Traders Royal Bank v.

CA
269 SCRA 15
March 3, 1997
Facts:
Filriters Guaranty Assurance Corporation (Filriters) is the owner of several Central Bank
Certificates of Indebtedness (CBCI). In 1979, Filriters, through its its Senior Vice President for
Treasury, Alfredo Banario, transferred the said CBCI to Philippine Underwriters Finance
Corporation (PhilFinance).
Later, PhilFinance sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes with
a right to repurchase up to April 27, 1951. However, when the day to repurchase arrived,
PhilFinance failed to repurchase the said CBCI; hence, TRB requested the Central Bank to have
said CBCI be registered in TRBs name.
At the Central Bank, Filriters filed an adverse claim to deny the transfer and the registration of
the CBCI with TRB. Filriters claimed that the intitial transfer was done by Banaria without any
board resolution knowledge or consent of the Board of Directors and without authority form the
Insurance Commissioner. Thus, Central Bank refused as it alleged that the CBCI are 1) not
negotiable1; 2) the assignment by Filriters to PhilFiance was not valid as there was no Board
Resolution. Since it was invalid, PhilFinance acquired no valid title over the CBCI. The
subsequent transfer from PhilFinance 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 PhilFinance is the alter ego of Filriters. PhilFinance owns 90% of
Filriters. The two corporations have identical sets of directors; that payment of said CBCI to
PhilFinance is like a payment to Filriters. Hence the sale between PhilFinance and TRB is valid.
TRB avers that that the veil of corporate fiction, between PhilFinance and Filriters, should be
pierced because the two corporations allegedly used their separate identity to defraud TRD into
buying said CBCI.
Issue: Whether the doctrine Piercing the Veil of Corporate Fiction is applicable?
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.
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 distinguished
1 In the CBCI, it states that Central Bank shall treat the registered owner as the absolute owner and that the value of
the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff that the
assignments do not give them the registered owner's right as absolute owner of the CBCI's

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.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners
insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the other, there is nothing else
which could lead the court under circumstance to disregard their corporate personalities. The fact
that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters.
Note: other issue -- Whether TRB was defrauded
TRB was not defrauded at all when it acquired the CBCI from PhilFinance. On its face
the subject certificates states that it is registered in the name of Filriters. This should have
put the petitioners on notice, and prompted it to inquire from Filriters as to Philfinances
title over the same or its authority to assign the certificate. As it is, there is no showing to
the effect that petitioner had any dealings whatsoever with Filriters, nor did it make any
inquiries as to the ownership of the certificate. Because the transfer of the CBCIs from
Filriters to PhilFinacne was fictitious, PhilFinance had no title to convey to TRB. Being a
commercial bank and not new to this kind of transaction, TRB should have in good faith
check the subject certificates and the capacity of PhilFinance to assign. Consequently, the
title of Filriters over the CBCIs must be upheld over the interest claimed by TRB