Traders Royal Bank VS CA  

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.

Francisco v Mejia

Business Organization – Corporation Law – Piercing the Veil of Corporate Fiction – Fraud Test vs Alter Ego Test 

Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation (Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to execute a deed of sale over certain parcels of land in favor of Cardale. It was agreed that Gutierrez shall hand over the titles to Cardale but Cardale shall only give a downpayment, and later on full payment in installment. As security, Gutierrez shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in its payment. Gutierrez then filed a petition with the trial court to have the Deed rescinded.While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the will of Gutierrez took over the affairs of the estate.The case dragged on for 14 years because Francisco lost interest in presenting evidence. And while the case was pending, Cardale failed to pay real estate taxes over the properties in litigation hence, the local government

subjected said properties to an auction sale to satisfy the tax arrears. The highest bidder in the auction sale was Merryland Development Corporation (Merryland).Apparently, Merryland is a corporation in which Francisco was the President and majority stockholder. Mejia then sought to nullify the auction sale on the ground that Francisco used the two corporations as dummies to defraud the estate of Gutierrez especially so that these circumstances are present:

1. Francisco did not inform the lower court that the properties were delinquent in taxes;2. That there was notice for an auction sale and Francisco did not inform the Gutierrez estate and as such, the

estate was not able to perform appropriate acts to remedy the same;3. That without knowledge of the auction, the Gutierrez estate cannot exercise their right of redemption;4. That Francisco failed to inform the court that the highest bidder in the auction sale was Merryland, her other

company;5. That thereafter, Cardale was dissolved and the subject properties were divided and sold to other people.

ISSUE: Whether or not Merryland and Francisco shall be held solidarily liable.HELD: No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez estate. What was only proven was that Francisco defrauded the Gutierrez estate as clearly shown by the dubious circumstances which caused the encumbered properties to be auctioned. By not disclosing the tax delinquency, Francisco left Gutierrez in the dark. She obviously acted in bad faith. Francisco’s elaborate act of defaulting payment, disregarding the case, not paying realty taxes (since as treasurer of Cardale, she’s responsible for paying the real estate taxes for Cardale), and failure to advise Gutierrez of the tax delinquencies all constitute bad faith. The attendant fraud and bad faith on the part of Francisco necessitates the piercing of the veil of corporate fiction in so far as Cardale and Francisco are concerned. Cardale and Francisco cannot escape liability now that Cardale has been dissolved. Francisco shall then pay Guttierez estate the outstanding balance with interest (total of P4.3 + million).As regards Merryland however, there was no proof that it is merely an alter ego or a business conduit of Francisco. Merryland merely bought the properties from the auction sale and such per se is not a wrongful act or a fraudulent act. Time and again it has been reiterated that 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 sufficient ground for disregarding the separate corporate personality. Hence, Merryland can’t be held solidarily liable with Francisco.

REMO V. COURT OF APPEALS

172 SCRA 405

FACTS:

The   Board   of   Directors   of   Akron,   which   includes   petitioner   Remo, authorized the purchase of 13 trucks to be used in the business through a resolution.  The president then  of the corporation purchased from private respondent  the  trucks  evinced  by  a  deed  of  absolute  sale,  with  terms  of payment  as  follows—downpayment,  balance  payable  within  60  days  from date  of  execution  of  agreement.    It  was  also  agreed  upon  that  until  said balance, the downpayment shall constitute as rentals for the trucks.  And if there would be failure of payment, the balance shall  constitute as chattel mortgage  lien.    This  is  further  secured  by  a  promissory  note—that  the balance  would  be  paid  from  a  loan  to  be  obtained  from  a  bank.    After several   days,   private   respondent   made   several   demands   but   the corporation  failed  to  pay.   This  prompted  the  private  respondent  to  file  a complaint.  Meanwhile, petitioner sold his shares to Coprada and the name of the corporation was modified.  

HELD:

If  the  private  respondent  is  the  victim  of  fraud  in  this  transaction,  it  has not been clearly shown that petitioner had any part or partcipation in the perpetration  of  the  same.    Fraud  must  be  established  by  clear  and convincing  evidenced.    If  at  all,  the  principal  character  on  whom  fault should  be  attributed  is  the  president  Coprada,  whom  private  respondent dealt with personally all through out.  

Remo Jr. V. IAC (1989)

G.R. No. L-67626 April 18, 1989

Lesson Applicable: Dealings Between Corporation and Stockholders (Corporate Law)

FACTS:

December, 1977: the BOD of Akron Customs Brokerage Corporation (Akron), composed of Jose Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as Secretary, adopted a resolution authorizing the purchase of 13 trucks for use in its business to be paid out of a loan the corporation may secure from any lending institution

January 25, 1978: Feliciano Coprada, as President and Chairman of Akron, purchased the trucks from E.B. Marcha Transport Company, Inc. (Marcha) for P 525K as evidenced by a deed of absolute sale. 

parties agreed on a downpayment in the amount of P50K and that the balance of P 475K shall be paid within 60 days from the date of the execution of the agreement. 

They also agreed that until balance is fully paid, the down payment of P 50K shall accrue as rentals and failure to pay the balance within 60 days, then the balance shall constitute as a chattel mortgage lien covering the cargo trucks and the parties may allow an extension of 30 days and Marcha may ask for a revocation of the contract and the reconveyance of all trucks.

The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It is stated that the balance shall be paid from the proceeds of a loan obtained from the Development Bank of the Philippines (DBP) within 60 days

After the lapse of 90 days, Marsha tried to collect from Coprada but the Coprada promised to pay only upon the release of the DBP loan. 

Marsha sent Coprada a letter of demand dated May 10, 1978. Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment of the

obligation shall be made.  Meanwhile, 2 of the trucks were sold under a pacto de retro sale to a Mr. Bais of the Perpetual Loans and

Savings Bank at Baclaran.  March 15, 1978: sale was authorized by board resolution Marsha found that no loan application was ever filed by Akron with DBP.  Akron paid rentals of P 500/day pursuant to a subsequent agreement, from April 27, 1978 (the end of the

90-days to pay the balance) to May 31, 1978. Thereafter, no more rental payments were made. June 17, 1978: Coprada wrote Marsha begging for a grace period of until the end of the month to pay the

balance of the purchase price; that he will update the rentals within the week; and in case he fails, then he will return the 13 units should Marsha elect 

August 1, 1978: Marsha through counsel, wrote Akron demanding the return of the 13 trucks and the payment of P 25K back rentals from June 1 to August 1, 1978.

August 8, 1978: Coprada asked for another grace period of up to August 31, 1978 to pay the balance, stating as well that he is expecting the approval of his loan application from a financing company, and that 10 trucks have been returned to Bagbag, Novaliches. 

December 9, 1978: Coprada informed Marsha that he had returned 10 trucks to Bagbag and that a resolution was passed by the board of directors confirming the deed of assignment to Marsha of P 475K from the proceeds of a loan obtained by Akron from the State Investment House, Inc. 

In due time, Marsha filed a compliant for the recovery of P 525K or the return of the 13 trucks with damages against Akron and its officers and directors

Remo Jr. sold all his shares in Akron to Coprada. It also appears that Akron amended its articles of incorporation thereby changing its name to Akron Transport International, Inc. which assumed the liability of Akron to Marsha.

CA affirmed RTC: favor of Marsha

ISSUE: W/N Remo Jr. should be held personally liable together with Akron Transport International, Inc.

HELD: NO. Petition is granted.

The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of Akron and hold petitioner personally liable

While it is true that in December, 1977 petitioner was still a member of the board of directors of Akron and that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution, it does not appear that said resolution was intended to defraud anyone 

Coprada, President and Chairman of Akron, who negotiated  The word "WE' in the said promissory note must refer to the corporation which Coprada represented in the

execution of the note and not its stockholders or directors. Petitioner did not sign the said promissory note so he cannot be personally bound thereby.

As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a board resolution, Remo Jr. asserts that he never signed the resolution. 

Be that as it may, the sale is not inherently fraudulent as the 13 units were sold through a deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of course, it was stipulated that in case of default , a chattel mortgage lien shall be constituted on the 13 units. 

the new corporation confirmed and assumed the obligation of the old corporation. There is no indication of an attempt on the part of Akron to evade payment of its obligation

it is his inherent right as a stockholder to dispose of his shares of stock anytime he so desires. Fraud must be established by clear and convincing evidence. If at all, the principal character on whom fault

should be attributed is Feliciano Coprada, the President of Akron. Fortunately, a judgment against him from the trial court has long been final and executory.