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Case digest · Piercing the corporate veil
Rufina Luy Lim vs. Court of Appeals
A widow claimed that five corporations really belonged to her late husband and that their stockholders were dummies. Her proof was affidavits of people who never testified.
Facts
June 11, 1994
Pastor Y. Lim died intestate.
March 17, 1995
His surviving spouse, Rufina Luy Lim, represented by her nephew George Luy, filed a petition in the Regional Trial Court of Quezon City for the administration of his estate.
June 8, 1995
Properties registered to five corporations, Auto Truck TBA Corporation, Speed Distributing, Inc., Active Distributors, Alliance Marketing Corporation and Action Company, Inc., had been included in the inventory of the estate. On the corporations’ motions, the probate court ordered the lis pendens annotations on their titles lifted and excluded their properties from the proceedings.
The amended petition
Rufina Luy Lim then alleged that Pastor Lim personally owned all the capital, assets and equity of the corporations, that their listed stockholders and officers were mere dummies, and that the properties, though registered in the corporations’ names, were conjugal.
July to September 1995
The probate court reversed itself. It reinstated the lis pendens and included the properties (July 4), appointed her special administrator (September 4), denied the corporations’ renewed motion for exclusion (September 12), and ordered banks to produce records of deposits in the names of Pastor Lim and the corporations (September 15).
April 18, 1996
The Court of Appeals set aside the July 4 and September 12 orders, and the September 15 order insofar as the corporations’ bank accounts and records were concerned.
Issue
Can a probate court include in a decedent’s estate real properties registered to corporations, on the claim that the corporations were his alter egos and their stockholders his dummies?
Ruling
No. The veil was not pierced. The Court dismissed the petition and affirmed the Court of Appeals, which had set aside the orders including the corporations’ properties in the estate.
A probate court may rule on title only provisionally, to decide what goes into the inventory. When property is covered by a Torrens title in another’s name and is in that holder’s possession, the title is presumed conclusive: unless strong, compelling evidence shows otherwise, the holder is treated as the owner until the title is set aside in an ordinary action, and a Torrens title cannot be attacked collaterally. The properties were registered in the names of, and possessed by, the corporations, which have personalities separate from their stockholders, and no such evidence was presented. Even assuming the trial court was not acting merely as a probate court, the widow failed to present competent evidence to pierce the veil. She relied on affidavits that are hearsay, and inadmissible because the affiants never testified in the lower court. The probate court also had no authority to order the production of the corporations’ bank records.
“Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.”
Doctrine
“It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it.” To pierce the veil, the Court applied a three-part test, citing Concept Builders, Inc. vs. NLRC: control amounting to complete domination, use of that control to commit fraud or wrong, and injury or unjust loss caused by it. The absence of any element prevents piercing.
Compare: pierced
In Cease vs. Court of Appeals, G.R. No. L-33172, October 18, 1979, heirs made the same kind of claim and won: the father kept control of the family corporation, his children’s shares came from his own, and the corporation never had a bank account of its own. The Court ruled: “Hence, it becomes necessary and imperative to pierce that corporate veil.”
Bar tip
An heir who wants a corporation’s titled property counted in an estate faces two hurdles. The probate court’s ruling on title is only provisional and gives way to a Torrens title held and possessed by the corporation. And piercing needs clear and convincing, admissible proof; affidavits of people who never testify are hearsay.
Hear it explained
Reverse Piercing, Podcast Ep. 2, at 8:29
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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.