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Lim vs CA 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.