Traders Royal Bank vs CA CASE No. 28

Traders Royal Bank vs. Court of Appeals, 269 SCRA 15(1997

!ACTS" Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certicates of Indebtedness (CBCI). hese certicates are actually proof that FGAC has the re!uired reserve invest"ent with the Central Bank to operate as an insurer and to protect third persons fro" whatever liabilities FGAC "ay incur. In #$%$& FGAC a'reed to assi'n said CBCI to hilippine nderwriters Finance Corporation (FC). *ater& FC sold said CBCI to raders +oyal Bank (+B). ,aid sale with +B co"es with a ri'ht to repurchase on a date certain. -owever& when the day to repurchase arrived& FC failed to repurchase said CBCI hence +B re!uested the Central Bank to have said CBCI be re'istered in +Bs na"e. Central Bank refused as it alle'ed that the CBCI are not ne'otiable/ that as such& the transfer fro" FGAC to FC is not valid/ that since it was invalid& FC ac!uired no valid title over the CBCI/ that the subse!uent transfer fro" FC to +B is likewise invalid.  +B then led a petition for "anda"us to co"pel the Central Bank to re'ister said CBCI in +Bs na"e. +B averred that FC is the alter e'o of FGAC/ that FC owns $01 of FGAC/ that the two corporations have identical sets of directors/ that pay"ent of  said CBCI to FC is like a pay"ent to FGAC hence the sale between FC and +B is valid. In short& +B avers that that the veil of corporate ction& between FC and FGAC& should be pierced because the two corporations alle'edly used their separate identity to defraud +2 into buyin' said CBCI.

#SS$%" 3hether or not the principle of piercin' the veil of corporate ction calls for the application in the i""ediate case

&%'"  he ,upre"e Court held that raders +oyal Bank cannot put up the e4cuse of  piercin' the veil of corporate entity& as this is "erely an e!uitable re"edy& and "ay be awarded awarded only in cases when the corporate corporate ction is used to defeat defeat public public convenienc convenience& e&  5ustify wron'& wron'& protect fraud or defend cri"e or where where a corporation is a "ere alter e'o or business conduit of a person. iercin' the veil of corporate entity re!uires the court to see throu'h the protective shroud which e4e"pts its stockholders fro" liabilities that ordinarily& they could be sub5ect to& or distin'uishes one corporation fro" a see"in'ly separate one& were it not for the e4istin' corporate ction. But to do this& the court "ust be sure that the corporate ction was "isused& to such an e4tent that in5ustice& fraud& or cri"e was co""itted upon another& disre'ardin'& thus& his& her& or its ri'hts. It is the protection of the interests of innocent third persons dealin' with the corporate entity which the law ai"s to protect by this doctrine.