, independent and distinct from its members.
Salmond made it clear that a human being is the only
natural person while legal persons govern any subject matter other than a human
being to which the law attributes personality. States, corporations and institutions cannot have the rights
of a person but they are treated as if they are persons. Under this
theory, rights and duties attached to the corporation as an artificial person totally
depend on how much the law imputes to it by fiction.
The personality the corporation enjoys is not inherent
in it but as conceded by the state. Due to the close connection made in this
theory as regards to the relation of legal personality and the power of the state,
fiction theory was claimed to be similar to the theory of sovereignty of the state
which is also known as the concession theory.
THE
CONCESSION THEORY:
The concession theory is basically linked with the
philosophy of the sovereign national state. It is said to be essentially a
product of the rise of the national state at a time when there were rivals
between religious congregations and organizations of feudal origin for the
claim of the national state to complete sovereignty. Under the concession theory, the state is considered to
be in the same level as the human being and as such, it can confer on or
withdraw legal personality from other groups and associations within its
jurisdictions as an attribute of its sovereignty. Hence, a juristic person is
merely a concession or creation of the state.
Concession theory is often regarded as the offspring of
the fiction theory as it has a similar claim that the corporations within the state has no legal personality except as it is conceded by the state.
Exponents of the fiction theory, for example, Savigny, Dicey and Salmond are
found to support this theory. Nonetheless, it is that while the fiction theory is ultimately a
philosophical theory that a corporation is merely a name and a thing of the
intellect, the concession theory is indifferent as regards to the
question of the reality of a corporation in that it focuses on the sources of
which the legal power is derived. Dicey took the view that sovereignty is
merely a legal conception which indicates the law-making power unrestricted by
any legal limits.
THE
PURPOSE THEORY:
This theory is also known as the theory of
Zweckvermogen. Similar to the fiction and concession theories, it declares that
only human beings can be a person and have rights. Entities other human is regarded as an artificial
person and merely function as a legal device for protecting or giving effect to
some real purpose. As corporations are not human, they can merely be
regarded as a juristic or artificial person. Under this theory, a juristic person
is no person at all but merely as a “subjectless” property destined for a
particular purpose and that there is ownership but no owner. The juristic person is not
constructed around a group of person but based on the object and purpose. The
property of the juristic person does not belong to anybody but it may be dedicated
and legally bound by certain objects. This theory rationalized the existence of many charitable
corporations or organizations, such as trade unions, which have been recognized
as legal persons for certain purposes and have continuing fund. It is
also closely linked with the legal system which regards the institution of
public law (Anstalt) and the endowment of private law (Stiftung) as legal
personalities.
THE BRACKET
or SYMBOLIST THEORY:
This theory is also known as the “bracket” theory. It
was set up by Ihering and later developed particularly by Marquis de
Vareilles-Sommiéres. Basically, this theory is similar to the fiction theory in
that it recognizes that only human beings have interests and rights of a legal
person. According to
Ihering, the conception of corporate personality is essential and merely an
economic device by which simplify the task of coordinating legal relations.
Hence, when it is necessary, it
is emphasized that the law should look behind the entity to discover the real
state of affairs. This is clearly in line with the principle of lifting the corporate veil. Under this theory, rights are not inherent attributes of
the human will and that an individual is not a subject of right by reason that
he possesses a will. On the contrary, the will is at the service of law and it is the interest of man which
the law protects.
The symbolist theory is often acknowledged for its
availability to justify corporate personality from non-legal facts but it has
been repeatedly rejected by the courts in common law jurisdictions because it
denies the law by deducing that the only legal relation which is fixed and
certain can be discovered by removing the ‘brackets’ of the corporation and analyzing
the relations of the human beings involved.
THE
REALIST THEORY:
The founder of this theory was a German jurist,
Johannes Althusius while its most prominent advocate is Otto von Gierke, who
not only responsible for the scholarly wisdom of his writings but also as the
challenger to the entire basis of Roman jurisprudence.
According to this theory, a legal person is a real personality in an extra
juridical and pre-juridical sense of the word. It also assumes that the
subjects of rights need not belong merely to human beings but to every being
which possesses a will and life of its own. As such, being a juristic person
and as ‘alive’ as the human being, a corporation is also subjected to rights.
Under the
realist theory, a corporation exists as an objectively real entity and the law
merely recognizes and gives effect to its existence. The realist jurist also
contended that the law has no power to create an entity but merely having the
right to recognize or not to recognize an entity.
A corporation
from the realist perspective is a social organism while a human is regarded as
a physical organism. The realists contended that
action of the corporation is deemed to be carried out on its own, similar to the
way of the normal person and not by its agents or representatives like those of
the incapable, such as the infant and insane. While human uses his bodily organ
to do an act, the corporation uses men for that purpose. Some of the realist
theory followers even claimed that similar to the human being, the juristic person
also has organs.
This theory is
found to be favoured more by sociologists rather than by lawyers. While discussing the realism of the corporate
personality, most of the realist jurist claimed that the fiction theory failed
to identify the relation of law with the society in general. The main defect of
the fiction theory according to the realist jurist is the ignorance of
sociological facts that evolved around the law-making process. Hence, by ignoring
the ‘real capacity and functions’ of the corporation in the real world, the fiction
jurists had failed to see the ‘live’ possessed by a corporation. The realist
contended that by rejecting the fiction theory, one would succeed to reject an
abstract conception and untrue account of the reality with which the practical
lawyer has to deal.
According to the realist jurist, lawyers have to
acquire the habit to depart from the plain meaning of law and go behind the
scenes of the legal platform for the realization and justice which law is
supposed to introduce to life.
CONCLUSION:
From the discussion on jurisprudence theories of
corporate personality, it is observed that main arguments lie between the fiction
and realist theories. The fiction theory claimed that the entity of corporation
as a legal person is merely fictitious and only exist with the intendment of
the law. On the other hand, from the realist point of view, the entity of the
corporation as a legal person is not artificial or fictitious but real and
natural. The realist also contended that the law merely has the power to
recognize a legal entity or refuse to recognize it but the law has no power to
create an entity.
Referring to the English company law case law, it can
be seen that in most cases, the court adopted the fiction theory. Salomon v A
Salomon Co Ltd is the most obvious example. It is also observed that fiction
theory provide the most acceptable reasoning in justifying the circumstances
whereby the court lifted the corporate veil of the corporation. If the entity of the
corporation is real, then the court would not have the right to decide the circumstances
where there is a separate legal entity of the corporation should be set aside. No
human being has the right to decide circumstances whereby the entity of another
human being should be set aside. Only law has such a privilege.
Nonetheless, the realist contention that the
corporation obtains its entity as a legal person not because the law granted it
to them but because it is generated through its day to day transaction which
is later accepted and recognized by law also seem acceptable.
Visit again, this article will be revised shortly.
