RUFINA LUY LIM PETITIONER, VS. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. …

Rufina Luy Lim versus Court of Appeals

The Case

This is a petition for review on certiorari brought by Rufina Luy Lim, the surviving spouse of the late Pastor Y. Lim, against the Court of Appeals and five corporations: Auto Truck TBA Corporation, Speed Distributing, Inc., Active Distributors, Alliance Marketing Corporation, and Action Company. The dispute arises from intestate probate proceedings over the estate of Pastor Y. Lim. The petitioner seeks to include in the estate's inventory not only real properties registered in the names of the respondent corporations but also the corporations themselves, on the theory that the decedent owned them and used dummy stockholders. The case matters because it defines the limits of a probate court's jurisdiction over title, the protection owed to Torrens titles, and the strict requirements for piercing the corporate veil.

Procedural History

Rufina Luy Lim, represented by her nephew George Luy, filed a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court. The respondent corporations moved to lift the lis pendens and to exclude their properties from the estate. The probate court initially granted both motions. After the petitioner filed a verified amended petition, the probate court set aside its earlier order, reinstated the lis pendens, and included the properties in the proceedings. It then appointed special administrators and denied the corporations' motion for exclusion, ruling that the issue of whether the corporations were mere alter egos of the decedent fell within its jurisdiction. It also ordered the banks to produce records of accounts in the names of Pastor Lim and the corporations.

The respondent corporations filed a special civil action for certiorari before the Court of Appeals, with an urgent prayer for a restraining order or writ of preliminary injunction. The Court of Appeals granted the petition, nullified and set aside the probate court's orders, and nullified the order concerning the corporations' bank accounts and records. The petitioner then came to the Supreme Court through a petition for review under Rule 45.

Facts

Pastor Y. Lim died intestate on 11 June 1994. On 17 March 1995, his surviving spouse, Rufina Luy Lim, represented by her nephew George Luy, filed a joint petition for the administration of his estate before the Regional Trial Court of Quezon City. The respondent corporations owned real properties covered by the Torrens system, and these properties were included in the inventory of the estate.

The corporations moved to lift the lis pendens and to exclude their properties from the estate. The probate court initially granted these motions. The petitioner then filed a verified amended petition alleging that the late Pastor Y. Lim personally owned the five business entities during his lifetime; that although they dealt with the public as corporations, all their capital, assets, and equity were personally owned by him; and that the alleged stockholders and officers were mere dummies listed only for registration with the Securities and Exchange Commission. She also alleged that the real properties, though registered in the names of the entities, were actually acquired by Pastor Y. Lim during his marriage to her and were conjugal in nature.

The probate court set aside its earlier order, reinstated the lis pendens, and included the properties in the proceedings. It denied the corporations' motion for exclusion, holding that the issue of piercing the corporate veil was within its jurisdiction. It also ordered the banks to produce records of accounts in the names of Pastor Lim and the corporations. The Court of Appeals nullified these orders, and the petitioner elevated the matter to the Supreme Court.

Issues

• Whether or not the Court of Appeals erred in reversing the orders of the probate court which allowed the provisional inclusion of the respondent corporations and their properties in the estate of the late Pastor Y. Lim.
• Whether or not a corporation may be included in the inventory of the estate of a deceased person.
• Whether or not the probate court may pierce the corporate veil and include properties registered in the names of the respondent corporations in the estate of the decedent.

Applicable Provisions

Section 19 of Batas Pambansa Blg. 129, as amended by Republic Act 7691, provides:

Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction: (4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred Thousand Pesos or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos.

This provision establishes that the determination of which court exercises jurisdiction over probate matters depends upon the gross value of the estate of the decedent.

Section 48 of Presidential Decree 1529, otherwise known as the Property Registration Decree, provides:

Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

This provision bars any collateral attack on a Torrens title, such as an attempt to include in a probate inventory property registered in the name of another.

Ruling

On the first issue, the Court held that the Court of Appeals did not err in reversing the probate court's orders. The Court reiterated that while a probate court may pass upon title to a property for the purpose of determining whether it should be included in the inventory, such determination is provisional, not conclusive, and is subject to a final decision in a separate action to resolve title. However, where the property is registered under the Torrens system in the name of a third person, the presumptive conclusiveness of the title must be given due weight. In the absence of strong compelling evidence to the contrary, the holder of the title should be considered the owner until the title is nullified or modified in an appropriate ordinary action. The Court found that the petitioner presented no strong compelling evidence to support her claim that the decedent owned the properties.

On the second issue, the Court held that a corporation may not be included in the inventory of the estate of a deceased person. The Court ruled that a corporation is clothed with a personality separate and distinct from that of the persons composing it. It may not generally be held liable for the personal indebtedness of its stockholders. The Court emphasized that mere ownership by a single stockholder 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. To disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established and cannot be presumed.

On the third issue, the Court held that the probate court erred in denying the motion for exclusion and in proceeding as if it could pierce the corporate veil. The Court ruled that the petitioner failed to adduce competent evidence to justify piercing the corporate veil. The affidavits she relied upon were hearsay and inadmissible because the affiants were not presented in court. The Court applied the test for piercing the corporate veil, which requires control, use of that control to commit fraud or wrong, and proximate causation of injury. The absence of any of these elements prevents piercing the corporate veil. The Court concluded that the probate court acted in utter disregard of the presumption of conclusiveness of title in favor of the respondent corporations.

Doctrine

A probate court may pass upon title to a property for the purpose of determining whether it should be included in the inventory of the estate, but such determination is provisional, not conclusive, and is subject to a final decision in a separate action to resolve title. However, where the property is registered under the Torrens system in the name of a third person, the presumptive conclusiveness of the title must be given due weight, and in the absence of strong compelling evidence to the contrary, the holder of the title should be considered the owner until the title is nullified or modified in an appropriate ordinary action. A corporation has a personality separate and distinct from its stockholders, and mere ownership by a single stockholder of all or nearly all of the capital stock is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. To pierce the corporate veil, the wrong-doing must be clearly and convincingly established, and the test requires control, use of that control to commit fraud or wrong, and proximate causation of injury.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed. The respondent corporations won, and the properties registered in their names were excluded from the estate of the late Pastor Y. Lim.

Remember This

A probate court's determination of title is only provisional, and a Torrens title in the name of a third person must be respected unless strong compelling evidence justifies piercing the corporate veil. Examiners like to use this case to test the limits of probate jurisdiction, the protection of Torrens titles, and the strict requirements for piercing the corporate veil.