Lim vs. Court of Appeals

While a probate court may provisionally pass upon the title of properties for inventory purposes, it cannot include properties covered by Torrens titles registered in the name of third-party corporations absent strong compelling evidence to the contrary, as doing so constitutes an impermissible collateral attack on the title. Furthermore, a corporation, as an entity with a separate juridical personality, cannot be included in the inventory of a decedent's estate based merely on allegations of sole ownership without clear and convincing proof of the elements required to pierce the corporate veil.

Pastor Y. Lim died intestate on June 11, 1994. His surviving spouse, petitioner Rufina Luy Lim, filed a petition for the administration of his estate before the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court. Petitioner alleged that during his lifetime, Pastor Lim organized and wholly owned five private respondent corporations, claiming the corporate stockholders and officers were mere dummies. Consequently, petitioner included the real properties and bank accounts of these corporations in the inventory of the decedent's estate, asserting they were conjugal properties acquired during the marriage.

• The Estate and the Inventory: Upon the intestate death of Pastor Y. Lim, his surviving spouse Rufina Luy Lim initiated probate proceedings. In her amended petition, she claimed that five private respondent corporations (Auto Truck, Alliance Marketing, Speed Distributing, Active Distributing, and Action Company) were mere instrumentalities of the decedent. She alleged that while these entities dealt with the public as corporations, all their capital, assets, and equity were personally owned by Pastor Lim, making the listed stockholders and officers mere dummies for SEC registration purposes.
• The Corporate Properties: The private respondent corporations owned real properties registered under the Torrens system in their respective names. Petitioner included these properties in the estate inventory, claiming they were conjugal in nature.
• Probate Court's Actions: The RTC initially excluded the properties but subsequently reversed itself upon petitioner's motion, reinstating the lis pendens and including the properties in the estate. The RTC maintained it had jurisdiction to provisionally determine the issue of piercing the corporate veil. It also ordered banks to produce the corporate accounts of the respondent corporations.
• Appellate Intervention: Private respondents elevated the matter to the Court of Appeals via certiorari, arguing the probate court acted with grave abuse of discretion. The CA nullified the RTC's orders, prompting petitioner's recourse to the Supreme Court.

• Petitioner maintained that the probate court correctly allowed the preliminary or provisional inclusion of the private respondents' properties in the estate of the decedent, as the determination of whether properties should be included in the inventory is within the probate court's competence.
• Petitioner argued that the corporations were mere alter egos of the decedent, claiming he wholly owned them and that the incorporators were dummies.
• Petitioner contended that the Court of Appeals erred in setting aside the probate court's orders, thereby preventing her from performing her duty as special administrator pursuant to the Rules of Court.

• Respondent corporations asserted their separate juridical personalities, emphasizing that their properties were registered under the Torrens system in their names.
• Respondents argued that the issue of piercing the corporate veil was an intra-corporate controversy falling under the jurisdiction of the Securities and Exchange Commission, not the probate court.
• Respondents contended that the inclusion of their titled properties in the estate inventory constituted a collateral attack on their Torrens titles.

• Procedural Issues:
  • Whether the probate court exceeded its limited jurisdiction in issuing orders that effectively determined title over properties registered under the Torrens system in the name of third-party corporations.
  • Whether the probate court had the authority to order the production of bank accounts registered in the name of private respondent corporations.
• Substantive Issues:
  • Whether a corporation, in its universality, may be included in the inventory of the estate of a deceased person based on allegations that it is the mere alter ego of the decedent.
  • Whether a probate court may provisionally include properties covered by Torrens titles in the name of third parties in the estate inventory absent strong compelling evidence.

• Procedural: The Court ruled that the probate court acted without jurisdiction in ordering the production of bank accounts in the name of the private respondent corporations. As entities with separate juridical personalities, their bank records could not be summarily subjected to the probate court's production orders meant for the decedent's estate. Furthermore, the probate court exceeded its limited jurisdiction by provisionally including the properties. While a probate court may provisionally pass upon title for inventory purposes, it must give due weight to the presumptive conclusiveness of Torrens titles. Because the properties were registered in the name of the private respondent corporations, and petitioner presented no strong compelling evidence to overcome this presumption, the probate court's inclusion of the properties constituted a collateral attack on the Torrens titles prohibited by P.D. 1529.
• Substantive: The Court held that a corporation cannot be included in the estate inventory based on bare allegations of alter ego. The separate juridical personality of a corporation is a shield that cannot be pierced absent clear and convincing proof of the three-element test: (1) complete control, not just majority ownership, over finances and policy; (2) use of such control to commit fraud or wrong; and (3) proximate causation of injury or unjust loss. Petitioner's evidence, consisting of affidavits of persons not presented in court, was inadmissible hearsay and insufficient to pierce the corporate veil. Mere ownership by a single stockholder of all or nearly all of the capital stock is not itself a sufficient reason for disregarding the fiction of separate corporate personalities.

• Limited Jurisdiction of Probate Courts — A probate court exercises limited jurisdiction and cannot adjudicate title to properties claimed by third parties with finality. It may only provisionally determine whether a property should be included in the inventory, subject to a final separate action. However, this provisional authority must be exercised with due regard to the Torrens system and cannot be used to circumvent the rule against collateral attacks on titles.
• Presumptive Conclusiveness of Torrens Titles — A certificate of title is not subject to collateral attack and cannot be altered, modified, or cancelled except in a direct proceeding. If a property is covered by a Torrens title in the name of third parties, the presumptive conclusiveness of such title must be given due weight, and the holder should be considered the owner until the title is nullified in an appropriate ordinary action.
• Piercing the Corporate Veil — The separate juridical personality of a corporation may be disregarded only when the corporate fiction is used as a means of perpetrating fraud or an illegal act. The three-element test requires: (1) complete domination of finances and policy; (2) use of such control to commit fraud or a violation of a legal duty; and (3) proximate causation of injury. Mere ownership of all or nearly all of the capital stock is insufficient to pierce the veil. The wrongdoing must be clearly and convincingly established.
• Hearsay Nature of Affidavits — Affidavits are generally hearsay evidence because they are often prepared by another and the adverse party is deprived of the opportunity to cross-examine the affiants. They are inadmissible unless the affiants are presented on the witness stand to testify thereon.

• "It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator."
• "In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title."
• "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."

• Pastor, Jr. vs. Court of Appeals — Cited for the rule that a probate court's determination of title over properties for inventory purposes is provisional and not conclusive.
• Pereira vs. Court of Appeals — Followed, reiterating that the probate court's function of resolving inclusion or exclusion of properties is provisional and subject to a final separate action.
• Morales vs. CFI of Cavite — Cited for the doctrine that probate courts cannot adjudicate title to properties claimed by outside parties, but can only determine inclusion or exclusion for inventory purposes.
• Bolisay vs. Alcid — Applied as controlling precedent on the presumptive conclusiveness of Torrens titles, holding that such titles must be given due weight in inclusion/exclusion incidents absent strong compelling evidence.
• Cuizon vs. Ramolete — Cited to emphasize that a probate court has no authority to deprive third parties of possession and ownership of properties registered under their Torrens titles.
• First Philippine International Bank vs. Court of Appeals — Cited for the exceptions to the separate corporate personality doctrine, specifically when the fiction is used to perpetrate fraud or evade obligations.
• Concept Builders, Inc. vs. NLRC — Cited for the three-element test in piercing the corporate veil (control, fraud/wrong, proximate causation).
• People's Bank and Trust Company vs. Leonidas — Cited for the rule that affidavits are hearsay evidence unless the affiants are presented in court for cross-examination.

• Section 48, Presidential Decree No. 1529 (Property Registration Decree) — Provides that a certificate of title shall not be subject to collateral attack and cannot be altered, modified, or cancelled except in a direct proceeding. The Court applied this provision to rule that the probate court's inclusion of Torrens-titled properties registered in the name of third-party corporations constituted an impermissible collateral attack.
• Sections 19 and 33, Batas Pambansa Blg. 129 (as amended by R.A. 7691) — Define the jurisdiction of Regional Trial Courts and Municipal Trial Courts in probate matters based on the gross value of the estate. The Court cited these provisions to establish the baseline jurisdiction of probate courts before discussing the limits of that jurisdiction.

Bellosillo, Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.