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.

DECISION
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 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).
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 diminution 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 Decision 8 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 for 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 [ruled] 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
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
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.
Regalado, Romero and Mendoza, JJ., concur.
Puno, J., took no part.

Footnotes
1 Justice Ricardo L. Pronove, Jr., ponente; concurred in by Justices Alfredo L. Benipayo and
Serafain V.C. Guingona, p. 18, Rollo.
2 P. 143, Record.
3 Ibid. at p. 146.
4 Ibid., at p. 148.
5 P. 1, Record.
6 P. 75, Record.
7 Answer, p. 97, Record.
8 P. 315, Record.
9 Pp. 16-17, RTC Decision, p. 330, Rollo.
10 Annex “A”. Petition, supra.
11 Court of Appeals Decision, pp. 18-19, Rollo.
12 Section 57. Negotiable Instruments Law.
13 Petition, Annex “A”, pp. 21-22, Rollo.
14 Ibid.
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 Official Gazette 9370.
22 See Article 1883, Civil Code.
23 See Article 19, Civil Code.
24 Sec. 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 per centum of the gross premiums,
less returns and cancellations, received on policies or risks having more than a 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 upon yearly 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).
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.

DECISION
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.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
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.

DECISION
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.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Reyes, J.B.L., J., took no part.