1. Principle of Equity 3
1.1 Origins of Equity 3
1.2 Certainty and Equity 4
2 Equity as an exception to Corporate Personality 5
2.1 Equity as an exception to the entity doctrine in England 6
Equity as an exception to the corporate entity in the United States 11
3 The Doctrine of Piercing the Corporate Veil in Latin America and the Principle of Sana Critica and it’sguiding Values 15
Piercing the corporate veil in Latin America 15
Principle of Sana Critica and its guiding values 17
4 Sana Critica as part for the development of a doctrine to pierce the corporate veil in Panama 21
4.1 The Entity Doctrine in Panama 24
4.2 The Equitable Doctrine of Piercing the Corporate veil in Panama 26
Sana Critica as an alternative to equity 29
THE DOCTRINE OF PIERCING THE CORPORATE VEIL
The entity doctrine is the pillar of corporate law, indeed, based on this doctrine the corporation gains an independent existence from that of its shareholder owners and is free to act and contract through representation. What is more, the liability of its shareholder owners is limited to the their share in the corporate assets. Aphenomenon that originates in Anglo-American jurisdictions and has been addressed as the corporate veil, which indeed has become a useful device for the practice of commerce in modern societies. However, the corporate veil has also been a suitable device with which to practice illicit and fraudulent actions. Certainly, the logical reaction to the abuses of the corporate entity should be theimmediate disregard of the corporate entity in order to punish the wrongdoers. However, if this happened, what would be the point of incorporation? Indeed, the debate turns around the legitimacy of the acts of the corporate entity, which in the eyes of law are legal, but in the eyes of society are regarded as unfair. Consequently, in order to provide a solution to affected parties in cases involvingthe corporate entity, Anglo-American jurisdictions developed the equitable doctrine of piercing the corporate veil.
The use of the corporate entity spread to other common law jurisdictions in addition to the civil law jurisdictions. In this paper I focus on Panama, a Latin American civil law jurisdiction. Certainly, the corporate entity was adopted in Latin American countries for the samereasons it was adopted by Anglo-American jurisdictions, to enhance the economy and society. However, Latin America has also been affected by the drawback of the corporate entity, which has potential to be a tool for the practice of fraud. Furthermore, the fact the corporate entity and the piercing of the corporate veil are a legal phenomenon created in basis to Common Law principles such as equitycreates a complication. Certainly, the transplant of company law included legal principles, but the principle of equity is regarded from different perspectives in Civil and Common law systems. The principle of equity is aimed at mitigating an unfair judgment that may derive from a strict adherence to positive law. However, the civil law system is strict when requiring the judge to adhere to what isin the positive law for the sake of legal certainty, while the common law judge has the power to amend the law according to the needs of the case, in order to provide equity and fairness.
With regard to cases based on the corporate veil, it is necessary for the judge to have freedom to act from a less orthodox perspective, because the existence of the corporate veil may produce situationsthat are valid in the eyes of law but unfair in the eyes of society. The equitable doctrine of piercing the corporate veil mitigates the unfairness produced by the corporate entity. However, in a Latin American civil law jurisdiction such as Panama, the equitable powers of the judge are limited. Thus, to what extent may the principle of Sana Critica provide the basis to apply an equitable...