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Corporation Law Jurisprudence · Podcast Episode 2 · 12:10
Reverse Piercing: Corporation ang Sisingilin sa Utang ng May-ari?
When can a corporation’s property answer for its owner’s personal debt?
In 1979, a Makati property was bought for a school that was organized only in 1985. Its title moved to the school while a judgment against the man who bought it was on appeal. Atty. Jeric Dave Gallardo and Sweet Zel Grace Porras walk through four Supreme Court decisions on reverse piercing of the corporate veil, and why two came out pierced and two did not.
Four cases, two answers
Same question. Different facts. Different results.
The rule
A corporation’s property belongs to the corporation, not to its stockholders.
Normally, an owner’s creditor can reach the owner’s own assets, including his shares, but not the corporation’s property. Reverse piercing is the exception: a court may make the corporation’s assets answer for a controlling insider’s debt, but only on clear and convincing proof that the corporation was used to evade that debt or was his alter ego.
Try the interactive explainer →Recap
- A corporation’s property is not yours, even if you hold its shares.
- In reverse piercing, the corporation answers for its owner’s debt, but only when it was used to escape that debt or to defraud.
- There must be clear evidence, and only a court can pierce the veil.
Bar tip
When asked whether a corporation’s property can be reached for a stockholder’s debt, start with the rule: separate personality. Then the exception: I/AME vs. Litton, outsider reverse piercing, and the facts that showed the property was being kept from a creditor.
Chapters
- 0:00Cold open: the owner’s debt and the school’s land
- 0:59What is reverse piercing? (outsider vs. insider)
- 2:39Case 1: I/AME vs. Litton and Company, Inc. (pierced)
- 5:44Case 2: Francisco Motors Corporation vs. Court of Appeals (not pierced)
- 7:37Case 3A: Cease vs. Court of Appeals (pierced)
- 8:29Case 3B: Lim vs. Court of Appeals (not pierced)
- 9:34Why did the answers differ? (And only a court can pierce)
- 10:56Recap and bar tip
Cases cited
Full text on LawPhil. Where we have written a case digest, the card opens it.
Next episode
Corporation by estoppel: the “corporation” isn’t registered yet, but it has already entered into a contract. Who pays?
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