SECOND DIVISION paragraph paragraph paragraph [ G . R . No . 93397 . March 3 , 1997 ] paragraph paragraph paragraph TRADERS ROYAL BANK , petitioner , vs . COURT OF APPEALS , FILRITERS GUARANTY ASSURANCE CORPORATION and CENTAL BANK of the PHILIPPINES , respondents . paragraph paragraph paragr aph D E C I S I O N paragraph paragraph paragraph TORRES , JR . , J . : paragraph paragraph paragraph Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29 , 1990 , [1] affirming the nullity of the transfer of Central Bank Certificate of Indebtedness ( CBCI ) No . D891 , [2] with a face value of P500 , 000 , from the Philippine Underwriters Finance Corporation ( Philfinance ) to the petitioner Trader ‘ s Royal Bank ( TRB ) , under a Repurchase Agreement [3] dated February 4 , 1981 , and a Detached Assignment [4] dated April 27 , 1981 . 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 ) . paragraph paragraph paragraph In the said petition , TRB stated that : “ 3 . On November 27 , 1979 , Filriters Guaranty Assurance Corporation ( Filriters ) executed a ‘ Detached Assignment ‘ xxx , 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 ) Nos . D890 to D896 , inclusive , each in the denomination of PESOS : FIVE HUNDRED THOUSAND ( P500 , 000 ) and having an aggregate value of PESOS : THREE MILLION FIVE HUNDRED
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SECOND DIVISION paragraph paragraph paragraph
[ G . R . No . 93397 . March 3 , 1997 ] paragraph paragraph paragraph
TRADERS ROYAL BANK , petitioner , vs . COURT OF APPEALS , FILRITERS GUARANTY ASSURANCE CORPORATION and CENTAL BANK of the PHILIPPINES , respondents . paragraph paragraph paragraph
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29 , 1990 , [1] affirming the nullity of the transfer of Central Bank Certificate of Indebtedness ( CBCI ) No . D891 , [2] with a face value of P500 , 000 , from the Philippine Underwriters Finance Corporation ( Philfinance ) to the petitioner Trader ‘ s Royal Bank ( TRB ) , under a Repurchase Agreement[3] dated February 4 , 1981 , and a Detached Assignment[4] dated April
27 , 1981 .
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 ) . paragraph paragraph paragraph
In the said petition , TRB stated
that :
“ 3 . On November 27 , 1979 , Filriters Guaranty Assurance
Corporation ( Filriters ) executed a ‘ Detached
Assignment ‘ xxx , 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 ) Nos . D890 to
D896 , inclusive , each in the denomination of PESOS : FIVE HUNDRED
THOUSAND ( P500 , 000 ) and having an aggregate value of
PESOS : THREE MILLION FIVE HUNDRED
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THOUSAND ( P3 , 500 , 000 . 00 ) ;
4 . The aforesaid Detached Assignment ( Annex “ A “ ) contains an
express authorization executed by the transferor intended to complete the assignment
through the registration of the transfer in the name of PhilFinance , which
authorization is specifically phrased as follows : ‘ ( Filriters ) hereby
irrevocably authorized the said issuer ( Central Bank ) to transfer the said
bond / certificates on the books of its fiscal
agent ; paragraph paragraph paragraph
5 . On February 4 , 1981 , petitioner entered into a Repurchase Agreement
with PhilFinance xxx , whereby , for and in consideration of the sum of
PESOS : FIVE HUNDRED
THOUSAND ( P500 , 000 . 00 ) , PhilFinance sold , transferred and
delivered to petitioner CBCI 4 - year , 8th series , Serial No . D891 with a
face value of P500 , 000 . 00 xxx , which CBCI was among those previously
acquired by PhilFinance from Filriters as averred in paragraph 3 of the
Petition ; paragraph paragraph paragraph
6 . Pursuant to the aforesaid Repurchase
Agreement ( Annex ‘ B ‘ ) , Philfinance agreed to repurchase CBCI
Serial No . D891 ( Annex ‘ C ‘ ) , at the stipulated price of
PESOS : FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED
SIXTY - ONE & 11 / 100 ( P519 , 361 . 11 ) on April
27 , 1981 ; paragraph paragraph paragraph
7 . PhilFinance failed to repurchase the CBCI on the agreed date of
maturity , April 27 , 1981 , when the checks it issued in favor of petitioner
were dishonored for insufficient
funds ;
8 . Owing to the default of PhilFinance , it executed a Detached Assignment in
favor of the Petitioner to enable the latter to have its title completed and registered in
the books of the respondent . And by means of said Detachment
Assignment , Philfinance transferred and assigned all its rights and title in the said
CBCI ( Annex ‘ C ‘ ) to petitioner and , furthermore , it did
thereby ‘ irrevocably authorize the said issuer ( respondent herein ) to
transfer the said bond / certificate on the books of its fiscal agent . ‘ xxx
paragraph paragraph paragraph
9 . Petitioner presented the CBCI ( Annex ‘ C ‘ ) , together with the
two ( 2 ) aforementioned Detached
Assignments ( Annexes ‘ B ‘ and ‘ D ‘ ) , to the Securities
Servicing Department of the respondent , and requested the latter to effect the
transfer of the CBCI on its books and to issue a new certificate in the name of
petitioner as absolute owner thereof ; paragraph paragraph paragraph
10 . 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 , the latest of which is hereto attached as
Annex ‘ E ‘ and made an integral part
hereof ;
11 . The express provisions governing the transfer of the CBCI were substantially
complied with in petitioner ‘ s request for registration , to
wit : paragraph paragraph paragraph
‘ No transfer thereof shall be valid unless made at said office ( where the
Certificate has been registered ) by the registered owner hereof , in person or by
his attorney duly authorized in writing , and similarly noted hereon , and upon
payment of a nominal transfer fee which may be required , a new Certificate shall
be issued to the transferee of the registered holder
thereof . ‘ paragraph paragraph paragraph
and , without a doubt , the Detached Assignments presented to respondent were
sufficient authorizations in writing executed by the registered
owner , Filriters , and its transferee , PhilFinance , as required by the
above - quoted provision ;
12 . Upon such compliance with the aforesaid requirements , the ministerial
duties of registering a transfer of ownership over the CBCI and issuing a new
certificate to the transferee devolves upon the
respondent ; “ paragraph paragraph paragraph
Upon these assertions , TRB prayed for the registration by the Central Bank of the subject CBCI in its name . paragraph paragraph paragraph
On December 4 , 1984 , the Regional Trial Court trying the case took cognizance of the defendant Central Bank of the Philippines ‘ Motion for Admission of Amended Answer with Counter Claim for Interpleader , [6] thereby calling to fore the respondent Filriters Guaranty Assurance Corporation ( Filriters ) , the registered owner of the subject CBCI as respondent . paragraph paragraph paragraph
For its part , Filriters interjected as Special Defenses the following : paragraph paragraph paragraph
“ 11 . Respondent is the registered owner of CBCI
No . 891 ;
12 . The CBCI constitutes part of the reserve investment against liabilities required
of respondent as an insurance company under the Insurance
Code ; paragraph paragraph paragraph
13 . Without any consideration or benefit whatsoever to Filriters , in violation of
law and the trust fund doctrine and to the prejudice of policyholders and to all who
have present or future claim against policies issued by Filriters , Alfredo
Banaria , then Senior Vice - President - Treasury of Filriters , without any
board resolution , knowledge or consent of the board of directors of Filriters and
without any clearance or authorization from the Insurance
Commissioner , executed a detached assignment purportedly assigning CBCI
No . 891 to Philfinance ; paragraph paragraph paragraph
xxx
14 . Subsequently , Alberto Fabella , Senior Vice - President -
Comptroller and Pilar Jacobe , Vice - President - Treasury of
Filriters ( both of whom were holding the same positions in
Philfinance ) , without any consideration or benefit redounding to Filriters and
to the grave prejudice of Filriters , its policy holders and all who have present or
future claims against its policies , executed similar detached assignment forms
transferring the CBCI to plaintiff ; paragraph paragraph paragraph
xxx paragraph paragraph paragraph
15 . The detached assignment is patently void and inoperative because the
assignment is without the knowledge and consent of directors of Filriters , and not
duly authorized in writing by the Board , as required by Article V , Section 3 of
CB Circular No . 769 ; paragraph paragraph paragraph
16 . The assignment of the CBCI to Philfinance is a personal act of Alfredo
Banaria and not the corporate act of Filriters and as such null and
void ; paragraph paragraph paragraph
a ) The assignment was executed without consideration and for that reason , the
assignment is void from the beginning ( Article 1409 , Civil
Code ) ; paragraph paragraph paragraph
b ) The assignment was executed without any knowledge and consent of the board
of directors of Filriters ; paragraph paragraph paragraph
c ) The CBCI constitutes reserve investment of Filriters against
liabilities , which is a requirement under the Insurance Code for its existence as an
insurance company and the pursuit of its business operations . The assignment of
the CBCI is illegal act , in the sense of malum in se or malum prohibitum , for
anyone to make , either as corporate or personal
act ;
d ) The transfer or diminution of reserve investments of Filriters is expressly
prohibited by law , is immoral and against public
policy ; paragraph paragraph paragraph
e ) The assignment of the CBCI has resulted in the capital impairment and in the
solvency deficiency of Filriters ( and has in fact helped in placing Filriters under
conservatorship ) , an inevitable result known to the officer who executed the
In its Decision[8] dated April 29 , 1988 , the Regional Trial Court of Manila , Branch XXXII found the assignment of CBCI No . D891 in favor of Philfinance , and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect . The dispositive portion of the decision reads : paragraph paragraph paragraph
“ ACCORDINGLY , judgment is hereby rendered in favor of the respondent
Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal
Bank : paragraph paragraph paragraph
( a ) Declaring the assignment of CBCI No . 891 in favor of
PhilFinance , and the subsequent assignment of CBCI by PhilFinance in favor of
the plaintiff Traders Royal Bank as null and void and of no force and
effect ; paragraph paragraph paragraph
( b ) Ordering the respondent Central Bank of the Philippines to disregard the
said assignment and to pay the value of the proceeds of the CBCI No . D891 to the
( c ) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters
Guaranty Assurance Corp . The sum of P10 , 000 as attorney ‘ s
fees ; and
( d ) to pay the costs . paragraph paragraph paragraph
SO ORDERED . “ [9] paragraph paragraph paragraph
The petitioner assailed the decision of the trial court in the Court of Appeals , [10] but their appeal likewise failed . The findings of fact of the said court are hereby reproduced : paragraph paragraph paragraph
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“ The records reveal that defendant Filriters is the registered owner of CBCI
No . D891 . Under a deed of assignment dated November
27 , 1971 , Filriters transferred CBCI No . D891 to Philippine Underwriters
transferred CBCI No . D891 , which was still registered in the name of
Filriters , to appellant Traders Royal Bank ( TRB ) . The transfer was
made under a repurchase agreement dated February 4 , 1981 , granting
Philfinance the right to repurchase the instrument on or before April
27 , 1981 . When Philfinance failed to buy back the note on maturity date , it
executed a deed of assignment , dated April 27 , 1981 , conveying to
appellant TRB all its rights and title to CBCI
No . D891 . paragraph paragraph paragraph
Armed with the deed of assignment , TRB then sought the transfer and registration
of CBCI No . D891 in its name before the Security and Servicing Department of
the Central Bank ( CB ) . Central Bank , however , refused to effect
the transfer and registration in view of an adverse claim filed by defendant
Filriters . paragraph paragraph paragraph
Left with no other recourse , TRB filed a special civil action for mandamus against
the Central Bank in the Regional Trial Court of Manila . The
suit , however , was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be impleaded as a
respondent and the court adjudge which of them is entitled to the ownership of CBCI
No . D891 . Failing to get a favorable judgment . TRB now comes to this
Court on appeal . “ [11] paragraph paragraph paragraph
In the appellate court , petitioner argued that the subject CBCI was a negotiable instrument , and having acquired the said certificate from Philfinance as a holder in due course , its possession of the same is thus free from any defect of title of prior parties and from any defense available to prior parties among themselves , and it may thus , enforce payment of the instrument for the full amount thereof against all parties liable thereon . [12] paragraph paragraph paragraph
In ignoring said argument , the appellate court said that the CBCI is not a negotiable instrument , since the instrument clearly stated that it was payable to Filriters , the registered owner , whose name was inscribed thereon , and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation .
Obviously , the assignment of the certificate from Filriters to Philfinance was fictitious , having been made without consideration , and did not conform to Central Bank Circular No . 769 , series of 1980 , better known as
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the “ Rules and Regulations Governing Central Bank Certificates of Indebtedness “ , which provided that any “ assignment of registered certificates shall not be valid unless made xxx by the registered owner thereof in person or by his representative duly authorized in writing . “
Petitioner ‘ s claimed interest has no basis , since it was derived from Philfinance , whose interest was inexistent , having acquired the certificate through simulation . What happened was Philfinance merely borrowed CBCI No . D891 from Filriters , a sister corporation , to guarantee its financing operations . paragraph paragraph paragraph
Said the Court : paragraph paragraph paragraph
“ In the case at bar , 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 Board of Directors of Filriters to act for the
latter . For lack of such authority , the assignment did not therefore bind
Filriters and violated at the same time Central Bank Circular No . 769 which has
the force and effect of a law , resulting in the nullity of the
transfer ( People v . Que Po Lay , 94 Phil 640 ; 3M
Philippines , Inc . vs . Commissioner of Internal Revenue , 165 SCRA
778 ) . paragraph paragraph paragraph
In sum , 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 . paragraph paragraph paragraph
WHEREFORE , the judgment appealed from is AFFIRMED , with costs
against plaintiff - appellant . paragraph paragraph paragraph
SO ORDERED . “ [13] paragraph paragraph paragraph
Petitioner ‘ s present position rests solely on the argument that Philfinance owns 90% of Filriter ‘ s equity and the two corporations have identical corporate officers , thus demanding the application of the doctrine of piercing the veil of corporate fiction , as to give validity to the transfer of the CBCI from the registered owner to petitioner TRB . [14] This renders the payment by TRB to Philfinance for CBCI , as actual payment to Filriters . Thus , there is no merit to the lower courts ‘ ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration . paragraph paragraph paragraph
Admittedly , the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law ( Act 2031 ) . paragraph paragraph paragraph
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The pertinent portions of the subject CBCI read : paragraph paragraph paragraph
xxx paragraph paragraph paragraph
The Central Bank of the Philippines ( the Bank ) for value received , hereby
promises to pay to bearer , or if this Certificate of indebtedness be registered , to
FILRITERS GUARANTY ASSURANCE CORPORATION , the registered owner
hereof , the principal sum of FIVE HUNDRED THOUSAND
PESOS . paragraph paragraph paragraph
xxx paragraph paragraph paragraph
Properly understood , a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund , is similar to a “ bond , “ ( 82 Minn . 202 ) . Being equivalent to a bond , it is properly understood as an acknowledgment of an obligation to pay a fixed sum of money . It is usually used for the purpose of long term loans . paragraph paragraph paragraph
The appellate court ruled that the subject CBCI is not a negotiable
instrument , stating that :
“ As worded , the instrument provides a promise ‘ to pay Filriters Guaranty
Assurance Corporation , the registered owner hereof . ‘ Very clearly , the
instrument is payable only to Filriters , the registered owner , whose name is
inscribed thereon . It lacks the words of negotiability which should have served as
an expression of consent that the instrument may be transferred by
negotiation . [15] paragraph paragraph paragraph
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION , and to no one else , thus , discounting the petitioner ‘ s submission that the same is a negotiable instrument , and that it is a holder in due course of the certificate . paragraph paragraph paragraph
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money . Hence , freedom of negotiability is the touchstone relating to the protection of holders in due course , and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course ( 11 Am . Jur . 2d , 32 ) . This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time . paragraph paragraph paragraph
As held in Caltex ( Philippines ) , Inc . vs . Court of Appeals : [16] paragraph paragraph paragraph
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“ The accepted rule is that the negotiability or non - negotiability of an
instrument is determined from the writing , that is , from the face of the
instrument itself . In the construction of a bill or note , the intention of the
parties is to control , if it can be legally ascertained . While the writing may be
read in the light of surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties , yet as they have constituted the writing to be
the only outward and visible expression of their meaning , no other words are to be
added to it or substituted in its stead . The duty of the court in such case is to
ascertain , not what the parties may have secretly intended as contradistinguished
from what their words express , but what is the meaning of the words they have
used . What the parties meant must be determined by what they
said . “ paragraph paragraph paragraph
Thus , the transfer of the instrument from Philfinance to TRB was merely an assignment , and is not governed by the negotiable instruments law . The pertinent question then is , was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB , in accord with existing law , so as to entitle TRB to have the CBCI registered in its name with the Central Bank ? paragraph paragraph paragraph
The following are the appellate court ‘ s pronouncements on the
matter :
“ Clearly shown in the record is the fact that Philfinance ‘ s title over
CBCI No . D891 is defective since it acquired the instrument from
Filriters fictitiously . Although the deed of assignment stated that the
transfer was for ‘ value received ‘ , there was really no
consideration involved . What happened was Philfinance merely
borrowed CBCI No . D891 from Filriters , a sister
corporation . Thus , for lack of any consideration , the assignment
made is a complete nullity . paragraph paragraph paragraph
What is more , We find that the transfer made by Filriters to Philfinance
did not conform to Central Bank Circular No . 769 , series of
1980 , otherwise known as the ‘ Rules and Regulations Governing
Central Bank Certificates of Indebtedness ‘ , 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 xxx by the registered
owner thereof in person or by his representative duly authorized in
writing . ‘ paragraph paragraph paragraph
In the case at bar , Alfredo O . Banaria , who signed the deed of
assignment purportedly for and on behalf of Filriters , did not have the
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necessary written authorization from the Board of Directors of Filriters to act
for the latter . For lack of such authority , the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular
No . 769 which has the force and effect of a law , resulting in the
nullity of the transfer ( People vs . Que Po Lay , 94 Phil
640 ; 3M Philippines , Inc . vs . Commissioner of Internal
In sum , 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 . “ paragraph paragraph paragraph
Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld , as the respondent Filriters and Philfinance , though separate corporate entities on paper , have used their corporate fiction to defraud TRB into purchasing the subject CBCI , which purchase now is refused registration by the Central Bank . paragraph paragraph paragraph
Says the petitioner ; paragraph paragraph paragraph
“ Since Philfinance owns about 90% of Filriters and the two companies have the
same corporate officers , if the principle of piercing the veil of corporate entity
were to be applied in this case , then TRB ‘ s payment to Philfinance for the
CBCI purchased by it could just as well be considered a payment to Filriters , the
registered owner of the CBCI as to bar the latter from claiming , as it has , that it
never received any payment for that CBCI sold and that said CBCI was sold without
its authority . paragraph paragraph paragraph
x x x paragraph paragraph paragraph
We respectfully submit that , considering that the Court of Appeals has held that
the CBCI21 was merely borrowed by Philfinance from Filriters , a sister
corporation , to guarantee its ( Philfinance ‘ s ) financing operations , if
it were to be consistent therewith , on the issue raised by TRB that there was a
piercing a veil of corporate entity , the Court of Appeals should have ruled that
such veil of corporate entity was , in fact , pierced , and the payment by TRB
to Philfinance should be construed as payment to
Filriters . “ [17] paragraph paragraph paragraph
We disagree with the Petitioner . paragraph paragraph paragraph
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
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or defend crime or where a corporation is a mere alter ego or business conduit of a person . [18] paragraph paragraph paragraph
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 . paragraph paragraph paragraph
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 the circumstances to disregard their 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 , [19] 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 , [20] 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 . paragraph paragraph paragraph
In the case at bar , there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance . paragraph paragraph paragraph
On its face , the subject certificates states that it is registered in the name of Filriters . This should have put the petitioner on notice , and prompted it to inquire from Filriters as to Philfinance ‘ s 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 inquiries as to the ownership of the certificate . paragraph paragraph paragraph
The terms of the CBCI No . D891 contain a provision on its
TRANSFER . Thus :
“ TRANSFER : This Certificate shall pass by delivery unless it is registered in
the owner ‘ s name at any office of the Bank or any agency duly authorized by the
Bank , and such registration is noted hereon . After such registration no transfer
thereof shall be valid unless made at said office ( where the Certificate has been
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registered ) by the registered owner hereof , in person , or by his
attorney , duly authorized in writing and similarly noted hereon and upon payment
of a nominal transfer fee which may be required , a new Certificate shall be issued
to the transferee of the registered owner thereof . The bank or any agency duly
authorized by the Bank may deem and treat the bearer of this Certificate , or if this
Certificate is registered as herein authorized , the person in whose name the same is
registered as the absolute owner of this Certificate , for the purpose of receiving
payment hereof , or on account hereof , and for all other purpose whether or not
this Certificate shall be overdue . “ paragraph paragraph paragraph
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters . paragraph paragraph paragraph
Petitioner knew that Philfinance is not the registered owner of 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 or inquire as to the title of Philfinance to dispose of the CBCI . paragraph paragraph paragraph
Moreover , CBCI No . D891 is governed by CB Circular No . 769 , series of 1980 , [21] known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness , Section 3 , Article V of which provides that : paragraph paragraph paragraph
“ SECTION 3 . Assignment of Registered Certificates . - 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 . “ paragraph paragraph paragraph
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 . [22] 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 . [23] paragraph paragraph paragraph
The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular , which for all intents , is considered part of the law . As found by the courts a quo , Alfredo O . Banaria , who had signed the deed of assignment from Filriters to Philfinance , purportedly for and in favor of Filriters , did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter . As it is , the sale from Filriters to Philfinance was
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fictitious , and therefore void and inexistent , as there was no consideration for the same . This is fatal to the petitioner ‘ s cause , for then , Philfinance had no title over the subject certificate to convey to Traders Royal Bank . Nemo potest nisi quod de jure potest - no man can do anything except what he can do lawfully . paragraph paragraph paragraph
Concededly , the subject CBCI was acquired by Filriters to form part of its legal and capital reserves , which are required by law[24] to be maintained at a mandated level . This was pointed out by Elias Garcia , Manager - in - Charge of respondent Filriters , in his testimony given before the court on May 30 , 1986 . paragraph paragraph paragraph
“ Q Do you know this Central Bank Certificate of Indebtedness , in short , CBCI No . D891 in the face value of P500 , 000 . 00 subject of this case ? paragraph paragraph paragraph
A Yes , sir . paragraph paragraph paragraph
Q Why do you know this ? paragraph paragraph paragraph
A Well , this was the CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No . 891 was among the CBCI ‘ s that were found to be missing . paragraph paragraph paragraph
Q Let me take you back further before 1981 . Did you have the knowledge of this CBCI No . 891 before 1981 ? paragraph paragraph paragraph
A Yes , sir . This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the
company .
Q Legal reserve for the purpose of what ? paragraph paragraph paragraph
A Well , you see , the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further , the Insurance Commission requires this reserve to be invested preferably in government securities or government bonds . This is how this CBCI came to be purchased by the company . “ paragraph paragraph paragraph
It cannot , therefore , be taken out of the said fund , without violating the requirements of the law . Thus , the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation , not without the approval of its Board of Directors , and the maintenance of the required reserve fund . paragraph paragraph paragraph
Consequently , the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank . paragraph paragraph paragraph
ACCORDINGLY , the petition is DISMISSED and the decision appealed from dated January 29 , 1990 is hereby AFFIRMED . paragraph paragraph paragraph
[15] Campos and Campos , Negotiable Instruments Law , p . 38 , 1971 ed .
[16] G . R . No . 97753 , August 10 , 1992 , 212 SCRA 448 .
[17] Petition .
[18] Yu vs . National Labor Relations Commission 245 SCRA 134 .
[19] Guatson International Travel and Tours , Inc . vs . National Labor Relations Commission , 230 SCRA 815 .
[20] 2 SCRA 632 .
[21] 76 Official Gazette 9370 .
[22] See Article 1883 , Civil Code .
[23] See Article 19 , Civil Code .
[24] Section 213 . Every insurance company , other than life , shall maintain a reserve for unearned premiums on its policies in force , which shall be charged as a liability in any determination of its financial condition . Such reserve shall be equal to forty percentum of the gross premiums , less returns and cancellations , received on policies or risks having more than one year to run ; Provided that for marine cargo risks , the reserve shall be equal to forty per centum of the premiums written in the policies of risks , and the full amount of premiums written
during the last two months of the calendar year upon all other marine risks not terminated . Presidential Decree No . 612 ( The Insurance Code of the Philippines . )
[12] Section 186, NIL. Within what time a check must be presented. - A check must be presented for payment within
a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay.
[13] Montinola v. Philippine National Bank, 88 Phil. 178 (1951).
[14] People v. Concepcion, 44 Phil. 544.
[15] Firestone Tire and Rubber Co. of the Philippines v. Inez Chavez and Co., 18 SCRA 356 (1966).
[16] Transcript of Stenographic Notes (TSN), July 20, 1993, p. 49.
[17] TSN, April 29, 1993, p. 12.
[18] TSN, April 29, 1993, p. 9.
[19] Rules of Court, Rule 131, Sec. 3. Disputable presumptions. - The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
x x x x x x x x x
(d) That a person takes ordinary care of his concerns;
x x x x x x x x x
(p) That private transactions have been fair and regular.
[20] Smith Kline & French Laboratories, Ltd. v. CA, 342 Phil. 187 citing among others Vda. De Alcantara v. CA, 252
SCRA 457 (1996); Republic v. IAC, 196 SCRA 335 (1991); Fernan v. CA, et al., 181 SCRA 546 (1990); People v.
Traya, 147 SCRA 381 (1987); Tolentino v. de Jesus, 56 SCRA 67 (1974).
[21] Cited in Daggers v. Van Dyck, 37 N.J. Eq., 130, 132; See also People v. Cara, 283 SCRA 96 (1997).
[22] People v. Tugbang, 196 SCRA 341 (1991); Nuñez v. CA, G.R. No. 80216, December 7, 1988, Minute
Resolution.
[23] Article 1956, New Civil Code.
[24] Philippine National Bank v. CA, 331 Phil. 1079, 263 SCRA 766 (1996) citing Eastern Shipping Lines v. CA, 234
SCRA 78 (1994).
THIRD DIVISION
[G.R. No. 148864. August 21, 2003]
SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, petitioners, vs.MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC’S** REALTY AND DEVELOPMENTCORP. and the REGISTER OF DEEDS OF BULACAN, respondents.
Petitioners, Spouses Evangelista (“Petitioners”), are before this Court on a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition.
Petitioners filed a complaint[1] for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of land[2] contained in the Real Estate Mortgage[3] executed by them and Embassy Farms, Inc. (“Embassy Farms”). They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation (“Mercator”) only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void.[4] With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent Lydia P. Salazar (“Salazar”), and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation (“Lamecs”).
Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that “on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation ‘for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.’”[5] It contended that since petitioners and Embassy Farms signed the promissory note [6] as co-makers, aside from the Continuing Suretyship Agreement[7] subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory notes[8] restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches.[9]
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in
favor of defendant Mercator Finance Corp. is null and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on
subject parcels of land to satisfy the indebtedness of Embassy Farms,
Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in
favor of Lydia Salazar and that executed by the latter in favor of
defendant Lamecs Realty and Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.[10]
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed.[11]
Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial.[12]
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories
thereto are solidary in view of the phrase “jointly and severally.” On the promissory
note appears (sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista
and another signature of Eduardo B. Evangelista below the words Embassy Farms,
Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not
only as officers of Embassy Farms, Inc. but in their personal capacity as well(.)
Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound
themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator
Finance Corporation the amount of indebtedness. That the principal contract of loan is
void for lack of consideration, in the light of the foregoing is untenable.[13]
Petitioners’ motion for reconsideration was denied for lack of merit. [14] Thus, petitioners went up to the Court of Appeals, but again were unsuccessful. The appellate court held:
The appellants’ insistence that the loans secured by the mortgage they executed were
not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and
misplaced. The fact that they signed the subject promissory notes in the(ir) personal
capacities and as officers of the said debtor corporation is manifest on the very face of
the said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even
assuming arguendo that they did not, the appellants lose sight of the fact that third
persons who are not parties to a loan may secure the latter by pledging or mortgaging
their own property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In
constituting a mortgage over their own property in order to secure the purported
corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the
personality of persons interested in the fulfillment of the principal obligation who, to
save the subject realities from foreclosure and with a view towards being subrogated
to the rights of the creditor, were free to discharge the same by payment (Articles
1302 [3] and 1303, Civil Code of the Philippines).[15] (emphases in the original)
The appellate court also observed that “if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties, why then did they commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12, 1987, and the certificates of title in the name of Mercator on September 27, 1988)?” Petitioners’ “procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say that the complaint was not worth the time of the courts.”[16]
A motion for reconsideration by petitioners was likewise denied for lack of merit.[17] Thus, this petition where they allege that:
THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT
GRANTING RESPONDENT’S MOTION FOR SUMMARY JUDGMENT DESPITE
THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS
NON-ENTITLEMENT TO A JUDGMENT AS A MATTER OF LAW, THEREBY
DECIDING THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH
APPLICABLE DECISIONS OF THIS HONORABLE COURT.[18]
We affirm.
Summary judgment “is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation.”[19] The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine issue means “an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial.”[20] To forestall summary judgment, it is essential for the non-moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-
moving party. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial.[21]
In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
The promissory note[22] states:
For value received, I/We jointly and severally promise to pay to the order of
MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT
HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS
& 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows:
September 16, 1982 - P154,267.87
October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87
x x x x x x x x x.
The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement[23] also proves the solidary obligation of petitioners, viz:
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and
EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally
unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION
(hereinafter called Creditor), the full, faithful and prompt payment and discharge of
any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal)
to the Creditor.
x x x x x x x x x
(3) The obligations hereunder are joint and several and independent of the obligations
of the Principal. A separate action or actions may be brought and prosecuted against
the Surety whether or not the action is also brought and prosecuted against the
Principal and whether or not the Principal be joined in any such action or actions.
x x x x x x x x x.
The agreement was signed by petitioners on February 16, 1982. The promissory notes[24] subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are solidarily liable with Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter. [25] But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. – Where the
language of the instrument is ambiguous or there are omissions therein, the following
rules of construction apply:
x x x x x x x x x
(g) Where an instrument containing the word “I promise to pay” is signed by two or
more persons, they are deemed to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal.[26] Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the
consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto.[27] Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.
Lastly, the parol evidence rule does not apply in this case.[28] We held in Tarnate v. Court of Appeals,[29] that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing, it is presumed that they have made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur. Corona, and Carpio-Morales, JJ., on official leave.
** Sometimes spelled as Lamecs.
[1] RTC of Malolos, Bulacan, Br. 85, Rollo, pp. 23-29.
[2] With Transfer Certificates of Title Nos. T-193458, T-192133, T-193136, T-193137 and T-193138; Id. at 30-39.
[19] Evadel Realty and Development Corporation v. Soriano, 357 SCRA 395 (2001).
[20] Manufacturers Hanover Trust Co. and/or Chemical Bank v. Rafael Ma. Guerrero, G.R. No. 136804, February 19, 2003.
[21] Spouses Guillermo Agbada & Maxima Agbada v. Inter-urban Developers, et al., G.R. No. 144029, September 19, 2002.
[22] Rollo, p. 71.
[23] Id. at 72-73.
[24] Id. at 80-83.
[25] Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. (Civil Code of the Philippines); Ong Yong, et al., v. David S. Tiu, et al., G.R. Nos. 144476 & 144629, February 1, 2002.
[26] Goldenrod, Incorporated v. Court of Appeals, 366 SCRA 217 (2001).
[27] Charles Lee v. Court of Appeals, et al., G.R. Nos. 117913-14, February 1, 2002.
[28] SEC. 9. Evidence of written agreements – When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties of their successors in interest after the execution of the written agreement.