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A legal fiction is a fact assumed or created by courts which is then used in order to apply a legal rule which was not necessarily designed to be used in that way. For example, the rules of the United Kingdom Houses of Parliament specify that a Member of Parliament cannot resign from office, but since the law also states that a Member of Parliament who is appointed to a paid office of the Crown must either step down or stand for re-election, the effect of a resignation can be accomplished by appointment to such an office. The second rule is used to circumvent the first rule.
Legal fictions may be counterintuitive in the sense that one might not normally view a certain fact or idea as established in the course of everyday life, but they are preserved to advance public policy and preserve the rights of certain individuals and institutions. A common example of a legal fiction is a corporation, which is regarded in many jurisdictions as a "person" who has many of the same legal rights and responsibilities as a natural person.
Legal fictions are mostly encountered under common law systems.
The term "legal fiction" is not usually used in a pejorative way, and has been likened to scaffolding around a building under construction.
One example of a legal fiction occurs in adoption. Once an Order or Judgment of Adoption (or similar decree from a court) is entered, one or both biological (or natural) parents becomes a legal stranger to the child, legally no longer related to the child and with no rights related to it. Conversely, the adoptive parent(s) are legally considered to be the parent(s) of the adopted child; a new birth certificate reflecting this is issued. The new birth certificate is a legal fiction.
A rather significant legal fiction that is still in use today is corporate personhood (see corporation). In the common law tradition, only a person could sue or be sued. This was not a problem in the era before the Industrial Revolution, when the typical business venture was either a sole proprietorship or partnership; the owners were simply liable for the debts of the business. A feature of the corporation, however, is that the owners or shareholders enjoy limited liability: they are not liable for the debts of the company. In early lawsuits for breach of contract, the corporate defendants argued that they could not be sued as they were not persons; if this argument were to be accepted, the plaintiffs would be without recourse, since by statute the shareholders were not liable for the debts of the corporation. To resolve the issue, courts created an elegant solution: a corporation is a person, and could therefore sue and be sued, and thus be held accountable for its debts. This ensured that creditors would be able to seek relief in the courts should the corporation default on its obligations, encouraging banks to extend credit to the corporation. This simple fiction enabled corporations to acquire wealth, expand, and become the preferred organizational form for businesses of all sizes. Corporate personhood has come under criticism recently, as courts have extended other rights to the corporation beyond those necessary to ensure their liability for debts. Other commentators argue that corporate personhood is not a fiction anymore; it simply means that for some legal purposes, "person" has now a wider meaning than it had before and it still has in non-legal uses.
In jurisdictions using this fiction, it is important that the legal draftsman distinguishes between a "person" and a "natural person".
The corporation is itself incapable of loyalty or enmity. In Daimler Co. v. Continental Tyre and Rubber Co. it was observed: "I know not from what human beings that the character should be derived if resort is not had to the predominant character of its shareholders." However, it is not the shareholders that are always the decisive factor. Sometimes the human beings from whom the character of enmity is to be inferred are to be found in the members of another corporation holding all or practically all the shares of that corporation; sometimes the dominating persons are outsiders controlling the company by nominees.
The test of nationality of a corporation is dictated by practical needs. Neither the nationality of the shareholders nor the country in which the corporation was incorporated determines its nationality. A corporation incorporated in India can assume "enemy character" if the persons in de facto control of its affairs are "alien enemies" or are residing in enemy territory or, wherever residing, are acting under the control of enemies.
The central idea of this test is called the "brain theory" of the corporation. The other test involves primarily the "locus" of one or a number of activities of the corporation. This is the "locus theory". Modern corporate jurisprudence takes into consideration six factors in determining the nationality of a corporation:
A company incorporated under a particular national statute may acquire a foreign residence so as to be liable to be sued in a foreign country.
Related to a corporation's nationality is its residence. This can be juristically difficult as a typical "multinational" has domiciles in several countries.
There are at least two questions in this realm. Where does a company reside? Usually, it resides in the place of incorporation or place of its registered office. Can a company have multiple residence? The legal convention indicates that it can, but by what criteria? An office or property in a second country does not necessarily constitute a second residence in that country.
The place of registration of a company, like the birthplace of an individual, is not conclusive on the question of residence. Section 6 (3) of the Indian Income Tax Act, 1961, provides an alternative easy test for determination of residence of a company: "A company is said to be resident in India in any previous year, if it is an Indian Company or during that year, the control and management of its affairs is situated wholly in India." Whether a company fits this description is a pure question of fact.
Similarly, in North American broadcasting, a radio or television station has a legal city of license which does not necessarily correspond to the location of its studios or the market that the station's programming is intended to serve.
The doctrine of survival is also an example of legal fiction. If two people die at the same time or in a manner that renders it impossible to tell who had died first, the older of the two is considered to have died first, subject to rebuttal by evidence demonstrating the actual order of death. In the United States, many jurisdictions have abolished the doctrine of survival by statute; see Uniform Simultaneous Death Act.
A similar albeit more complicated legal fiction involved pleadings in the common law action of ejectment by which title to real property was tried. The common law had a procedure whereby title to land could be put in direct issue, called the "writ of right". One inconvenience of this procedure, though, was that the defendant at his option could insist on trial by "wager of battle", that is trial by combat, a judicially sanctioned duel. Most plaintiffs were unwilling to stake life and limb on the hazard of the battle, so the procedure fell into disuse. Rather, an elaborate tale was told in the pleadings, about how one John Doe leased land from the plaintiff, but was ousted by Richard Roe, who claimed a contrary lease from the defendant. These events, if true, led to the "assize of novel disseisin", later called the "mixed action in ejectment", a procedure in which title could ultimately be determined, but which led instead to trial by jury. This is the origin of the names John Doe, Richard Roe, and so forth, for anonymous parties. The fiction of Doe, Roe, and the leases was not challenged by the parties unless they wished to stake their life and safety on a trial by combat. Wager of battle was in fact not abolished in England until 1819, though it fell into disuse by the end of the thirteenth century.
In England a simple legal fiction extended the jurisdiction of the Court of the Exchequer to all types of cases involving debt. The Exchequer was originally a court that had a specialized jurisdiction involving taxes and other obligations to The Crown. The Court had only slight jurisdiction in regards to private matters between litigants. The Exchequer therefore had a much lighter caseload than the King's Bench and other courts in England. Litigants who commenced an action in the Exchequer Court on a debt, therefore, had to plead that they owed money to the King, which they could not pay because their debtor had in turn wrongfully withheld payment to them. It came to pass that the debt owed to the King became a legal fiction in that the original debtor was not entitled to controvert this allegation in order to oust the Exchequer from jurisdiction. The litigant, by using this artifice against the debtor, could bring his case into a court with a substantially lesser caseload.
The Bill of Middlesex was a legal fiction used by the Court of King's Bench to gain jurisdiction over cases traditionally in the remit of the Court of Common Pleas. Hinging on the King's Bench's remaining criminal jurisdiction over the county of Middlesex, the Bill allowed it to take cases traditionally in the remit of other common law courts by claiming that the defendant had committed trespass in Middlesex. Once the defendant was in custody, the trespass complaint would be quietly dropped and other complaints (such as debt or detinue) would be substituted.
Another legal fiction involves resignation from Parliament in the United Kingdom. In 1623 a rule was declared that said that Members of Parliament were given a trust to represent their constituencies, and therefore were not at liberty to resign them. In those days, Parliament was relatively weak in comparison to the 21st century, and service was sometimes considered a resented duty rather than a position of power and honour. However, an MP who accepted an "office of profit" from the Crown (including appointment as a minister) was obliged to leave the House and seek re-election, it being feared that his independence was compromised if he were in the King's pay. Therefore, the device was invented that the MP who wished to quit applied to the King for the post of "steward of the Chiltern Hundreds" or "Steward of the Manor of Northstead" with no duties or income, but legally an office of profit in the King's gift nonetheless. The first MP to avail himself of the Chiltern Hundreds to leave Parliament was John Pitt in 1751. The requirement for ministerial re-election has been abolished, but the "Chiltern Hundreds" mechanism has been retained to enable MPs to resign.
The elaborate fiction about poor Doe left homeless by Roe has been abolished by statute or by reforms in civil procedure in every common law jurisdiction. The business about Doe and Roe being the guardians of undisclosed parties who wish to bring suit, or the names of parties unknown, remains in some jurisdictions (although not in England). The doctrine of survival, although still existing in England, has been abolished in many U.S. states by the Uniform Simultaneous Death Act. Also, legal fictions have been invalidated as being contrary to public policy, as, for example, in the High Court of Australia's rejection in the Mabo cases of the doctrine of terra nullius, the legal fiction that there were no property rights in land in Australia before the time of European colonization.
Henry Maine argued that legal fictions seem an ornate outgrowth of the law that ought to be removed by legislation. This idea occurs to many who first encounter the notion that the law entertains fictions. 
In their defence, most legal fictions were harmless vestiges of history whose traces may be worth preserving for their own sake. William Blackstone defended them, observing that legislation is never free from the iron law of unintended consequences. Using the metaphor of an ancient castle, Blackstone opined:
|“||We inherit an old Gothic castle, erected in the days of chivalry, but fitted up for a modern inhabitant. The moated ramparts, the embattled towers, and the trophied halls, are magnificent and venerable, but useless. The interior apartments, now converted into rooms of convenience, are cheerful and commodious, though their approaches are winding and difficult.||”|
In the novel Joan and Peter (1918) by H. G. Wells, Peter's parents die in a sailing accident. As it is not known which parent dies first, a legal fiction is applied maintaining that the husband, being a man and therefore stronger, lived longer. This decision results in the father's will determining Peter's legal guardian. However, later in the novel a witness to the accident declares seeing the mother floundering some time after the father has disappeared, and so the legal fiction is overturned and the mother's will is followed, providing Peter with a new legal guardian. Wells was in fact in error as to the English law, which presumes that the older person died first; the core plot would remain unchanged if Peter's father was younger than his mother.
In Gilbert and Sullivan's The Gondoliers, Giuseppe Palmieri (who jointly serves as King of Barataria with his brother Marco) requests that he and his brother be recognized individually. He is, however, turned down by the Council because the joint rule is a legal fiction.
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Legal fiction has never been regarded as a source of law. Basically it was an ad hoc remedy forged to meet a harsh or an unforeseen situation. But conventions and practices over the centuries have imparted a degree of stability to the institution. It is now possible to express its ambit and sweep through some formulated propositions.