Concept of Legal Personality in Jurisprudence

The decision of House of Lords in Salomon v A Salomon & Co. Ltd had a lasting influence in corporation law. It is often credited with the principle of separate legal entity of the corporation distinct from the members.

Though there is no doubt that the Salomon case had 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 than the human has long been recognized prior to 1897, in which the Salomon case was decided.

The jurisprudence theories on juristic person had been established since the early Roman law to justify the existence of 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 existence of corporation as a legal person is not real. It only exists because the law of the state recognized it as legal person and it is recognized either for certain purpose or objectives. The fiction theory, for example, clearly stated that the existence of 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.

Meaning and concept of a Legal Person

The word ‘person’ as might be noted originally means mask. Mask indicates a character in a play, a representative of it. Its origin can be traced back to the word ‘parson’; the representative of a Church. But now if talk about a person, it does not merely represent the identity of a man of flesh and blood but also represents several jural relations. The identity of ‘person’ has been allocated in many cases from time to time.[1]

Generally, there are two types of 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.[2]

Legal scholars, particularly the jurists, have always explored the issue on the recognition of corporation as a legal person. In the study of jurisprudence, the separate legal personality of corporation is based upon theories, which are concentrated upon the philosophical explanation of the existence of personality in beings other than human individuals.[3]

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 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.

Persons as an entity, or a legal entity can be broadly classified and discussed as human beings, corporations sole, corporations aggregate and public corporations.

Human Beings

Individuals are the social units and pre-existed both laws and society. Since laws are made by them and for them , and since jural relations are relations between individuals, it is no wonder that the jural relations of each individual came to be one of the first and most important unities for legal purposes.[4] The legal concept of a human being as a person is simply a multitude of claims, duties, liberties, etc treated as a unit; as such there is no distinction in law between ‘natural’ and ‘legal’ persons.

Corporations Sole

From an early time it was found necessary to continue the official capacity of an individual beyond his lifetime or tenure of office . The common lawyers accordingly created a second ‘person’ who , though passing under the same name as the flesh and blood individual, enjoys legal existence in perpetuity [5]. This is the corporation sole, which is a personification of official capacity. Unity of jural relations is thus assured a continuity which it would not otherwise have. ‘The living official comes and goes’, said Salmond in passage which has become classic, ‘but this offspring of the law remains same for ever’. The idea originated, according to Maitland, with a piece of land , known as the parson’s glebe, which was vested in a parson in his official capacity[6]. Difficulties arose over the conveyance of the seisin to a parson for the benefit of the Church. The corporation sole was invented so that the seisin could be vested in it. Maitland went on to show that lawyers nevertheless did not avail themselves of the services of this child of their imagination for certain old rules stood in the way[7].

The main purpose of the corporation sole is to ensure continuity of an office. Moreover, the occupant may acquire property for the benefit of his successors, he may contract to bind or benefit them, and he can sue for injuries to the property while it was in the hands of his predecessor. Today there are many corporations sole such as Ministers, President, Bishop, Judges etc.

Corporation Aggregate

As long as there have been companies, there has been debate on how companies should be run and who should be in control of them. For many years the business landscape consisted mainly of individual traders who both owned their business and exercised control over it. This all changed with the dawn of the Industrial Revolution, an unprecedented period of social upheaval and economic change, most notably the emergence of the modern capitalist economy[8]. During this era there was a huge increase in the wealth of the middle classes as well as many technological improvements, such as rail travel, that required mass amounts of investment to function. This was mostly done through unincorporated associations, though it was possible for a joint stock company to become incorporated (i.e. obtain a separate legal personality from its owners) this was rarely extended to many corporations as the protections and privileges they granted were well protected by the state. The result of this was that these companies had many shareholders, often spread over most of the country, which would have made any attempts at litigation extremely difficult, so the Joint Stock Companies Act 1844 introduced incorporation for joint stock companies, though shareholders could still be liable for the debts of the corporation until the Limited Liability Act 1855 which gave the option of limited liability for corporations[9]. This encouraged further investment and increased both the number and the geographical distance between shareholders and their companies. It was at the time of the stock market crash of 1929 in the USA and the subsequent Great Depression that academic commentators started to discuss the separation of ownership, which was vested in the shareholders, and control, which lay in the hands of the managers.[10]

Aggregate theory stipulates that corporations are formed when groups of people with a common interest come together for a common purpose, and these private individuals are the basis for all of the acts committed by the corporation, it has no independent existence separate from its owners[11]. This way it can justify placing the interests of its shareholders as the most imperative objective for the company to obtain, known as shareholder primacy, namely profit maximisation with no regard for societal needs. This theory waned when shares became more freely transferrable, as shareholders became uninterested in exercising control over the company and instead behaved more like spectators.[12]

Corporate realism, on the other hand, considered the company to have a separate existence from its shareholders with its objectives being defined instead by the managers, though this theory failed when faced with the issue of managerial accountability, as it assumed a neutral management. It was not until Adolf Berle and Gardiner Means published The Modern Corporation and Private Property [1] in 1932 that these deficiencies were challenged.[13]

Different theories of Legal Personality in Jurisprudence

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 a fiction. Hence, not being a human being, 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 explain0000000000000000 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.[14]

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 rights of a person but they are treated as if they are persons[15]. Under this theory, rights and duties attached to corporation as 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[16]. Due to the close connection made in this theory as regards to relation of legal personality and the power of the state, fiction theory was claimed to be similar to the theory of sovereignty of 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 000.000national 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[17]. 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 similar claim that the corporations within the state have 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[18]. 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[19]. As corporations are not human, they can merely be regarded as juristic or artificial person. Under this theory, juristic person is no person at all but merely as a “subject less” property destined for a particular purpose and that there is ownership but no owner. The juristic person is not constructed round a group of person but based on the object and purpose[20]. 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 regard the institution of public law (Anstalt) and the endowment of private law (Stiftung) as legal personalities.[21]

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[22]. According to Ihering, the conception of corporate personality is essential and merely an economic device by which simplify the task of coordinating legal relations[23]. 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 of 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[24]. 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 analysing the relations of the human beings involved.[25]

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.[26]

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[27].

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[28]. The realists contended that action of the corporation is deem 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, 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 law making process. Hence, by ignoring the ‘real capacity and functions’ of 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.[29]

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.[30]

Interpretation of the term “Legal Person” by the Indian Judiciary

From time to time, the concept of “legal person” has been interpreted by various jurists in various contexts. The US and UK Courts have interpreted the term in matters related to corporate, international, domestic and social importance on numerous occasions. The Indian Judiciary too faced a similar challenge in the case of Mohd. Salim v. State of Uttarakhand & Ors.[31]

Mohd. Salim v. State of Uttarakhand & Others[32]

Bench: Hon’ble Mr. Justice Rajiv Sharma , Hon’ble Mr. Justice Alok Singh.

Facts: The petitioner, a resident, challenges the failure of the Governments of Uttar Pradesh and Uttarakhand in constituting the Ganga Management Board as stated in the Section 80 of the Uttar Pradesh Reorganisation Act, 2000. The Court specifies that Ganga and Yamuna. have a particular significance for Hindus.

Issue Raised: The extraordinary situation has arisen since Rivers Ganga and Yamuna are losing their very existence. This situation requires extraordinary measures to be taken to preserve and conserve Rivers Ganga and Yamuna.

Reasoning: “The consecrated idol in a Hindu temple is a juridical person has been expressly laid down in Manohar Ganesh’s case, I.L.R. 12 Bom. 247 which Mr. Prannath Saraswati, the author of the ‘Tagore Lectures on Endowments’ rightly enough speaks of as one ranking as the leading case on the subject, and in which West J., discusses the whole matter with much erudition.” The court also recognises the fact that the rivers are of utmost significance to the Hindus by stating, “Rivers Ganges and Yamuna are worshipped by Hindus. These rivers are very sacred and revered. The Hindus have a deep spiritual connection with Rivers Ganges & Yamuna. According to Hindu beliefs, a dip in River Ganga can wash away all the sins. The Ganga is also called ‘Ganga Maa’. It finds mentioned in ancient Hindu scriptures including ‘Rigveda’. The river Ganga originates from Gaumukh Glacier and River Yamuna originates from Yamnotri Glacier.” The bench further stated “ All the Hindus have deep ‘Astha’ in rivers Ganga and Yamuna and they collectively connect with these rivers. Rivers Ganga and Yamuna are central to the existence of half of Indian population and their health and well-being. The rivers have provided both physical and spiritual sustenance to all of us from time immemorial. Rivers Ganga and Yamuna have spiritual and physical sustenance. They support and assist both the life and natural resources and health and well-being of the entire community. Rivers Ganga and Yamuna are breathing, living and sustaining the communities from mountains to sea.”

Judgement: Finally the rivers Ganga and Yamuna were given status of a legal person by the Court. The order set out was “…while exercising the parens patrie jurisdiction, the Rivers Ganga and Yamuna, all their tributaries, streams, every natural water flowing with flow continuously or intermittently of these rivers, are declared as juristic/legal persons/living entities having the status of a legal person with all corresponding rights, duties and liabilities of a living person in order to preserve and conserve river Ganga and Yamuna.” A further judgement directed “The Director NAMAMI Gange, the Chief Secretary of the State of Uttarakhand and the Advocate General of the State of Uttarakhand are hereby declared persons in loco parentis as the human face to protect, conserve and preserve Rivers Ganga and Yamuna and their tributaries. These Officers are bound to uphold the status of Rivers Ganges and Yamuna and also to promote the health and well-being of these rivers.”

Concluding Remarks…..

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 court lifted the corporate veil of corporation. If the entity of the corporation is real, then the court would not have the right to decide the Circumstances where there is 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 privilege.

Nonetheless, the realist contention that the corporation obtain 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 are later accepted and recognized by law also seem acceptable.

References

Books and Journals

RWM Dias, JURISPRUDENCE, 1st .Rep.2014, 5th ed.2013, Lexis Nexis Publication.

G.W. Paton, A TEXTBOOK OF JURISPRUDENCE, 1st Rep.2004, 4th ed.1972, Oxford University Press.

W Friedmann, LEGAL THEORY,1st Ind. Rep.2012, 5th ed.2007,Stevens & Sons Publication.

M.D.A Freeman, LLOYD’S INTRODUCTION TO JURISPRUDENCE, 9th ed.2014, Thomson Reuters Publication.

PJ Fitzgerald, SALMON ON JURISPRUDENCE, Rep.2002, 12th ed.1970, Universal Law Publishing Co.

HLA Hart, THE CONCEPT OF LAW, 2nd ed.1994, Clarendon Law Series.

Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J.

A. Kocourek, Jural Relations, Indiana L.J.

B.C. Hunt, Development of the Business Corporation in England 1800–1867, YALE L.J.

Books and Online Sources

[1] RWM Dias, JURISPRUDENCE, 1st .Rep.2014, 5th ed.2013,250–251.

[2] Vijay Sardana, Jurisprudence-Theories of Legal Personalities( Jan 27,2019, 11:44 PM) http://lawnotesforstudents.blogspot.com/2017/05/jurisprudence-theories-of-legal.html.

[3] Ibid.

[4] PJ Fitzgerald, SALMOND ON JURISPRUDENCE, Rep.2002, 12th ed.1970, 296–310.

[5] G.W. Paton, A TEXTBOOK OF JURISPRUDENCE, 1st Rep.2004, 4th ed.1972, 406–411.

[6] RWM Dias, JURISPRUDENCE, 1st .Rep.2014, 5th ed.2013,250–251.

[7] Ibid.

[8] B.C. Hunt, Development of the Business Corporation in England 1800–1867, YALE L.J.

[9] B.C. Hunt, Development of the Business Corporation in England 1800–1867, YALE L.J.

[10] Ibid

[11] RWM Dias, JURISPRUDENCE, 1st .Rep.2014, 5th ed.2013,250–251.

[12] A. Kocourek, Jural Relations, Indiana L.J.,431–455.

[13] M.D.A Freeman, LLOYD’S INTRODUCTION TO JURISPRUDENCE, 9th ed.2014, 1191.

[14] Vijay Sardana, Jurisprudence-Theories of Legal Personalities( Jan 27,2019, 11:48 PM) http://lawnotesforstudents.blogspot.com/2017/05/jurisprudence-theories-of-legal.html.

[15] PJ Fitzgerald, SALMOND ON JURISPRUDENCE, Rep.2002, 12th ed.1970, 296–310.

[16] Ibid.

[17] G.W. Paton, A TEXTBOOK OF JURISPRUDENCE, 1st Rep.2004, 4th ed.1972, 406–426.

[18] Ibid.

[19](Feb 12, 2019, 11:12 PM) http://shodhganga.inflibnet.ac.in/bitstream/10603/71969/4/04_chapter%202.pdf.

[20] Ibid.

[21] Vijay Sardana, Jurisprudence-Theories of Legal Personalities( Jan 29,2019, 10:24 AM) http://lawnotesforstudents.blogspot.com/2017/05/jurisprudence-theories-of-legal.html.

[22] PJ Fitzgerald, SALMOND ON JURISPRUDENCE, Rep.2002, 12th ed.1970, 296–310.

[23] HLA Hart, THE CONCEPT OF LAW, 2nd ed.1994, 45–97.

[24] RWM Dias, JURISPRUDENCE, 1st .Rep.2014, 5th ed.2013,250–251.

[25] Ibid.

[26] W Friedmann, LEGAL THEORY,1st Ind. Rep.2012, 5th ed.2007, 201–234.

[27] Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J., 16.

[28] Vijay Sardana, Jurisprudence-Theories of Legal Personalities( Jan 30,2019, 12:44 PM) http://lawnotesforstudents.blogspot.com/2017/05/jurisprudence-theories-of-legal.html

[29] W Friedmann, LEGAL THEORY,1st Ind. Rep.2012, 5th ed.2007, 201–234.

[30] Ibid.

[31]Mohd. Salim v. State of Uttarakhand & Ors. 2017; Utt HC 030.

[32] Ibid