Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,

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

TORRES, JR., J.:

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 P500,000.00, from the Philippine Underwriters Finance Corporation
(Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement3 dated
February 4, 1981, and a Detached Assignment4dated 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 Mandamus5 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).

In the said petition, TRB stated that:

3. On 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 of PESOS: FIVE
HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE
MILLION FIVE HUNDRED 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;

5. On February 4, 1981, petitioner entered into a Repurchase Agreement with

PhilFinance . . ., 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 . . .,
which CBCI was among those previously acquired by PhilFinance from Filriters as
averred in paragraph 3 of the Petition;
 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;

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, 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." . . .

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;

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 the petitioner's request for registration, to wit:

"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."

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;

Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name.

On December 4, 1984, the Regional Trial Court 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.

For its part, Filriters interjected as Special Defenses the following:

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;

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;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are 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;

xxx xxx xxx

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 requiring by Article V, Section 3 of CB Circular No. 769;

16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and
not the corporate act of Filriters and such null and void;

a) The assignment was executed without consideration and for that reason, the
assignment is void from the beginning (Article 1409, Civil Code);

b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;

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 of dimunition of reserve investments of Filriters is expressly prohibited by

law, is immoral and against public policy;

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 assignment.

17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment.
 a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness
is not payable to bearer but is a registered in the name of Filriters;

b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates
shall be payable only to the registered owner; a sufficient notice to plaintiff that the
assignments do not give them the registered owner's right as absolute owner of the
CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides
that the registered certificates are payable only to the registered owner (Article II, Section
1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters
is not a regular transaction made in the usual of ordinary course of business;

a) The CBCI constitutes part of the reserve investments of Filriters against liabilities
requires by the Insurance Code and its assignment or transfer is expressly prohibited by
law. There was no attempt to get any clearance or authorization from the Insurance
Commissioner;

b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or
regular course of its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of "all or substantially all" of the assets of Filriters, which requires the
affirmative action of the stockholders (Section 40, Corporation [sic] Code.7

In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII 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:

ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters

Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank:

(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;

(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 Filriters
Guaranty Assurance Corporation;

(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.

SO ORDERED.9

The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise
failed. The findings of the fact of the said court are hereby reproduced:
 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 Finance Corporation (Philfinance). Subsequently,
Philfinance 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 right and the title to CBCI No. D891.

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.

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

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 fro 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

In ignoring said argument, the appellate court 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 made
without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known
as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which provided 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."

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.

Said the Court:

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 as 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).
 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.

WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-
appellant.

SO ORDERED. 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and
the two corporations have identical corporate officers, thus demanding the application of the doctrine or
piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to
petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters.
Thus, there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance
was null and void for lack of consideration.

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).

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.

xxx xxx xxx

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 acknowledgment of an obligation to pay a fixed sum of
money. It is usually used for the purpose of long term loans.

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

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.

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 touchtone 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 indebtedness as it merely to pay a sum of money to a specified person or
entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:

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 circumstance 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.

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?

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.

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 . . .
by the registered owner thereof in person or by his representative duly authorized in
writing.

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 vs.
Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue,
165 SCRA 778).

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

Petitioner now argues that the transfer of the subject CBCI to TRB must 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.

Says the petitioner;

 Since Philfinance own 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.

xxx xxx xxx

We respectfully submit that, considering that the Court of Appeals has held that the CBCI
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 issued
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

We disagree with Petitioner.

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this 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. 18

Peiercing 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 distinguished 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.

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
circumstance 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 upheld. The fact that Filfinance 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.

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.

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.

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 Certificates 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 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.

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.

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.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides
that:

Sec. 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.

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

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 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 the Traders Royal Bank. Nemo potest nisi quod de jure potest — no man can
do anything except what he can do lawfully.

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.

Q Do you know this Central Bank Certificate of Indebtedness, in short,

CBCI No. D891 in the face value of P5000,000.00 subject of this case?

A Yes, sir.
 Q Why do you know this?

A Well, this was 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.

Q Let me take you back further before 1981. Did you have the
knowledge of this CBCI No. 891 before 1981?

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?

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 binds. This is how this CBCI came to be purchased by the
company.

It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus,
the anauthorized 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.

Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the
claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is
hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein
by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court,
appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat

Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as follows:
(Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat
Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February
9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the
required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss,
280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-
561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant
bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On
the same date, said depositor executed a notarized Deed of Assignment of Time Deposit
(Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and after date" of the assignment
and further authorizes said bank to pre-terminate, set-off and "apply the said time
deposits to the payment of whatever amount or amounts may be due" on the loan upon
its maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.)
Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff
"as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of its
decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela
Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff
proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of
the value of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell
due and on August 5, 1983, the latter set-off and applied the time deposits in question to
the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant
bank be ordered to pay it the aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence
this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit
are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a
holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of
the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of
the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued,
it is important to note that after the word "BEARER" stamped on the space provided
supposedly for the name of the depositor, the words "has deposited" a certain amount
follows. The document further provides that the amount deposited shall be "repayable to
said depositor" on the period indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who made the
deposit and further engages itself to pay said depositor the amount indicated thereon at
the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:

(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.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of
contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security
Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to in the
CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank,
the depositor referred (sic) in these certificates states that it was Angel
dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz
was the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of

time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, 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.9 In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. 10 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. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide
that the amounts deposited shall be repayable to the depositor. And who, according to the document, is
the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that
the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the
bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have
with facility so expressed that fact in clear and categorical terms in the documents, instead of having the
word "BEARER" stamped on the space provided for the name of the depositor in each CTD. On the
wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the
bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor
"insofar as the bank is concerned," but obviously other parties not privy to the transaction between them
would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the plain import of what is written
thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to
extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the
application of the elementary rule that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect
this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex
Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by his
own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager
could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides,
when respondent bank, as defendant in the court below, moved for a bill of particularity therein 17 praying,
among others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or particularity (a)
the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b)
whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of
the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as
payment and not as security. Having opposed the motion, petitioner now labors under the presumption
that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine
National Bank, et al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined

by their intention, regardless of what language was used or what the
form of the transfer was. If it was intended to secure the payment of
money, it must be construed as a pledge; but if there was some other
intention, it is not a pledge. However, even though a transfer, if regarded
by itself, appears to have been absolute, its object and character might
still be qualified and explained by contemporaneous writing declaring it to
have been a deposit of the property as collateral security. It has been
said that a transfer of property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance, should be treated
as a pledge if the debt continues in inexistence and is not discharged by
the transfer, and that accordingly the use of the terms ordinarily
importing conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous language
or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of
a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however, there was
no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which
situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery
thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the
amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the
event of non-payment of the principal obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from contract,
he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would
be a pledgee but the requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal
rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent
court quoted at the start of this opinion show that petitioner failed to produce any document evidencing
any contract of pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the
mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law
prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the execution of a pledge contract cannot affect
third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank
was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily,
therefore, as between petitioner and respondent bank, the latter has definitely the better right over the
CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private
respondent observed the requirements of the law in the case of lost negotiable instruments and the
issuance of replacement certificates therefor, on the ground that petitioner failed to raised that issue in the
lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted by
them to the trial court. 29 The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs against
the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amount covered
by the CTDs and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the
maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An issue
raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by
estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are
properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can
be premised on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still
cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying
down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal
that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the
judge or court of competent jurisdiction, asking that the principal, interest or dividends
due or about to become due, be not paid a third person, as well as in order to prevent the
ownership of the instrument that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of
the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a
duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not mandatory
but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb
indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce,
on which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that he
may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon who,
for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of
the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of
all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and
even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in
Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over
a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by
the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned
by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser.1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and
also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants.3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and
Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit
was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to
withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this petition
for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual
terms and conditions on the deposit slips allowing Metrobank to charge back any amount
erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting
agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made
to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo
Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden
Savings, the latter should bear the loss.
 4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case
are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds.
There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden
Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures
of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden
Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to
make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling —
more than one and a half million pesos (and this was 1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting.
Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo
from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to
withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the total amount of
P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it
also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply
because of "the lapse of one week."8 For a bank with its long experience, this explanation is unbelievably
naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of this bank, the right is reserved to
charge back to the depositor's account any amount previously credited, whether or not such item
is returned. This also applies to checks drawn on local banks and bankers and their branches as
well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden Savings when
Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently
been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued
that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the
conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this
matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the
petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this
case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not for
a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing Golden Savings to withdraw from its account not
only once or even twice but three times. The total withdrawal was in excess of its original balance before
the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed
been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been
no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have
been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to
Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden Savings before it made its own
payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not
all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the
general manager and the auditor of the drawer corporation, has not been established. 9 This was the
finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of
Appeals:10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established
by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is
of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — 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.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional

within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular

account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be
no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at
bar. This conclusion conforms to Abubakar vs. Auditor General11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and
is entitled to the rights and privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation for food administration, is
actually an Order for payment out of "a particular fund," and is not unconditional and does not
fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and
section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement
and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel
this case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this case
involves treasury warrants. Golden Savings never represented that the warrants were negotiable but
signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in
that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the
Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its
account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he
has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon,
if any, after the debit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16968 July 31, 1962

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants.

Ramon B. de los Reyes for plaintiff-appellee.

Demetrio Miraflor for defendants-appellants.

LABRADOR, J.:

Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano,
presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and
severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily
interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as attorney's
fees, and costs of this suit.

The present action was instituted by the plaintiff to recover from the defendants the face of a promissory
note the pertinent part of which reads as follows:

Manila, March 12, 1954

NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank
....

In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall
pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less
than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate
mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right of
recourse again each and all indorsers.

(Purpose — mining industry)

CONCEPCION MINING COMPANY, INC.,
By:
(Sgd.) VICENTE LEGARDA
President
(Sgd.) VICENTE LEGARDA
(Sgd.) JOSE S SARTE

"Please issue check to —

Mr. Jose S. Sarte"

Upon the filing of the complaint the defendants presented their answer in which they allege that the co-
maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the
process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of
Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased
Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the inclusion of
said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the
Deny Civil Code and section 17 (g) of the Negotiable Instruments Law.

A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief,
asking that the effects of the judgment be suspended for the reason that the deceased Vicente L.
Legarda should have been included as a party-defendant and his liability should be determined in
pursuance of the provisions of the promissory note. This motion for relief was also denied, hence
defendant appealed to this Court.

Section 17 (g) of the Negotiable Instruments Law provides as follows:

SEC. 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:

xxx xxx xxx

(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.

And Article 1216 of the Civil Code of the Philippines also provides as follows:

ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them
simultaneously. The demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others so long as the debt has not been fully collected.

In view of the above quoted provisions, and as the promissory note was executed jointly and severally by
the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte,
the payee of the promissory note had the right to hold any one or any two of the signers of the promissory
note responsible for the payment of the amount of the note. This judgment of the lower court should be
affirmed.

Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first, that
the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do
not appear in the printed record on appeal. The title of the complaint set forth in the record on appeal
does not contain the name of Jose Sarte, when it should, as two defendants are named in the complaint
and the only defense of the defendants is the non-inclusion of the deceased Vicente L. Legarda as a
defendant in the action. We also note that the copy of the promissory note which is set forth in the record
on appeal does not contain the name of the third maker Jose S. Sarte. Fortunately, the brief of appellee
on page 4 sets forth said name of Jose S. Sarte as one of the co-maker of the promissory note. Evidently,
there is an attempt to mislead the court into believing that Jose S. Sarte is no one of the co-makers. The
attorney for the defendants Atty. Jose S. Sarte himself and he should be held primarily responsible for the
correctness of the record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain why in
his record on appeal his own name as one of the defendants does not appear and neither does his name
appear as one of the co-signers of the promissory note in question. So ordered.
Negotiable Instruments Case Digest: Traders Royal Bank V. CA (1997)

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 (Act 2031)

 certificate of indebtedness

 = certificates for the creation and maintenance of a permanent improvement revolving fund

 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 by another entity was a
good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

 Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully.