323 SCRA 102 – Business Organization – Corporation Law –

Piercing the Veil of Corporate Fiction

In 1994, Pastor Lim died. His wife, Rufina Lim petitioned with the

lower court, acting as a probate court, for the inclusion of 5

corporations into the inventory of the estate of Pastor Lim. The 5

corporations were: Auto Truck Corporation, Alliance Marketing

Corporation, Speed Distributing, Inc., Active Distributing, Inc. and

Action Company. Rufina alleged that the assets of these corporations

were owned wholly by Pastor; that these corporations themselves are

owned by Pastor and they are mere dummies of Pastor. The

corporations filed a motion for exclusion from the estate. They

presented proof (Torrens Titles) showing that the assets of the

corporations are in their respective names and titles. The probate

court denied their motion. The Court of Appeals reversed the decision

of the probate court.

ISSUE: Whether or not the corporations and/or their assets should be

included in the inventory of the estate.

HELD: No. As regards the assets, the corporations were able to

present their respective Torrens Titles over the disputed assets. It is

true that a probate court may pass upon the question ownership

albeit in a provisional manner but still, a Torrens Title cannot be

attacked collaterally in a probate proceeding, it must be attacked

directly in a separate proceeding.

As regards the corporations, to include them in the inventory is

tantamount to the piercing of the veil of corporate fiction because the

probate court effectively adopted the theory of Rufina. This cannot be

done. Firstly, the probate court is sitting in a limited capacity.

Secondly, Rufina was not able to present sufficient evidence that

indeed the corporations are mere conduits of Pastor. 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. The veil

can’t be pierced without any showing that indeed the corporation is

being used merely as a dummy. To disregard the separate juridical

personality of a corporation, the wrong-doing must be clearly and

convincingly established. It cannot be presumed.