Lim vs CA (323 SCRA 102)

Lim vs Court of Appeals
323 SCRA 102 [GR No. 124715 January 24, 2000]

Facts: Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate proceedings in special proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, petitioner.” Private respondents auto truck corporation, alliance marketing corporation, speed distributing inc, active distributing inc, and action company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. On June 11, 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew, George Luy filed on March 17, 1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Private respondents corporations whose properties were included in the inventory of the estate of Pastor Y. Lim, then filed a motion for the lifting of his pendens an motion for exclusion of certain properties fromthe estate of the decedent.

Issue: Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include in the probate proceedings the company formed by deceased Pastor Y. Lim.

Held: No. 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.

Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by protective mantle and imbued with by law with a character alien to the persons comprising it.

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction.

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of the legal entity should come to naught.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1.) Control, not merely the majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time so separate mind, will or existence of its own; 2.) Such control must have been used by the defendant to commit fraud on wrong to perpetuate the violation of a statutory or other positive legal duty, on dishonest and unjust act in contravention of plaintiffs legal right; and 3.) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent “piercing the corporate veil.”

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 personalities.

Moreover, to disregard the separate juridical personality of a corporation, the wrong doing must be clearly and convincingly established, it cannot be presumed.

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