The Critical Assessment on Lim vs Court of Appeals

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Lim vs Court of Appeals

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.

PastorLim died intestate.Petitioner,PastorLim’s surviving spouse,

filedajoint petition for the administration of the estate of Pastor Lim before

theRTC.Private respondents corporations, whose properties were included

in the inventory of the estate of Pastor Lim, filed a motion for the lifting of lis

pendens and motion for exclusion of certain properties from the estate of the

decedent.RTC, as probate court, granted these 2 motions. Petitionerfiled a

verified amended petition. RTC acting on petitioner’s motion issued an order

directing theRegistry of Deeds to reinstate the annotation oflis pendens.

Probate courtalso issued an orderdenying private respondents’ motion for

exclusion.

Private respondent filed a special civil action forcertiorari before the

CA questioning the orders of the Regional Trial Court, sitting as a probate

court. CA ruled in favor of herein private respondents. Petitioner files this

instant petition praying that SC afÏrm the orders issued by the probate court

which were subsequently set aside by the Court of Appeals.

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 Lim, which are the respondent corporation?

RULING:

NO, since 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.

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

Nonetheless, theshield is not at all times invincible. 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.(Piercing the

Corporate Veil Doctrine)

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 sufÏcient

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.

Furthermore, grantingarguendothat the RTC in this case was not

merely acting in a limited capacity as a probate court, petitioner nonetheless

failed to adduce competent evidence that would have justified the court to

impale the veil of corporate fiction. The reliance reposed by petitioner on the

afÏdavits executed by Lim and Wenceslao is unavailing considering that the

aforementioned documents possess no weighty probative value pursuant to

the hearsay rule.

WHEREFORE, in view of the foregoing disquisitions, the instant petition

is hereby DISMISSED for lack of merit and the decision of the Court of

Appeals which nullified and set aside the orders issued by the Regional Trial

Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12

September 1995 is AFFIRMED

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