Case Summary (G.R. No. L-12275)
Factual Background
- November 27, 1979 – Filriters executed a Detached Assignment transferring CBCI Nos. D890–D896 (P3,500,000 aggregate) to Philfinance, with an authorization to register the transfer on the books of CB.
- February 4, 1981 – TRB and Philfinance entered into a Repurchase Agreement: Philfinance sold CBCI No. D891 (P500,000 face value) to TRB, agreeing to repurchase it by April 27, 1981, for P519,361.11.
- April 27, 1981 – Philfinance failed to honor its repurchase obligation. It then executed a Detached Assignment in favor of TRB, purporting to transfer all rights and authorizing CB to register the certificate in TRB’s name.
- TRB presented CBCI No. D891 and the two Detached Assignments to CB’s Securities Servicing Department and requested registration. CB refused, citing Filriters’s adverse claim.
Procedural History at Trial
• TRB filed a Petition for Mandamus under Rule 65 to compel CB to register the CBCI transfer.
• CB moved to implead Filriters via counterclaim for interpleader; the trial court granted, recognizing Filriters’s status as registered owner and impleaded it as respondent.
• Filriters pleaded special defenses:
– CBCI constituted part of its statutory reserve under Insurance Code (PD 612, Sec. 213) and could not be assigned without board approval and Insurance Commissioner clearance.
– Detached Assignments lacked consideration (Civil Code, Art. 1409), board resolution, and violated CB Circular No. 769 (1980) governing CBCI transfers.
RTC Decision
The Regional Trial Court (Branch XXXII) rendered judgment:
(a) Declared both assignments (Filriters→Philfinance and Philfinance→TRB) null and void;
(b) Ordered CB to disregard the transfers and pay CBCI proceeds to Filriters;
(c) Imposed P10,000 attorney’s fees on TRB;
(d) Awarded costs to Filriters.
Court of Appeals Ruling
The Court of Appeals affirmed, holding:
• CBCI No. D891 is not a negotiable instrument—it is payable only to the registered owner (Filriters) and lacks words of negotiability under Act 2031.
• Philfinance’s acquisition was simulated (mere borrowing), absent consideration and proper written authorization by Filriters’s board, violating CB Circular 769, Sec. 3(Article V).
• Philfinance acquired no valid title to convey to TRB; TRB could not register an interest derived from a null transaction.
Issues on Petition for Review
- Whether CBCI No. D891 is a negotiable instrument and whether TRB is a holder in due course entitled to enforce it free of prior defenses.
- Whether equitable piercing of the corporate veil between Filriters and Philfinance validates the transfer and payment by TRB.
Applicable Law
• 1987 Philippine Constitution (Decision date post-1990)
• Insurance Code (PD 612, Sec. 213—reserve requirements)
• Civil Code provisions on assignment and consideration (Arts. 1409, 1883, 19)
• Central Bank Circular No. 769, Series 1980 (Rules and Regulations Governing CBCIs, Article V, Sec. 3)
• Negotiable Instruments Law (Act 2031)
Supreme Court Analysis on Negotiability
• A CBCI is analogous to a bond or long-term loan acknowledgment, payable only to the registered owner.
• It lacks the requisite words of negotiability (“pay to bearer” or unconditional order) and cannot be negotiated under the Negotiable Instruments Law.
• TRB’s holder-in-due-course argument fails; the transfer is governed by assignment principles and specific CB regulations, not by negotiable instrument provisions.
Compliance with Transfer Requirements
• CBCI Terms: After registration, no transfer is valid unless made in person or by written-authorized attorney of the registered owner, with notation on the certificate and payment of transfer fees.
• CB Circular 769, Sec. 3, Article V: Assignment of registered certificates must be made at issuing/relevant offices, by the registered owner or authorized representative in writing.
• Filriters’s assignments to Philfinance (Banaria) and to TRB (Fabella, Jacobe) lacked written board authorization and violated CB Circular 769.
• No consideration supported Filriters→Philfinance assignment, rendering it a simulation and void.
Corporate Veil and Equitable Considerations
• Piercing the corporate veil
Case Syllabus (G.R. No. L-12275)
Procedural History
- G.R. No. 93397, decided March 3, 1997 by the Supreme Court’s Second Division (336 Phil. 15).
- Petition for Review on Certiorari filed by Traders Royal Bank (TRB) assailing the January 29, 1990 Decision of the Court of Appeals.
- Underlying action: Petition for Mandamus (Rule 65, Rules of Court) filed in RTC Manila, Branch 32 (Civil Case No. 83-17966), to compel the Central Bank of the Philippines (CB) to register transfer of CBCI No. D891 to TRB.
- CB’s Amended Answer included Counter-Claim for Interpleader; Filriters was impleaded as co-respondent.
- RTC Decision (April 29, 1988): declared both assignments (Filriters→PhilFinance; PhilFinance→TRB) null and void; ordered CB to disregard them, pay proceeds to Filriters; awarded attorney’s fees and costs.
- CA affirmed RTC, holding no valid transfer and no negotiability of the CBCI; appealed to the Supreme Court.
Facts
- November 27, 1979: Filriters (registered owner) executed a “Detached Assignment” of CBCIs Nos. D890–D896 (P3.5 M total) to PhilFinance, purportedly authorizing CB to register the transfer.
- February 4, 1981: Repurchase Agreement—PhilFinance sold CBCI No. D891 (P500,000 face) to TRB for P500,000; agreement provided repurchase at P519,361.11 on April 27, 1981.
- April 27, 1981: PhilFinance defaulted on repurchase; dishonored checks. That same date, it executed a second Detached Assignment unconditionally transferring all its rights in CBCI No. D891 to TRB and authorizing CB to register the transfer.
- TRB presented the original CBCI and both Detached Assignments to CB’s Securities Servicing Department; CB refused to effect registration despite TRB’s written demands.
- CBCI’s printed “TRANSFER” clause and CB Circular No. 769 require in-person or duly authorized written assignment by the registered owner at CB’s office, with nominal fee.
Issues Presented
- Whether the assignment of CBCI No. D891 from Filriters to PhilFinance and from PhilFinance to TRB validly passed title under existing law and CB Circular 769.
- Whether CBCI No. D891 is a negotiable instrument, entitling TRB as holder in due course to enforce it free from prior defenses.
- Whether the corporate veil between Filriters and PhilFinance should be pierced, validating the transfer for TRB.
- Whether TRB was put on notice of title defects and had duty to inquire from the registered owner.
Trial Court Decision
- Held both assignments null and void:
• Assignment from Filriters to PhilFinance void for lack of board resolution, no written