Traders Royal Bank vs Court of Appeals

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269 SCRA 15 – Business Organization – Corporation Law – Piercing the Veil of Corporate Fiction 

Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates of Indebtedness (CBCI). These certificates are actually proof that FGAC has the required reserve investment with the Central Bank to operate as an insurer and to protect third persons from whatever liabilities FGAC may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters Finance Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes with a right to repurchase on a date certain. However, when the day to repurchase arrived, PUFC failed to repurchase said CBCI hence TRB requested the Central Bank to have said CBCI be registered in TRB’s name. Central Bank refused as it alleged that the CBCI are not negotiable; that as such, the transfer from FGAC to PUFC is not valid; that since it was invalid, PUFC acquired no valid title over the CBCI; that the subsequent transfer from PUFC to TRB is likewise invalid.

TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRB’s name. TRB averred that PUFC is the alter ego of FGAC; that PUFC owns 90% of FGAC; that the two corporations have identical sets of directors; that payment of said CBCI to PUFC is like a payment to FGAC hence the sale between PUFC and TRB is valid. In short, TRB avers that that the veil of corporate fiction, between PUFC and FGAC, should be pierced because the two corporations allegedly used their separate identity to defraud TRD into buying said CBCI.

ISSUE: Whether or not Traders Royal Bank is correct.

HELD: No. Traders Royal Bank failed to show that the corporate fiction is used by the two corporations to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. TRB merely showed that PUFC owns 90% of FGAC and that their directors are the same. The identity of PUFC can’t be maintained as that of FGAC because of this mere fact; there is nothing else which could lead the court under the circumstance to disregard their corporate personalities. Further, TRB can’t argue that it was defrauded into buying those certificates. In the first place, TRB as a banking institution is not ignorant about these types of transactions. It should know for a fact that a certificate of indebtedness is not negotiable because the payee therein is inscribed specifically and that the Central Bank is obliged to pay the named payee only and no one else.

 

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