5Traders Royal Bank vs. CA

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

.R. No. 93397 March 3, 1997
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RADERS ROYAL BANK,petitioner,s.OURT OF APPEALS, FILRITERS GUARANTY

SSURANCE CORPORATION and CENTRAL BANK of thHILIPPINES,respondents.

ORRES, JR.,J .:ssailed in this Petition for Review onCertiorariis the Decisf the respondent Court of Appeals dated January 29,990,1affirming the nullity of the transfer of Central Bankertificate of Indebtedness (CBCI) No. D891,2with a facealue of P500,000.00, from the Philippine Underwritersnance Corporation (Philfinance) to the petitioner Trader's

oyal Bank (TRB), under a Repurchase Agreement

3datedebruary 4, 1981, and a Detached Assignment4dated April

981.

ocketed as Civil Case No. 83-17966 in the Regional Trialourt of Manila, Branch 32, the action was originally filed asetition forMandamus5under Rule 65 of the Rules of Courtompel the Central Bank of the Philippines to register theansfer of the subject CBCI to petitioner Traders Royal Ban

TRB).

the said petition, TRB stated that:


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3. On November 27, 1979, Filriters GuarantyAssurance Corporation (Filriters) executed a"Detached Assignment" . . ., whereby Filriters, as

registered owner, sold, transferred, assigned anddelivered unto Philippine Underwriters FinanceCorporation (Philfinance) all its rights and title toCentral Bank Certificates of Indebtedness ofPESOS: FIVE HUNDRED THOUSAND (P500,00and having an aggregate value of PESOS: THRE

MILLION FIVE HUNDRED THOUSAND(P3,500,000.00);

4. The aforesaid Detached Assignment (Annex "contains an express authorization executed by thtransferor intended to complete the assignmentthrough the registration of the transfer in the namof PhilFinance, which authorization is specificallyphrased as follows: '(Filriters) hereby irrevocablyauthorized the said issuer (Central Bank) totransfer the said bond/certificates on the books oits fiscal agent;

5. On February 4, 1981, petitioner entered into aRepurchase Agreement with PhilFinance . . .,whereby, for and in consideration of the sum ofPESOS: FIVE HUNDRED THOUSAND(P500,000.00), PhilFinance sold, transferred and


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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 averredparagraph 3 of the Petition;

6. Pursuant to the aforesaid RepurchaseAgreement (Annex "B"), Philfinance agreed torepurchase CBCI Serial No. D891 (Annex "C"), a

the stipulated price of PESOS: FIVE HUNDREDNINETEEN THOUSAND THREE HUNDREDSIXTY-ONE & 11/100 (P519,361.11) on April 271981;

7. PhilFinance failed to repurchase the CBCI on agreed date of maturity, April 27, 1981, when the

checks it issued in favor of petitioner weredishonored for insufficient funds;

8. Owing to the default of PhilFinance, it executeDetached Assignment in favor of the Petitioner toenable the latter to have its title completed andregistered in the books of the respondent. And bmeans of said Detachment, Philfinance transferrand assigned all, its rights and title in the said CB(Annex "C") to petitioner and, furthermore, it didthereby "irrevocably authorize the said issuer


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(respondent herein) to transfer the saidbond/certificate on the books of its fiscal agent."

9. Petitioner presented the CBCI (Annex "C"),together with the two (2) aforementioned Detach

Assignments (Annexes "B" and "D"), to theSecurities Servicing Department of the respondeand requested the latter to effect the transfer of tCBCI on its books and to issue a new certificate

the name of petitioner as absolute owner thereof10. Respondent failed and refused to register thetransfer as requested, and continues to do sonotwithstanding petitioner's valid and just title ovethe same and despite repeated demands in writinthe latest of which is hereto attached as Annex "

and made an integral part hereof;

11. The express provisions governing the transfeof the CBCI were substantially complied with thepetitioner's request for registration, to wit:

"No transfer thereof shall be valid unless

made at said office (where the Certificatehas been registered) by the registeredowner hereof, in person or by his attorneyduly authorized in writing, and similarly


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noted hereon, and upon payment of anominal transfer fee which may be requira new Certificate shall be issued to the

transferee of the registered holder thereo

and, without a doubt, the Detached Assignmentspresented to respondent were sufficientauthorizations in writing executed by the registerowner, Filriters, and its transferee, PhilFinance, a

required by the above-quoted provision;12. Upon such compliance with the aforesaidrequirements, the ministerial duties of registeringtransfer of ownership over the CBCI and issuing new certificate to the transferee devolves upon threspondent;

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

n December 4, 1984, the Regional Trial Court the case tooognizance of the defendant Central Bank of the Philippinesotion for Admission of Amended Answer with Counter Clai

r Interpleader6thereby calling to fore the respondent Filriteuaranty Assurance Corporation (Filriters), the registered

wner of the subject CBCI as respondent.

or its part, Filriters interjected as Special Defenses the


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llowing:

11. Respondent is the registered owner of CBCI

No. 891;

12. The CBCI constitutes part of the reserveinvestment against liabilities required of respondas an insurance company under the InsuranceCode;

13. Without any consideration or benefitwhatsoever to Filriters, in violation of law and thetrust fund doctrine and to the prejudice ofpolicyholders and to all who have present or futuclaim against policies issued by Filriters, AlfredoBanaria, then Senior Vice-President-Treasury of

Filriters, without any board resolution, knowledgeconsent of the board of directors of Filriters, andwithout any clearance or authorization from theInsurance Commissioner, executed a detachedassignment purportedly assigning CBCI No. 891 Philfinance;

xxx xxx xxx

14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom we


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holding the same positions in Philfinance), withouany consideration or benefit redounding to Filriteand to the grave prejudice of Filriters, its policy

holders and all who have present or future claimsagainst its policies, executed similar detachedassignment forms transferring the CBCI to plaint

xxx xxx xxx

15. The detached assignment is patently void an

inoperative because the assignment is without thknowledge and consent of directors of Filriters, anot duly authorized in writing by the Board, asrequiring by Article V, Section 3 of CB Circular N769;

16. The assignment of the CBCI to Philfinance ispersonal act of Alfredo Banaria and not thecorporate act of Filriters and such null and void;

a) The assignment was executed withoutconsideration and for that reason, the assignmenis void from the beginning (Article 1409, Civil

Code);

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


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c) The CBCI constitutes reserve investment ofFilriters against liabilities, which is a requirementunder the Insurance Code for its existence as an

insurance company and the pursuit of its businesoperations. The assignment of the CBCI is illegaact in the sense ofmalum in seormalumprohibitum, for anyone to make, either as corporaor personal act;

d) The transfer of dimunition of reserve investmeof Filriters is expressly prohibited by law, is immoand against public policy;

e) The assignment of the CBCI has resulted in thcapital impairment and in the solvency deficiencyFilriters (and has in fact helped in placing Filriters

under conservatorship), an inevitable result knowto the officer who executed assignment.

17. Plaintiff had acted in bad faith and withknowledge of the illegality and invalidity of theassignment.

a) The CBCI No. 891 is not a negotiable instrumeand as a certificate of indebtedness is not payabto bearer but is a registered in the name of Filrite

b) The provision on transfer of the CBCIs provide


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that the Central Bank shall treatthe registeredowner as the absolute ownerand that the value othe registered certificates shall be payable only t

the registered owner; a sufficient notice to plaintithat the assignments do not give them theregistered owner's right as absolute owner of theCBCI's;

c) CB Circular 769, Series of 1980 (Rules and

Regulations Governing CBCIs) provides that theregistered certificates are payable only to theregistered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment byPhilfinance of CBCI No. 891 by Filriters is not aregular transaction made in the usual of ordinary

course of business;

a) The CBCI constitutes part of the reserveinvestments of Filriters against liabilities requiresthe Insurance Code and its assignment or transfeis expressly prohibited by law. There was noattempt to get any clearance or authorization fromthe Insurance Commissioner;

b) The assignment by Filriters of the CBCI is cleanot a transaction in the usual or regular course o


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its business;

c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all orsubstantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Sectio

Corporation [sic] Code.

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its Decision8dated April 29, 1988, the Regional Trial Couf Manila, Branch XXXIII found the assignment of CBCI No.891 in favor of Philfinance, and the subsequent assignmenf the same CBCI by Philfinance in favor of Traders Royalank null and void and of no force and effect. The dispositiv

ortion of the decision reads:

ACCORDINGLY, judgment is hereby rendered infavor of the respondent Filriters Guaranty

Assurance Corporation and against the plaintiffTraders Royal Bank:

(a) Declaring the assignment of CBCI No. 891 infavor of PhilFinance, and the subsequentassignment of CBCI by PhilFinance in favor of thplaintiff Traders Royal Bank as null and void andno force and effect;

(b) Ordering the respondent Central Bank of thePhilippines to disregard the said assignment andpay the value of the proceeds of the CBCI No.D891 to the Filriters Guaranty AssuranceCorporation;


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(c) Ordering the plaintiff Traders Royal Bank to prespondent Filriters Guaranty Assurance Corp. Tsum of P10,000 as attorney's fees; and

(d) to pay the costs.

SO ORDERED.9

he petitioner assailed the decision of the trial court in theourt of Appeals10, but their appeals likewise failed. Thendings of the fact of the said court are hereby reproduced:

The records reveal that defendant Filriters is theregistered owner of CBCI No. D891. Under a deeof assignment dated November 27, 1971, Filritertransferred CBCI No. D891 to PhilippineUnderwriters Finance Corporation (Philfinance).

Subsequently, Philfinance transferred CBCI No.D891, which was still registered in the name ofFilriters, to appellant Traders Royal Bank (TRB).The transfer was made under a repurchaseagreement dated February 4, 1981, grantingPhilfinance the right to repurchase the instrumen

on or before April 27, 1981. When Philfinance fato buy back the note on maturity date, it executeddeed of assignment, dated April 27, 1981,conveying to appellant TRB all its right and the tito CBCI No. D891.


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Armed with the deed of assignment, TRB thensought the transfer and registration of CBCI No.D891 in its name before the Security and Servici

Department of the Central Bank (CB). CentralBank, however, refused to effect the transfer andregistration in view of an adverse claim filed bydefendant Filriters.

Left with no other recourse, TRB filed a special civil action formandamusagainst the Central Bank in theRegional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a caseinterpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and theadjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable judgmen

now comes to this Court on appeal. 11

the appellate court, petitioner argued that the subject CBCas a negotiable instrument, and having acquired the saidertificate from Philfinance as a holder in due course, itsossession of the same is thus free fro any defect of title of

rior parties and from any defense available to prior partiesmong themselves, and it may thus, enforce payment of thestrument for the full amount thereof against all parties liablereon.12 ignoring said argument, the appellate court that the CBCI

ot a negotiable instrument, since the instrument clearly stat

at it was payable to Filriters, the registered owner, whoseame was inscribed thereon, and that the certificate lacked tords of negotiability which serve as an expression of conseat the instrument may be transferred by negotiation.


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bviously, the assignment of the certificate from Filriters tohilfinance was fictitious, having made without considerationnd did not conform to Central Bank Circular No. 769, series

980, better known as the "Rules and Regulations Governinentral Bank Certificates of Indebtedness", which providedat any "assignment of registered certificates shall not be

alid unless made . . . by the registered owner thereof inerson or by his representative duly authorized in writing."

etitioner's claimed interest has no basis, since it was deriveom Philfinance whose interest was inexistent, havingcquired the certificate through simulation. What happenedas Philfinance merely borrowed CBCI No. D891 fromlriters, a sister corporation, to guarantee its financing

perations.

aid the Court:

In the case at bar, Alfredo O. Banaria, who signethe deed of assignment purportedly for and onbehalf of Filriters, did not have the necessarywritten authorization from the Board of Directors Filriters to act for the latter. For lack of suchauthority, the assignment did not therefore bindFilriters and violated as the same time CentralBank Circular No. 769 which has the force andeffect of a law, resulting in the nullity of the transf


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(People v. Que Po Lay, 94 Phil. 640; 3MPhilippines, Inc. vs. Commissioner of InternalRevenue, 165 SCRA 778).

In sum, Philfinance acquired no title or rights undCBCI No. D891 which it could assign or transfer Traders Royal Bank and which the latter canregister with the Central Bank.

WHEREFORE, the judgment appealed from is

AFFIRMED, with costs against plaintiff-appellant

SO ORDERED.13

etitioner's present position rests solely on the argument thahilfinance owns 90% of Filriters equity and the twoorporations have identical corporate officers, thus demandi

e application of the doctrine or piercing the veil of corporatction, as to give validity to the transfer of the CBCI fromegistered owner to petitioner TRB.14This renders the paymey TRB to Philfinance of CBCI, as actual payment to Filritershus, there is no merit to the lower court's ruling that theansfer of the CBCI from Filriters to Philfinance was null and

oid for lack of consideration.

dmittedly, the subject CBCI is not a negotiable instrument e absence of words of negotiability within the meaning of t

egotiable instruments law (Act 2031).


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he pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) fovalue received, hereby promises to pay bearer, othis Certificate of indebtedness be registered, toFILRITERS GUARANTY ASSURANCECORPORATION, the registered owner hereof, thprincipal sum of FIVE HUNDRED THOUSAND

PESOS.

xxx xxx xxx

roperly understood, a certificate of indebtedness pertains tertificates for the creation and maintenance of a permanen

mprovement revolving fund, is similar to a "bond," (82 Minn

02). Being equivalent to a bond, it is properly understood acknowledgment of an obligation to pay a fixed sum of moneis usually used for the purpose of long term loans.

he appellate court ruled that the subject CBCI is not aegotiable instrument, stating that:

As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the regiowner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose nameinscribed thereon. It lacks the words of negotiability which should have served as an expression of conse

the instrument may be transferred by negotiation.15

reading of the subject CBCI indicates that the same is


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ayable to FILRITERS GUARANTY ASSURANCEORPORATION, and to no one else, thus, discounting theetitioner's submission that the same is a negotiable

strument, and that it is a holder in due course of theertificate.

he language of negotiability which characterize a negotiablaper as a credit instrument is its freedom to circulate as aubstitute for money. Hence, freedom of negotiability is the

uchtone relating to the protection of holders in due coursend the freedom of negotiability is the foundation for therotection which the law throws around a holder in due cour1 Am. Jur. 2d, 32). This freedom in negotiability is totally

bsent in a certificate indebtedness as it merely to pay a sumf money to a specified person or entity for a period of time.

s held inCaltex (Philippines), Inc.v.Court of Appeals,16:The accepted rule is that the negotiability or non-negotiability of an instrument is determined fromthe writing, that is, from the face of the instrumenitself. In the construction of a bill or note, theintention of the parties is to control, if it can belegally ascertained. While the writing may be reain the light of surrounding circumstance in order tmore perfectly understand the intent and meaninof the parties, yet as they have constituted the


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writing to be the only outward and visibleexpression of their meaning, no other words are be added to it or substituted in its stead. The duty

of the court in such case is to ascertain, not whatthe parties may have secretly intended ascontradistinguished from what their words expresbut what is the meaning of the words they haveused. What the parties meant must be determineby what they said.

hus, the transfer of the instrument from Philfinance to TRBas merely an assignment, and is not governed by theegotiable instruments law. The pertinent question then is, we transfer of the CBCI from Filriters to Philfinance and

ubsequently from Philfinance to TRB, in accord with existinw, so as to entitle TRB to have the CBCI registered in itsame with the Central Bank?

he following are the appellate court's pronouncements on tatter:

Clearly shown in the record is the fact thatPhilfinance's title over CBCI No. D891 is defectivsince it acquired the instrument from Filritersfictitiously. Although the deed of assignment statthat the transfer was for "value received", there wreally no consideration involved. What happened


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was Philfinance merely borrowed CBCI No. D89from Filriters, a sister corporation. Thus, for lack any consideration, the assignment made is a

complete nullity.

What is more, We find that the transfer made byFilriters to Philfinance did not conform to CentralBank Circular No. 769, series of 1980, otherwiseknown as the "Rules and Regulations Governing

Central Bank Certificates of Indebtedness", undewhich the note was issued. Published in the OfficGazette on November 19, 1980, Section 3 thereoprovides that any assignment of registeredcertificates shall not be valid unless made . . . bythe registered owner thereof in person or by hisrepresentative duly authorized in writing.

In the case at bar, Alfredo O. Banaria, who signethe deed of assignment purportedly for and onbehalf of Filriters, did not have the necessarywritten authorization from the Board of Directors Filriters to act for the latter. For lack of such

authority, the assignment did not therefore bindFilriters and violated at the same time Central BaCircular No. 769 which has the force and effect olaw, resulting in the nullity of the transfer (Peoplevs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc


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vs. Commissioner of Internal Revenue, 165 SCR778).

In sum, Philfinance acquired no title or rights undCBCI No. D891 which it could assign or transfer Traders Royal Bank and which the latter canregister with the Central Bank

etitioner now argues that the transfer of the subject CBCI tRB must upheld, as the respondent Filriters and Philfinanc

ough separate corporate entities on paper, have used theiorporate fiction to defraud TRB into purchasing the subjectBCI, which purchase now is refused registration by theentral Bank.

Says the petitioner;

Since Philfinance own about 90% of Filriters andthe two companies have the same corporateofficers, if the principle of piercing the veil ofcorporate entity were to be applied in this case,then TRB's payment to Philfinance for the CBCIpurchased by it could just as well be considered

payment to Filriters, the registered owner of theCBCI as to bar the latter from claiming, as it has,that it never received any payment for that CBCIsold and that said CBCI was sold without its


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authority.

xxx xxx xxx

We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely boby Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if itto be consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entityCourt of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payme

TRB to Philfinance should be construed as payment to Filriters. 17

We disagree with Petitioner.

etitioner cannot put up the excuse of piercing the veil of

orporate entity, as this merely an equitable remedy, and mae awarded only in cases when the corporate fiction is usedefeat public convenience, justify wrong, protect fraud orefend crime or where a corporation is a mere alter ego orusiness conduit of a person.18

eiercing the veil of corporate entity requires the court to serough the protective shroud which exempts its stockholderom liabilities that ordinarily, they could be subject to, orstinguished one corporation from a seemingly separate onere it not for the existing corporate fiction. But to do this, thourt must be sure that the corporate fiction was misused, touch an extent that injustice, fraud, or crime was committed

pon another, disregarding, thus, his, her, or its rights. It is trotection of the interests of innocent third persons dealingith the corporate entity which the law aims to protect by thioctrine.


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he corporate separateness between Filriters and Philfinancemains, despite the petitioners insistence on the contrary. Fne, other than the allegation that Filriters is 90% owned by

hilfinance, and the identity of one shall be maintained as toe other, there is nothing else which could lead the court

nder circumstance to disregard their corporate personalitie

hough it is true that when valid reasons exist, the legal fictiat a corporation is an entity with a juridical personality

eparate from its stockholders and from other corporationsay be disregarded,19in the absence of such grounds, theeneral rule must upheld. The fact that Filfinance ownsajority shares in Filriters is not by itself a ground to disregae independent corporate status of Filriters. InLiddel &o.,Inc.vs.Collector of Internal Revenue,20the merewnership by a single stockholder or by another corporationl or nearly all of the capital stock of a corporation is not of

self a sufficient reason for disregarding the fiction of separaorporate personalities.

the case at bar, there is sufficient showing that the petitionas not defrauded at all when it acquired the subject certific

f indebtedness from Philfinance.

n its face the subject certificates states that it is registered e name of Filriters. This should have put the petitioner on

otice, and prompted it to inquire from Filriters as to


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hilfinance's title over the same or its authority to assign theertificate. As it is, there is no showing to the effect thatetitioner had any dealings whatsoever with Filriters, nor did

ake inquiries as to the ownership of the certificate.

he terms of the CBCI No. D891 contain a provision on itsRANSFER. Thus:

TRANSFER. This Certificate shall pass by deliveunless it is registered in the owner's name at any

office of the Bank or any agency duly authorized the Bank, and such registration is noted hereon.

After such registration no transfer thereof shall bvalid unless made at said office (where theCertificates has been registered) by the registereowner hereof, in person, or by his attorney, duly

authorized in writing and similarly noted hereon aupon payment of a nominal transfer fee which mbe required, a new Certificate shall be issued to transferee of the registered owner thereof. Thebank or any agency duly authorized by the Bankmay deem and treat the bearer of this Certificate

or if this Certificate is registered as hereinauthorized, the person in whose name the same registered as the absolute owner of this Certificafor the purpose of receiving payment hereof, or oaccount hereof, and for all other purpose whethe


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or not this Certificate shall be overdue.

his is notice to petitioner to secure from Filriters a written

uthorization for the transfer or to require Philfinance to subuch an authorization from Filriters.

etitioner knew that Philfinance is not registered owner of thBCI No. D891. The fact that a non-owner was disposing ofe registered CBCI owned by another entity was a good

eason for petitioner to verify of inquire as to the title

hilfinance to dispose to the CBCI.

oreover, CBCI No. D891 is governed by CB Circular No. 7eries of 199021, known as the Rules and Regulationsoverning Central Bank Certificates of Indebtedness, Sectio Article V of which provides that:

Sec. 3. Assignment of Registered Certificates.

Assignment of registered certificates shall not bevalid unless made at the office where the samehave been issued and registered or at theSecurities Servicing Department, Central Bank othe Philippines, and by the registered owner

thereof, in person or by his representative, dulyauthorized in writing. For this purpose, thetransferee may be designated as the representatof the registered owner.


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etitioner, being a commercial bank, cannot feign ignoranceentral Bank Circular 769, and its requirements. An entityhich deals with corporate agents within circumstances

howing that the agents are acting in excess of corporateuthority, may not hold the corporation liable.22This is onlyir, as everyone must, in the exercise of his rights and in the

erformance of his duties, act with justice, give everyone hisue, and observe honesty and good faith.23he transfer made by Filriters to Philfinance did not conforme said. Central Bank Circular, which for all intents, isonsidered part of the law. As found by the courtsa quo,lfredo O. Banaria, who had signed the deed of assignmentom Filriters to Philfinance, purportedly for and in favor oflriters, did not have the necessary written authorization froe Board of Directors of Filriters to act for the latter. As it is,e sale from Filriters to Philfinance was fictitious, anderefore void and inexistent, as there was no consideratione same. This is fatal to the petitioner's cause, for then,hilfinance had no title over the subject certificate to conveye Traders Royal Bank.Nemo potest nisi quod de jureotest no man can do anything except what he can dowfully.

oncededly, the subject CBCI was acquired by Filriters to foart of its legal and capital reserves, which are required byw24to be maintained at a mandated level. This was pointe


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ut by Elias Garcia, Manager-in-Charge of respondent Filritehis testimony given before the court on May 30, 1986.

Q Do you know this Central Bank Certificof Indebtedness, in short, CBCI No. D891the face value of P5000,000.00 subject othis case?

A Yes, sir.

Q Why do you know this?A Well, this was CBCI of the companysought to be examined by the InsuranceCommission sometime in early 1981 andthis CBCI No. 891 was among the CBCI'sthat were found to be missing.

Q Let me take you back further before1981. Did you have the knowledge of thisCBCI No. 891 before 1981?

A Yes, sir. This CBCI is an investment ofFilriters required by the Insurance

Commission as legal reserve of thecompany.

Q Legal reserve for the purpose of what?


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A Well, you see, the Insurance companieare required to put up legal reserves undSection 213 of the Insurance Code

equivalent to 40 percent of the premiumsreceipt and further, the InsuranceCommission requires this reserve to beinvested preferably in governmentsecurities or government binds. This is hothis CBCI came to be purchased by the

company.

cannot, therefore, be taken out of the said funds, withoutolating the requirements of the law. Thus, the anauthorizedse or distribution of the same by a corporate officer of Filriteannot bind the said corporation, not without the approval ofoard of Directors, and the maintenance of the required

eserve fund.

onsequently, the title of Filriters over the subject certificatedebtedness must be upheld over the claimed interest ofraders Royal Bank.

CCORDINGLY, the petition is DISMISSED and the decisioppealed from dated January 29, 1990 is hereby AFFIRMED

O ORDERED.

egalado, Romero and Mendoza, JJ., concur.


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uno, J., took no part.

ootnotes

1 Justice Ricardo L. Pronove, Jr.,ponente;concurred in by Justices Alfredo L. Benipayo andSerafain 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.


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14 Ibid.

15 Campos and Campos, Negotiable Instrument

Law, p. 38, 1971 ed.

16 G.R. No. 97753, August 10, 1992, 212 SCRA448.

17 Petition

18 Yu vs. National Labor Relations Commission245 SCRA 134.

19 Guatson International Travel and Tours, Inc. vNational Labor Relations Commission, 230 SCRA815.

20 2 SCRA 632.

21 Official Gazette 9370.

22 SeeArticle 1883, Civil Code.23 SeeArticle 19, Civil Code.24 Sec. 213 Every insurance company, other thalife, shall maintain a reserve fro unearnedpremiums on its policies in force, which shall becharged as a liability in any determination of itsfinancial condition. Such reserve shall be equal t


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fortyper centumof the gross permiums, lessreturns and cancellations, received on policies orrisks having more than a year to run;ProvidedThfor marine cargo risks, the reserve shall be equafortyper centumof the premiums written in thepolicies upon yearly risks, and the full amount ofpremiums written during the last two months of thcalendar year upon all other marine risks notterminated. Presidential Decree No. 612 (The

Insurance Code of the Philippines).

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