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Traders Royal Bank vs.

Court of Appeals, 269 SCRA 15(1997)

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 TRBs 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 TRBs 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.
Whether or not the principle of piercing the veil of corporate fiction calls for the
application in the immediate case
The Supreme Court held that Traders Royal Bank cannot put up the excuse of
piercing the veil of corporate entity, as this is merely an equitable remedy, and may be
awarded only in cases when the corporate fiction is used 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. 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 be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the court must
be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or
crime was committed upon another, disregarding, thus, his, her, or its rights. It is the
protection of the interests of innocent third persons dealing with the corporate entity
which the law aims to protect by this doctrine.