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Case digest · Piercing the corporate veil
Cease vs. Court of Appeals
A family corporation never had a bank account of its own. After its majority stockholder died, two of his children asked that its properties be treated as his estate.
Facts
June 1908
Forrest L. Cease and five other American citizens organized the Tiaong Milling and Plantation Company. Over time, he and his children bought out the other original incorporators.
The family corporation
As the trial court found, it became a close family corporation. Cease always kept the majority of the shares, and with them control; his children’s shares came from his own. The corporation never had a bank account of its own, and any account carried for it was in his name.
1958 to 1959
The company’s charter lapsed in June 1958. Cease died on August 13, 1959, and his shares were divided among his children by extrajudicial partition. Benjamin and Florence wanted an actual division; the other children wanted to reincorporate, and on December 9, 1959, Ernesto, Teresita and Cecilia, with Bonifacia Tirante, registered F.L. Cease Plantation Company.
May 19, 1960
Benjamin and Florence filed Civil Case No. 6326, asking that Tiaong Milling be declared identical to their father and its properties divided among his children as his intestate heirs. A month earlier, they had started a special proceeding to settle his estate.
May 21, 1961
While the case was pending, on the eve of the end of the three-year period for liquidating corporations, Tiaong Milling’s board of liquidators conveyed its properties in trust to F.L. Cease Plantation Co., Inc. as trustee.
December 27, 1969
The trial court ruled for Benjamin and Florence. It declared the assets of the defunct Tiaong Milling, then in the name of F.L. Cease Plantation Company as trustee, to be also the estate of Forrest L. Cease, to be divided equally among his six children. It set aside the transfer to the trustee and terminated the separate estate proceeding. The trial court dismissed the other heirs’ appeal as premature, and the Court of Appeals dismissed their petition on December 9, 1970.
Issue
Could the properties registered to Tiaong Milling and Plantation Company, whose charter had lapsed, be treated as part of Forrest L. Cease’s estate and partitioned among his heirs?
Ruling
Yes. The veil was pierced. The Court affirmed the Court of Appeals and sustained the finding that the corporation’s assets were Cease’s estate, to be partitioned equally among his six children.
The trial court rightly disregarded the corporate fiction. The Court concluded that the corporation’s business was essentially Cease’s personal venture, and that his children held shares only because he had given them some of his own. Treating the assets as separate from his estate would have let the corporate fiction be used to delay, and in the end defeat, the two children’s rights as heirs, and would have extended the corporation’s existence beyond its charter under the cover of F.L. Cease Plantation Company as trustee. Once its charter expired, Tiaong Milling existed only to wind up its affairs and held its property in trust, so it could not claim ownership against the heirs. The Court also upheld the dismissal of the estate proceeding: there was no indication that the estate had debts, so partition made administration unnecessary. The case went back to the trial court for the actual partition.
“Hence, it becomes necessary and imperative to pierce that corporate veil.”
Doctrine
A corporation has a personality separate from its stockholders. In the Court’s words: “By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa.” The exception applies when the corporation is merely the business conduit and alter ego of a person. In International Academy of Management and Economics (I/AME) vs. Litton and Company, Inc., G.R. No. 191525, December 13, 2017, the Court later listed Cease as an instance of piercing the veil in a reverse manner.
Compare: not pierced
In Lim vs. Court of Appeals, G.R. No. 124715, January 24, 2000, a widow made the same kind of claim over properties titled to five corporations, but relied on affidavits of people who never testified. The properties stayed out of the estate: “Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed.”
Bar tip
Heirs who want a corporation’s property counted as part of a decedent’s estate must prove that the corporation was his alter ego in fact. In Cease, the proof was concrete: he kept control, his children’s shares came from his own, and the corporation had no bank account of its own. The same claim without that proof fails, as in Lim.
Hear it explained
Reverse Piercing, Podcast Ep. 2, at 7:37
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.