Corpo Case Digest

TRADERS ROYAL BANK, petitioner,

vs.

COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.

G.R. No. 93397. March 3, 1997

FACTS OF THE CASE

Nature of the Case: Petition for Review on Certiorari. CA affirmed the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891,2 with a face value of Php 500,000.00 from the Philippine Underwriters Finance Corporation (Phil Finance) to Petitioner Trader's Royal Bank (TRB) under a Repurchase Agreement and a Detached Assignment. Filriters Guaranty Assurance Corporation (filters) is the owner of the Central Bank Certificate of Indebtednes (CBCI) No. D891 worth Php500, 000.00 which was transferred to Philippine Underwriters Finance Corporation (PhilFinance) through a Deed of Assignment. Subsequently Phil finance transferred the said instrument (still registered under the name of flirters) to Traders Royal Bank (TRB). It was made through a Repurchase Agreement. Phil finance defaulted in its obligation to TRB. It then executed a Deed of Assignment to TRB. TRB then notified the Central Bank (Security Servicing Department) to cause the transfer and registration of the CBCI No. D891 under its name. It was however refused to do so in lieu of an adverse claim filed by Filters. The Court of Appeals held that the CBCI is not a negotiable instrument. It is clearly stated that it was payable to flirters. The certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. The assignment of Filters to Phil finance was also null and void because it was made without consideration. It also did not conform to the Central Bank Circular No. 769, series of 1980 - Rules and Regulations Governing Central Bank Certificates of Indebtedness. It provides that any assignment of registered certificates shall not be valid unless made by the registered owner thereof in person or by his representative duly authorized in writing. Alfredo O. Banaria (who signed the deed of assignment) did not have the necessary written authorization from the Board of Directors of flirters. For lack of such authority, the assignment did not bind flirters and violated the Central Bank Circular (No. 769) which has the force and effect of a law. For such violations, Phil finance acquired no title or rights under CBCI No. D891 which it could assign or transfer to TRB, and which TRB can register with the Central Bank. On petition, TRB argued that Phil finance owns 90% of Flirter’s equity and the two corporations have identical corporate officers, thus demanding the application of piercing the veil of corporate fiction to give validity to the transfer of the CBCI from filters to TRB.

ISSUE

Was the transfer of the CBCI from Filriters to PhilFinance and subsequently from PhilFinance to TRB, in accordance with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?

RULING

Corporation Law; Piercing the Veil of Corporate Fiction; 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.—Petitioner 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. Filriters and PhilFinance remains separate. Same; Same; 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.—Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, in the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the 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. TRB was not defrauded at all when it acquired the CBCI from PhilFinance. Same; Same; An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority may not hold the corporation liable.—Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. TRB knew that PhilFinance is not the registered owner of CBCI No. D891. The fact that a non-owner is disposing of the registered CBCI owned by another entity was a good reason for the petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI. Moreover the said instrument is governed by the rules and regulations of the Central Bank. Alfredo O. Banaria did not have the necessary authorization from the Board of Directors of Filriters to bind it. Lastly, Filriters acquired the CBCI to form part of its legal and capital reserves required by law. Insurance companies are required to put up a legal reserve equivalent to 40 percent of the premiums receipt. The Insurance Commission requires this reserve to be invested preferably in government securities or government bonds. Therefore, the said CBCI cannot be taken out of the said fund, without violating the requirements of the law. The unauthorized use or distribution of the same by a corporate officer of Filriters, cannot bind the corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of TRB.

DISPOSITION

Petition is DISMISSED and the decision appealed (Jan. 29, 1990) AFFIRMED.