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.
Traders Royal Bank v CA (Negotiable Instruments
Law)
TRADERS ROYAL BANK V CA G.R. No. 93397 March 3,
1997
FACTS:
Filriters registered owner of Central Bank Certificate
of Indebtedness (CBCI). Filriters transferred it to
Philfinance by one of its officers without authorization
from the company. Subsequently, Philfinance
transferred same CBCI to Traders Royal Bank (TRB)
under a repurchase agreement. When Philfinance
failed to do so, The TRB tried to register in its name in
the CBCI. The Central Bank did not want to recognize
the transfer.
Docketed as Civil Case No. 83-17966 in the Regional
Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus 5 under
Rule 65 of the Rules of Court, to compel the Central
Bank of the Philippines to register the transfer of the
subject CBCI to petitioner Traders Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null
and void. * CA: The appellate court ruled that the
subject CBCI is not a negotiable instrument.
Philfinance acquired no title or rights under CBCI No.
D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the
Central Bank. Thus, the transfer of the instrument
from Philfinance to TRB was merely an assignment,
and is not governed by the negotiable instruments
law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be
negotiable must conform to the following
requirements: (a) It must be in writing and signed by
the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in
money; (c) Must be payable on demand, or at a fixed or
determinable future time; (d) Must be payable to
order or to bearer; and (e) Where the instrument is
addressed to a drawee, he must be named or
otherwise indicated therein with reasonable
certainty.
Under section 3, Article V of Rules and Regulations
Governing Central Bank Certificates of Indebtedness
states that the assignment of registered certificates
shall not be valid unless made at the office where the
same have been issued and registered or at the
Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in
person or by his representative, duly authorized in
writing. For this purpose, the transferee may be
designated as the representative of the registered
owner. ISSUES & RULING: 1. Whether the CBCI is
negotiable instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay bearer, of if
this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE
HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to
Filriters, and the certificate lacked the words of
negotiability which serve as an expression of consent
that the instrument may be transferred by
negotiation.
Before the instruments become negotiable
instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law.
Otherwise instrument shall not bind the parties.
2. Whether the Assignment of registered certificate is
valid or null and void.
IT'S NULL AND VOID. Obviously the Assignment of
certificate from Filriters to Philfinance was null and
void. One of officers who signed the deed of
assignment in behalf of Filriters did not have the
necessary written authorization from the Board of
Directors of Filriters. For lack of such authority the
assignment is considered null and void.
Clearly shown in the record is the fact that
Philfinance's title over CBCI is defective since it acq
uired the instrument from Filriters fictitiously. Under
1409 of the Civil Code those contracts which are
absolutely simulated or fictitious are considered void
and inexistent from the beginning.
Petitioner knew that Philfinance is not registered
owner of the CBCI No. D891. The fact that a non-owner
was disposing of the registered CBCI owned by another
entity was a good reason for petitioner to verify of
inquire as to the title Philfinance to dispose to the
CBCI.
OTHER NOTES:
1. 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.
G.R. No. 93397 March 3, 1997
Lessons Applicable: Requisites of negotiability to
antedated and postdated instruments (Negotiable
Instrument Law)
FACTS: Filriters (assigned) > Philfinance (still under
the name of Filriters assigned) > Traders Royal Bank =
? (valid or not)
 November 27, 1979: Filriters Guaranty
Assurance Corporation (Filriters) executed a
"Detached Assignment whereby Filriters, as
registered owner, sold, transferred, assigned
and delivered unto Philippine Underwriters
Finance Corporation (Philfinance) all its rights
and title to Central Bank Certificates of
Indebtedness (CBCI) of P500k and having an
aggregate value of P3.5M
 The Detached Assignment contains an
express authorization executed by the
transferor intended to complete the
assignment through the registration of
the transfer in the name of PhilFinance
 February 4, 1981: Traders Royal Bank
(Traders) entered into a Repurchase
Agreement w/ PhilFinance whereby in
consideration of the sum of P500,000.00,
PhilFinance sold, transferred and delivered a
CBCI w/ a face value of P500K which CBCI was
among those previously acquired by
PhilFinance from Filriters
 PhilFinance failed to repurchase on the agreed
date of maturity, April 27, 1981, when the
checks it issued in favor of petitioner were
dishonored for insufficient funds
 Philfinance transferred and assigned all, its
rights and title in the CBCI to Traders
 Respondent failed and refused to register the
transfer as requested, and continues to do so
notwithstanding petitioner's valid and just
title over the same and despite repeated
demands in writing
 Traders prayed for the registration by the
Central Bank of the subject CBCI in its name.
 CA affirmed RTC: subsequent assignment in
favor of Traders Royal Bank null and void and
of no force and effect.
 Philfinance acquired no title or rights
under CBCI which it could assign or
transfer to Traders and which it can
register with the Central Bank
 instrument is payable only to Filriters,
the registered owner
ISSUE: W/N the CBCI is a negotiable instrument
HELD: NO. Petition is dismissed. CA affirmed.
 CBCI is not a negotiable instrument in the
absence of words of negotiability within the
 meaning of the negotiable instruments law by another entity was a good reason
(Act 2031) for petitioner to verify of inquire as to
the title Philfinance to dispose to the
 certificate of indebtedness CBCI.

 = certificates for the creation and  Nemo potest nisi quod de jure potest — no man
maintenance of a permanent can do anything except what he can do
improvement revolving fund lawfully.

 similar to a "bond"

 properly understood as
acknowledgment of an
obligation to pay a fixed sum of
money

 usually used for the purpose of

long term loans

 Philfinance merely borrowed the CBCI from

Filriters, a sister corporation.

 lack of any consideration = assignment

is a complete nullity

 Filriters to Philfinance did not conform to the

"Rules and Regulations Governing Central
Bank Certificates of Indebtedness" (Central
Bank Circular No. 769, series of 1980) under
which the note was issued.

 Published in the Official Gazette on

November 19, 1980, Section 3 thereof
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
purportedly for and on behalf
of Filriters, did not have the
necessary written
authorization from the BOD

 Traders, being a commercial bank,

cannot feign ignorance of Central Bank
Circular 769, and its requirements.

 The fact that Filfinance owns majority shares

in Filriters is not by itself a ground to
disregard the independent corporate status of
Filriters.

 Traders knew that Philfinance is not

registered owner of the CBCI.

 The fact that a non-owner was

disposing of the registered CBCI owned