SECOND DIVISION paragraph  paragraph  paragraph

   [   G   .   R   .    No   .    93397   .     March 3   ,    1997   ]    paragraph  paragraph  paragraph

TRADERS ROYAL BANK   ,    petitioner   ,    vs   .    COURT OF APPEALS   ,    FILRITERS GUARANTY ASSURANCE CORPORATION and CENTAL BANK of the PHILIPPINES   ,    respondents   .    paragraph  paragraph  paragraph

D E C I S I O N paragraph  paragraph  paragraph

TORRES   ,    JR   .      ,    J   .      :    paragraph  paragraph  paragraph

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29   ,    1990   ,   [1] affirming the nullity of the transfer of Central Bank Certificate of Indebtedness    (   CBCI   )    No   .    D891   ,   [2] with a face value of P500   ,   000   ,    from the Philippine Underwriters Finance Corporation    (   Philfinance   )    to the petitioner  Trader   ‘   s Royal Bank    (   TRB   )      ,    under a Repurchase Agreement[3] dated February 4   ,    1981   ,    and a Detached Assignment[4] dated April 27   ,    1981   .    paragraph  paragraph  paragraph

Docketed as Civil Case No   .    83   -   17966 in the Regional Trial Court of Manila   ,    Branch 32   ,    the action was originally filed as a Petition for Mandamus[5] under Rule 65 of the Rules of Court   ,    to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank    (   TRB   )      .    paragraph  paragraph  paragraph

In the said petition   ,    TRB stated that   :    paragraph  paragraph  paragraph

   “   3   .    On November 27   ,    1979   ,    Filriters Guaranty Assurance Corporation    (   Filriters   )    executed a    ‘   Detached Assignment   ‘    xxx   ,    whereby Filriters   ,    as registered owner   ,    sold   ,    transferred   ,    assigned and delivered unto Philippine Underwriters Finance Corporation    (   Philfinance   )    all its rights and title to Central Bank Certificates of Indebtedness    (   CBCI   )    Nos   .    D890 to D896   ,    inclusive   ,    each in the denomination of PESOS   :    FIVE HUNDRED THOUSAND    (   P500   ,   000   )    and having an aggregate value of PESOS   :    THREE MILLION FIVE HUNDRED THOUSAND    (   P3   ,   500   ,   000   .   00   )      ;    paragraph  paragraph  paragraph

4   .    The aforesaid Detached Assignment    (   Annex    “   A   “      )    contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance   ,    which authorization is specifically phrased as follows   :       ‘      (   Filriters   )    hereby irrevocably authorized the said issuer    (   Central Bank   )    to transfer the said bond   /   certificates on the books of its fiscal agent   ;    paragraph  paragraph  paragraph

5   .    On February 4   ,    1981   ,    petitioner entered into a Repurchase Agreement with PhilFinance xxx   ,    whereby   ,    for and in consideration of the sum of PESOS   :    FIVE HUNDRED THOUSAND    (   P500   ,   000   .   00   )      ,    PhilFinance sold   ,    transferred and delivered to petitioner CBCI 4   -   year   ,    8th series   ,    Serial No   .    D891 with a face value of P500   ,   000   .   00 xxx   ,    which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition   ;    paragraph  paragraph  paragraph

6   .    Pursuant to the aforesaid Repurchase Agreement    (   Annex    ‘   B   ‘      )      ,    Philfinance agreed to repurchase CBCI Serial No   .    D891    (   Annex    ‘   C   ‘      )      ,    at the stipulated price of PESOS   :    FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY   -   ONE & 11   /   100    (   P519   ,   361   .   11   )    on April 27   ,    1981   ;    paragraph  paragraph  paragraph

7   .    PhilFinance failed to repurchase the CBCI on the agreed date of maturity   ,    April 27   ,    1981   ,    when the checks it issued in favor of petitioner were dishonored for insufficient funds   ;    paragraph  paragraph  paragraph

8   .    Owing to the default of PhilFinance   ,    it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent   .    And by means of said Detachment Assignment   ,    Philfinance transferred and assigned all its rights and title in the said CBCI    (   Annex    ‘   C   ‘      )    to petitioner and   ,    furthermore   ,    it did thereby    ‘   irrevocably authorize the said issuer    (   respondent herein   )    to transfer the said bond   /   certificate on the books of its fiscal agent   .      ‘    xxx paragraph  paragraph  paragraph

9   .    Petitioner presented the CBCI    (   Annex    ‘   C   ‘      )      ,    together with the two    (   2   )    aforementioned Detached Assignments    (   Annexes    ‘   B   ‘    and    ‘   D   ‘      )      ,    to the Securities Servicing Department of the respondent   ,    and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof   ;    paragraph  paragraph  paragraph

10   .    Respondent failed and refused to register the transfer as requested   ,    and continues to do so notwithstanding petitioner   ‘   s valid and just title over the same and despite repeated demands in writing   ,    the latest of which is hereto attached as Annex    ‘   E   ‘    and made an integral part hereof   ;    paragraph  paragraph  paragraph

11   .    The express provisions governing the transfer of the CBCI were substantially complied with in petitioner   ‘   s request for registration   ,    to wit   :    paragraph  paragraph  paragraph

   ‘   No transfer thereof shall be valid unless made at said office    (   where the Certificate has been registered   )    by the registered owner hereof   ,    in person or by his attorney duly authorized in writing   ,    and similarly noted hereon   ,    and upon payment of a nominal transfer fee which may be required   ,    a new Certificate shall be issued to the transferee of the registered holder thereof   .      ‘    paragraph  paragraph  paragraph

and   ,    without a doubt   ,    the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner   ,    Filriters   ,    and its transferee   ,    PhilFinance   ,    as required by the above   -   quoted provision   ;    paragraph  paragraph  paragraph

12   .    Upon such compliance with the aforesaid requirements   ,    the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent   ;      “    paragraph  paragraph  paragraph

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

On December 4   ,    1984   ,    the Regional Trial Court trying the case took cognizance  of the defendant Central Bank of the Philippines   ‘    Motion for Admission of Amended Answer with Counter Claim for Interpleader   ,   [6] thereby calling to fore the respondent Filriters Guaranty Assurance Corporation    (   Filriters   )      ,    the registered owner of the subject CBCI as respondent   .    paragraph  paragraph  paragraph

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

   “   11   .    Respondent is the registered owner of CBCI No   .    891   ;    paragraph  paragraph  paragraph

12   .    The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code   ;    paragraph  paragraph  paragraph

13   .    Without any consideration or benefit whatsoever to Filriters   ,    in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters   ,    Alfredo Banaria   ,    then Senior Vice   -   President   -   Treasury of Filriters   ,    without any board resolution   ,    knowledge or consent of the board of directors of Filriters and without any clearance or authorization from the Insurance Commissioner   ,    executed a detached assignment purportedly assigning CBCI No   .    891 to Philfinance   ;    paragraph  paragraph  paragraph

xxx paragraph  paragraph  paragraph

14   .    Subsequently   ,    Alberto Fabella   ,    Senior Vice   -   President   -   Comptroller and Pilar Jacobe   ,    Vice   -   President   -   Treasury of Filriters    (   both of whom were holding the same positions in Philfinance   )      ,    without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters   ,    its policy holders and all who have present or future claims against its policies   ,    executed similar detached assignment forms transferring the CBCI to plaintiff   ;    paragraph  paragraph  paragraph

xxx paragraph  paragraph  paragraph

15   .    The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters   ,    and not duly authorized in writing by the Board   ,    as required by Article V   ,    Section 3 of CB Circular No   .    769   ;    paragraph  paragraph  paragraph

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

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

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

c   )    The CBCI constitutes reserve investment of Filriters against liabilities   ,    which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations   .    The assignment of the CBCI is illegal act   ,    in the sense of malum in se or malum prohibitum   ,    for anyone to make   ,    either as corporate or personal act   ;    paragraph  paragraph  paragraph

d   )    The transfer or diminution of reserve investments of Filriters is expressly prohibited by law   ,    is immoral and against public policy   ;    paragraph  paragraph  paragraph

e   )    The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters    (   and has in fact helped in placing Filriters under conservatorship   )      ,    an inevitable result known to the officer who executed the detached assignment   .    paragraph  paragraph  paragraph

17   .    Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment   ;    paragraph  paragraph  paragraph

a   )    The CBCI No   .    891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is registered in the name of Filriters   ;    paragraph  paragraph  paragraph

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 CBCIs   ;    paragraph  paragraph  paragraph

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

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 or ordinary course of business   ;    paragraph  paragraph  paragraph

a   )    The CBCI constitutes part of the reserve investments of  Filriters against liabilities required 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   ;    paragraph  paragraph  paragraph

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

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] paragraph  paragraph  paragraph

In its Decision[8] dated April 29   ,    1988   ,    the Regional Trial Court of Manila   ,    Branch XXXII found the assignment of CBCI No   .    D891 in favor of Philfinance   ,    and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect   .    The dispositive portion of the decision reads   :    paragraph  paragraph  paragraph

   “   ACCORDINGLY   ,    judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank   :    paragraph  paragraph  paragraph

   (   a   )    Declaring the assignment of CBCI No   .    891 in favor of PhilFinance   ,    and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff  Traders Royal Bank as null and void and of no force and effect   ;    paragraph  paragraph  paragraph

   (   b   )    Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No   .    D891 to the Filtriters Guaranty Assurance Corporation   ;    paragraph  paragraph  paragraph

   (   c   )    Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp   .    The sum of P10   ,   000 as attorney   ‘   s fees   ;    and paragraph  paragraph  paragraph

   (   d   )    to pay the costs   .    paragraph  paragraph  paragraph

SO ORDERED   .      “   [9] paragraph  paragraph  paragraph

The petitioner assailed the decision of the trial court in the Court of Appeals   ,   [10] but their appeal likewise failed   .    The findings of fact of the said court are hereby reproduced   :    paragraph  paragraph  paragraph

   “   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 rights and title to CBCI No   .    D891   .    paragraph  paragraph  paragraph

Armed with the deed of assignment   ,    TRB then sought the transfer and registration of CBCI No   .    D891 in its name before the Security and Servicing Department of the Central Bank    (   CB   )      .    Central Bank   ,    however   ,    refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters   .    paragraph  paragraph  paragraph

Left with no other recourse   ,    TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila   .    The suit   ,    however   ,    was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No   .    D891   .    Failing to get a favorable judgment   .    TRB now comes to this Court on appeal   .      “   [11] paragraph  paragraph  paragraph

In the appellate court   ,    petitioner argued that the subject CBCI was a negotiable instrument   ,    and having acquired the said certificate from Philfinance as a holder in due course   ,    its possession of the same is thus free from any defect of title of prior parties and from any defense available to prior parties among themselves   ,    and it may thus   ,    enforce payment of the instrument for the full amount thereof against all parties liable thereon   .   [12] paragraph  paragraph  paragraph

In ignoring said argument   ,    the appellate court said that the CBCI is not a negotiable instrument   ,    since the instrument clearly stated that it was payable to Filriters   ,    the registered owner   ,    whose name was inscribed thereon   ,    and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation   .    paragraph  paragraph  paragraph

Obviously   ,    the assignment of the certificate from Filriters to Philfinance was fictitious   ,    having been made without consideration   ,    and did not conform to Central Bank Circular No   .    769   ,     series of 1980   ,    better known as the    “   Rules and Regulations Governing Central Bank Certificates of Indebtedness   “      ,    which provided that any    “   assignment of registered certificates shall not be valid unless made xxx by the registered owner thereof in person or by his representative duly authorized in  writing   .      “    paragraph  paragraph  paragraph

Petitioner   ‘   s claimed interest has no basis   ,    since it was derived from Philfinance   ,    whose interest was inexistent   ,    having acquired the certificate through simulation   .    What happened was Philfinance merely borrowed CBCI No   .    D891 from Filriters   ,    a sister corporation   ,    to guarantee its financing operations   .    paragraph  paragraph  paragraph

Said the Court   :    paragraph  paragraph  paragraph

   “   In the case at bar   ,    Alfredo O   .    Banaria   ,    who signed the deed of assignment purportedly for and on behalf of Filriters   ,    did not have the necessary written  authorization from the Board of Directors of Filriters to act for the latter   .    For lack of such authority   ,    the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No   .    769 which has the force and effect of a law   ,    resulting in the nullity of the transfer    (   People v   .    Que Po Lay   ,    94 Phil 640   ;    3M Philippines   ,    Inc   .    vs   .    Commissioner of Internal Revenue   ,    165 SCRA 778   )      .    paragraph  paragraph  paragraph

In sum   ,    Philfinance acquired no title or rights under CBCI No   .    D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank   .    paragraph  paragraph  paragraph

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

SO ORDERED   .      “   [13] paragraph  paragraph  paragraph

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

Admittedly   ,    the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law    (   Act 2031   )      .    paragraph  paragraph  paragraph

The pertinent portions of the subject CBCI read   :    paragraph  paragraph  paragraph

xxx paragraph  paragraph  paragraph

The Central Bank of the Philippines    (   the Bank   )    for value received   ,    hereby promises to pay to bearer   ,    or if this Certificate of indebtedness be registered   ,    to FILRITERS GUARANTY ASSURANCE CORPORATION   ,    the registered owner hereof   ,    the principal sum of FIVE HUNDRED THOUSAND PESOS   .    paragraph  paragraph  paragraph

xxx paragraph  paragraph  paragraph

Properly understood   ,    a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund   ,    is similar to a    “   bond   ,      “       (   82 Minn   .    202   )      .     Being equivalent to a bond   ,    it is properly understood as an acknowledgment of an obligation to pay a fixed sum of money   .     It is usually used for the purpose of long term loans   .    paragraph  paragraph  paragraph

The appellate court ruled that the subject CBCI is not a negotiable instrument   ,    stating that   :    paragraph  paragraph  paragraph

   “   As worded   ,    the instrument provides a promise    ‘   to pay Filriters Guaranty Assurance Corporation   ,    the registered owner hereof   .      ‘    Very clearly   ,    the instrument is payable only  to Filriters   ,    the registered owner   ,    whose name is inscribed thereon   .    It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation   .   [15] paragraph  paragraph  paragraph

A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION   ,    and to no one else   ,    thus   ,    discounting the petitioner   ‘   s submission that the same is a negotiable instrument   ,    and that it is a holder in due course of the certificate   .    paragraph  paragraph  paragraph

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money   .     Hence   ,    freedom of negotiability is the touchstone relating to the protection of holders in due course   ,    and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course    (   11 Am   .    Jur   .    2d   ,    32   )      .     This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time   .    paragraph  paragraph  paragraph

 As held in Caltex    (   Philippines   )      ,    Inc   .    vs   .    Court of Appeals   :   [16] paragraph  paragraph  paragraph

   “   The accepted rule is that the negotiability or non   -   negotiability of an instrument is determined from the writing   ,    that is   ,    from the face of the instrument itself   .    In the construction of a bill or note   ,    the intention of the parties is to control   ,    if it can be legally ascertained   .    While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties   ,    yet as they have constituted the writing to be the only outward and visible expression of their meaning   ,    no other words are to be added to it or substituted in its stead   .    The duty of the court in such case is to ascertain   ,    not what the parties may have secretly intended as contradistinguished from what their words express   ,    but what is the meaning of the words they have used   .    What the parties meant must be determined by what they said   .      “    paragraph  paragraph  paragraph

Thus   ,    the transfer of the instrument from Philfinance to TRB was merely an assignment   ,    and is not governed by the negotiable instruments law   .    The pertinent question then is   ,    was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB   ,    in accord with existing law   ,    so as to entitle TRB to have the CBCI registered in its name with the Central Bank   ?    paragraph  paragraph  paragraph

The following are the appellate court   ‘   s pronouncements on the matter   :    paragraph  paragraph  paragraph

   “   Clearly shown in the record is the fact that Philfinance   ‘   s title over CBCI No   .    D891 is defective since it acquired the instrument from Filriters fictitiously   .    Although the deed of assignment stated that the transfer was for    ‘   value received   ‘      ,    there was really no consideration involved   .    What happened was Philfinance merely borrowed CBCI No   .    D891 from Filriters   ,    a sister corporation   .    Thus   ,    for lack of any consideration   ,    the assignment made is a complete nullity   .    paragraph  paragraph  paragraph

What is more   ,    We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No   .    769   ,    series of 1980   ,    otherwise known as the    ‘   Rules and Regulations Governing Central Bank Certificates of Indebtedness   ‘      ,    under which the note was issued   .    Published in the Official Gazette on November 19   ,    1980   ,    Section 3 thereof provides that    ‘   any assignment of registered certificates shall not be valid unless made xxx by the registered owner thereof in person or by his representative duly authorized in writing   .      ‘    paragraph  paragraph  paragraph

In the case at bar   ,    Alfredo O   .    Banaria   ,    who signed the deed of assignment purportedly for and on behalf of Filriters   ,    did not have the 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   )      .    paragraph  paragraph  paragraph

In sum   ,    Philfinance acquired no title or rights under CBCI No   .    D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank   .      “    paragraph  paragraph  paragraph

Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld   ,    as the respondent Filriters and Philfinance   ,    though separate corporate entities on paper   ,    have used their corporate fiction to defraud TRB into purchasing the subject CBCI   ,    which purchase now is refused registration by the Central Bank   .     paragraph  paragraph  paragraph

Says the petitioner   ;    paragraph  paragraph  paragraph

   “   Since Philfinance owns about 90% of Filriters and the two companies have the same corporate officers   ,    if the principle of piercing the veil of corporate entity were to be applied in this case   ,    then TRB   ‘   s payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters   ,    the registered owner of the CBCI as to bar the latter from claiming   ,    as it has   ,    that it never received any payment for that CBCI sold and that said CBCI was sold without its authority   .    paragraph  paragraph  paragraph

x x x paragraph  paragraph  paragraph

We respectfully submit that   ,    considering that the Court of Appeals has held that the CBCI21 was merely borrowed by Philfinance from Filriters   ,    a sister corporation   ,    to guarantee its    (   Philfinance   ‘   s   )    financing operations   ,    if it were to be consistent therewith   ,    on the issue raised by TRB that there was a piercing a veil of corporate entity   ,    the Court of Appeals should have ruled that such veil of corporate entity was   ,    in fact   ,    pierced   ,    and the payment by TRB to Philfinance should be construed as payment to Filriters   .      “   [17] paragraph  paragraph  paragraph

We disagree with the Petitioner   .    paragraph  paragraph  paragraph

Petitioner cannot put up the excuse of piercing the veil of corporate entity   ,    as this is merely an equitable remedy   ,    and may be awarded only in cases when the corporate fiction is used to defeat public convenience   ,    justify wrong   ,    protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person   .   [18] paragraph  paragraph  paragraph

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily   ,    they could be subject to   ,    or distinguishes one corporation from a seemingly separate one   ,    were it not for the existing corporate fiction   .    But to do this   ,    the court must be sure that the corporate fiction was misused   ,    to such an extent that injustice   ,    fraud   ,    or crime was committed upon another   ,    disregarding   ,    thus   ,    his   ,    her   ,    or its rights   .    It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine   .    paragraph  paragraph  paragraph

The corporate separateness between Filriters and Philfinance remains   ,    despite the petitioners insistence on the contrary   .    For one   ,    other than the allegation that Filriters is 90% owned by Philfinance   ,    and the identity of one shall be maintained as to the other   ,    there is nothing else which could lead the court under the circumstances to disregard their corporate personalities   .    paragraph  paragraph  paragraph

Though it is true that when valid reasons exist   ,    the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded   ,   [19] in the absence of such grounds   ,    the general rule must be upheld   .    The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters   .    In Liddel & Co   .      ,    Inc   .    vs   .    Collector of Internal Revenue   ,   [20] the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities   .    paragraph  paragraph  paragraph

In the case at bar   ,    there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance   .    paragraph  paragraph  paragraph

On its face   ,    the subject certificates states that it is registered in the name of Filriters   .    This should have put the petitioner on notice   ,    and prompted it to inquire from Filriters as to Philfinance   ‘   s title over the same or its authority to assign the certificate   .    As it is   ,    there is no showing to the effect that petitioner had any dealings whatsoever with Filriters   ,    nor did it make inquiries as to the ownership of the certificate   .    paragraph  paragraph  paragraph

The terms of the CBCI No   .    D891 contain a provision on its TRANSFER   .    Thus   :    paragraph  paragraph  paragraph

   “   TRANSFER   :    This Certificate shall pass by delivery unless it is registered in the owner   ‘   s name at any office of the Bank or any agency duly authorized by the Bank   ,    and such registration is noted hereon   .    After such registration no transfer thereof shall be valid unless made at said office    (   where the Certificate has been registered   )    by the registered owner hereof   ,    in person   ,    or by his attorney   ,    duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required   ,    a new Certificate shall be issued to the transferee of the registered owner thereof   .    The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate   ,    or if this Certificate is registered as herein authorized   ,    the person in whose name the same is registered as the absolute owner of this Certificate   ,    for the purpose of receiving payment hereof   ,    or on account hereof   ,    and for all other purpose whether or not this Certificate shall be overdue   .      “    paragraph  paragraph  paragraph

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters   .    paragraph  paragraph  paragraph

Petitioner knew that Philfinance is not the registered owner of CBCI No   .    D891   .    The fact that a non   -   owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI   .    paragraph  paragraph  paragraph

Moreover   ,    CBCI No   .    D891 is governed by CB Circular No   .    769   ,    series of 1980   ,   [21] known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness   ,    Section 3   ,    Article V of which provides that   :    paragraph  paragraph  paragraph

   “   SECTION 3   .    Assignment of Registered Certificates   .       -    Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department   ,    Central Bank of the Philippines   ,    and by the registered owner thereof   ,    in person or by his representative   ,    duly authorized in writing   .    For this purpose   ,    the transferee may be designated as the representative of the registered owner   .      “    paragraph  paragraph  paragraph

Petitioner   ,    being a commercial bank   ,    cannot feign ignorance of Central Bank Circular 769   ,    and its requirements   .    An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority   ,    may not hold the corporation liable   .   [22] This is only fair   ,    as everyone must   ,    in the exercise of his rights and in the performance of his duties   ,    act with justice   ,    give everyone his due   ,    and observe honesty and good faith   .   [23] paragraph  paragraph  paragraph

The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular   ,    which for all intents   ,    is considered part of the law   .    As found by the courts a quo   ,    Alfredo O   .    Banaria   ,    who had signed the deed of assignment from Filriters to Philfinance   ,    purportedly for and in favor of Filriters   ,    did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter   .    As it is   ,    the sale from Filriters to Philfinance was fictitious   ,    and  therefore void and inexistent   ,    as there was no consideration for the same   .    This is fatal to the petitioner   ‘   s cause   ,    for then   ,    Philfinance had no title over the subject certificate to convey to Traders Royal Bank   .     Nemo potest nisi quod de jure potest    -    no man can do anything except what he can do lawfully   .    paragraph  paragraph  paragraph

Concededly   ,    the subject CBCI was acquired by Filriters to form part of its legal and capital reserves   ,    which are required by law[24] to be maintained at a mandated level   .    This was pointed out by Elias Garcia   ,    Manager   -   in   -   Charge of respondent Filriters   ,    in his testimony given before the court on May 30   ,    1986   .    paragraph  paragraph  paragraph

   “   Q Do you know this Central Bank Certificate of Indebtedness   ,    in short   ,    CBCI No   .    D891 in the face value of P500   ,   000   .   00 subject of this case   ?    paragraph  paragraph  paragraph

A Yes   ,    sir   .    paragraph  paragraph  paragraph

Q Why do you know this   ?    paragraph  paragraph  paragraph

A Well   ,    this was the CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No   .    891 was among the CBCI   ‘   s that were found to be missing   .    paragraph  paragraph  paragraph

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

A Yes   ,    sir   .    This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company   .    paragraph  paragraph  paragraph

Q Legal reserve for the purpose of what   ?    paragraph  paragraph  paragraph

A Well   ,    you see   ,    the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further   ,    the Insurance Commission requires this reserve to be invested preferably in government securities or government bonds   .    This is how this CBCI came to be purchased by the company   .      “    paragraph  paragraph  paragraph

It cannot   ,    therefore   ,    be taken out of the said fund   ,    without violating the requirements of the law   .    Thus   ,    the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation   ,    not without the approval of its Board of Directors   ,    and the maintenance of the required reserve fund   .    paragraph  paragraph  paragraph

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

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

SO ORDERED   .    paragraph  paragraph  paragraph

Regalado   ,       (   Chairman   )      ,    Romero   ,    Puno   ,    and Mendoza   ,    JJ   .      ,    concur   .    paragraph  paragraph  paragraph

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