RAUL SESBREÑO, PETITIONER, VS. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, RESPONDENTS.

On 9 February 1981, petitioner Raul Sesbreño made a money market
placement in the amount of P300,000.00 with the Philippine Underwriters Finance
Corporation (“Philfinance”), Cebu Branch; the placement, with a term
of thirty-two (32) days, would mature on 13 March 1981. Philfinance, also on 9 February 1981, issued
the following documents to petitioner:

(a) the Certificate of
Confirmation of Sale, “without recourse,” No. 20496 of one (1) Delta
Motors Corporation Promissory Note (“DMC PN”) No. 2731 for a term of
32 days at 17.0 % per annum;

(b) the Certificate of
Securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of
Pilipinas Bank, as per Denominated Custodian Receipt (“DCR”) No.
10805 dated 9 February 1981; and

(c) post-dated checks
payable on 13 March 1981 (i.e., the maturity date of petitioner’s investment),
with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.

On 13 March 1981, petitioner sought to encash the post-dated
checks issued by Philfinance. However,
the checks were dishonored for having been drawn against insufficient funds.

On 26 March 1981, Philfinance delivered to petitioner the DCR No.
10805 issued by private respondent Pilipinas Bank (“Pilipinas”). It read as follows:

“PILIPINAS BANK

Makati
Stock Exchange Bldg.,

Ayala
Avenue, Makati,

Metro Manila.

February 9, 1981

VALUE DATE

TO    Raul Sesbreño

April 6, 1981___

MATURITY DATE

NO. 10805

DENOMINATED CUSTODIAN RECEIPT

**************************************************

‘This confirms that as a duly Custodian
Bank, and upon instruction of PHILIPPINE UNDERWRITERS FINANCE CORPORATION, we have
in our custody the following securities to you [sic] the extent herein
indicated.

****************************************************************************************************

***************************************************************************************************

***************************************************************************************************

We further certify that these securities
may be inspected by you or your duly authorized representative at any time
during regular banking hours.

Upon your written instructions we shall
undertake physical delivery of the above securities fully assigned to you
should this Denominated Custodianship Receipt remain outstanding in your favor
thirty (30) days after its maturity.’

PILIPINAS BANK

(By Elizabeth De
Villa

Illegible Signature)”^[1]

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of
private respondent Pilipinas, Makati Branch, and handed to her a demand letter
informing the bank that his placement with Philfinance in the amount reflected
in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the original of the
DMC PN No. 2731 and found: that the
security had been issued on 10 April 1980; that it would mature on 6 April
1981; that it had a face value of P2,300,833.33, with Philfinance as
“payee” and private respondent Delta Motors Corporation
(“Delta”) as “maker;” and that on face of the promissory
note was stamped “NON-NEGOTIABLE.” Pilipinas did not deliver the
Note, nor any certificate of participation in respect thereof, to petitioner.

Petitioner later made similar demand letters, dated 3 July 1981
and 3 August 1981,^[2]
again asking private respondent Pilipinas for physical delivery of the original
of DMC PN No. 2731. Pilipinas allegedly
referred all of petitioner’s demand letters to Philfinance for written
instructions, as had been supposedly agreed upon in a “Securities
Custodianship Agreement” between Pilipinas and Philfinance. Philfinance never did provide the
appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any
other instrument in respect thereof, to petitioner.

Petitioner also made a written demand on 14 July 1981^[3]
upon private respondent Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to him said Note to
the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note, and explained
in turn that it had previously agreed with Philfinance to offset its DMC PN No.
2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in
favor of Delta.

In the meantime, Philfinance, on 18 June 1981, was placed under
the joint management of the Securities and Exchange Commission
(“SEC”) and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC.^[4]

As petitioner had failed to collect his investment and interest thereon,
he filed on 28 September 1982 an action for damages with the Regional Trial
Court (“RTC”) of Cebu City, Branch 21, against private respondents
Delta and Pilipinas.^[5]
The trial court, in a decision dated 5 August 1987, dismissed the complaint and
counterclaims for lack of merit and for lack of cause of action, with costs
against petitioner.

Petitioner appealed to respondent Court of Appeals in C.A.-G.R.
CV No. 15195. In a Decision dated 21
March 1989, the Court of Appeals denied the appeal and held:^[6]

“Be that as it may, from the evidence on record, if there is
anyone that appears liable for the travails of plaintiff-appellant, it is
Philfinance. As correctly observed by
the trial court:

‘This act of Philfinance in accepting the investment of plaintiff
and charging it against DMC P.N. No. 2731 when its entire face value was
already obligated or earmarked for set­-off or compensation is difficult to
comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and
legally obligated to return the investment of plaintiff, together with its
earnings, and to answer all the damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff,
Philfinance was not impleaded as one of the defendants in this case at bar;
hence, this Court is without jurisdiction to pronounce judgment against
it. (p. 11, Decision).’

WHEREFORE, finding no reversible error in the decision appealed
from, the same is hereby affirmed in toto. Cost against plaintiff-appellant.”

Petitioner moved for reconsideration of
the above Decision, without success.

Hence, this Petition for Review on Certiorari.

After consideration of the allegations contained and issues
raised in the pleadings, the Court resolved to give due course to the petition
and required the parties to file their respective memoranda.^[7]

Petitioner reiterates the assignment of errors he directed at the
trial court decision, and contends that respondent Court of Appeals gravely
erred: (i) in concluding that he cannot
recover from private respondent Delta his assigned portion of DMC PN No. 2731;
(ii) in failing to hold private respondent Pilipinas solidarily liable on the
DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in
favor of petitioner; and (iii) in refusing to pierce the veil of corporate
entity between Philfinance, and private respondents Delta and Pilipinas,
considering that the three (3) entities belong to the “Silverio Group of
Companies” under the leadership of Mr. Ricardo Silverio, Sr.^[8]

There are at least two (2) sets of relationships which we need to
address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect
of Pilipinas. Actually, of course,
there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance
has not been impleaded in this case, neither the trial court nor the Court of
Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for
present purposes to deal with this third relationship, except to the extent it
necessarily impinges upon or intersects the first and second relationships.

I

We consider first the relationship between petitioner and Delta.

The Court of Appeals in effect held that petitioner acquired no
rights vis-a-vis Delta in respect of the Delta promissory note (DMC PN No.
2731) which Philfinance sold “without recourse” to petitioner, to the
extent of P304,533.33. The Court of
Appeals said on this point:

“Nor could plaintiff-appellant have acquired any right over
DMC P.N. No. 2731 as the same is ‘non-negotiable’ as stamped on its face
(Exhibit ‘6’), negotiation being defined as the transfer of an instrument from
one person to another so as to constitute the transferee the holder of the
instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.).”^[9]

Petitioner admits that DMC PN No. 2731
was non-negotiable but contends that that Note had been validly transferred, in
part, to him by assignment and that as a result of such transfer, Delta as
debtor-maker of the Note, was obligated to pay petitioner the portion of that
Note assigned to him by the payee Philfinance.

Delta, however, disputes petitioner’s contention and argues:

(1) that DMC PN No.
2731 was not intended to be negotiated or otherwise transferred by Philfinance
as manifested by the word “non-negotiable” stamp across the face of
the Note^[10]
and because maker Delta and payee Philfinance intended that this Note would be
offset against the outstanding obligation of Philfinance represented by
Philfinance PN No. 143-A issued to Delta as payee;

(2) that the assignment of DMC PN No. 2731 by
Philfinance was without Delta’s consent, if not against its instructions; and

(3) assuming (arguendo
only) that the partial assignment in favor of petitioner was valid, petitioner
took that Note subject to the defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A.^[11]

We consider Delta’s arguments seriatim.

Firstly, it is important to bear in mind that the negotiation
of a negotiable instrument must be distinguished from the assignment or transfer
of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a
negotiable instrument under the relevant statute may be negotiated
either by indorsement thereof coupled with delivery, or by delivery alone where
the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as distinguished from assignment
of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated;
but it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument:

“The words ‘not negotiable,’ stamped on the face
of the bill of lading, did not destroy its assignability, but the sole
effect was to exempt the bill from the statutory provisions relative thereto, and
a bill, though not negotiable, may be transferred by assignment;
the assignee taking subject to the equities between the original parties.”^[12]
(Underscoring added)

DMC PN No. 2731, while marked “non-negotiable,” was not
at the same time stamped “non-transferrable” or “non?assignable.”
It contained no stipulation which prohibited Philfinance from assigning or
transferring, in whole or in part, that Note.

Delta adduced the “Letter of Agreement” which it had
entered into with Philfinance and which should be quoted in full:

“April 10, 1980

Philippine
Underwriters Finance Corp.

Benavidez St., Makati

Metro Manila

Attention:       Mr. Alfredo O. Banaria

SVP-Treasurer­­

GENTLEMEN:

This refers to our outstanding placement of P4,601,666.67 as
evidenced by your Promissory Note No. 143-A, dated April 10, 1980, to mature on
April 6, 1981.

As agreed upon, we enclose our non-negotiable Promissory Note No.
2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted
[sic] against your PN No. 143-A upon co-terminal maturity.

Please deliver the proceeds of our PNs to our representative, Mr.
Eric Castillo.

Very Truly Yours,

(Sgd.)

Florencio
B. Biagan

Senior Vice
President”^[13]

We find nothing in his “Letter of Agreement” which can
be reasonably construed as a prohibition upon Philfinance assigning or
transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that, even
had this “Letter of Agreement” set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an
assignee or transferee of the Note who parted with valuable consideration in
good faith and without notice of such prohibition. It is not disputed that petitioner was such an assignee or
transferee. Our conclusion on this
point is reinforced by the fact that what Philfinance and Delta were doing by
their exchange of promissory notes was this: Delta invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day,
borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its
two (2) promissory notes: DMC PN No.
2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory
notes.

Apropos Delta’s complaint that the partial assignment by
Philfinance of DMC PN No. 2731 had been effected without the consent of Delta,
we note that such consent was not necessary for the validity and enforceability
of the assignment in favor of petitioner.^[14]
Delta’s argument that Philfinance’s sale or assignment of part of its rights to
DMC PN No. 2731 constituted conventional subrogation, which required its
(Delta’s) consent, is quite mistaken. Conventional subrogation, which in the first place is never lightly inferred,^[15]
must be clearly established by the unequivocal terms of the subtituting
obligation or by the evident incompatibility of the new and old obligations on
every point.^[16]
Nothing of the sort is present in the instant case.

It is in fact difficult to be impressed with Delta’s complaint,
since it released its DMC PN No. 2731 to Philfinance, an entity engaged in the
business of buying and selling debt instruments and other securities, and more
generally, in money market transactions. In Perez v. Court of Appeals,^[17]
the Court, speaking through Mme. Justice Herrera, made the following important
statement:

“There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence
Smith ‘the money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not deal
directly with each other but through a middle man or dealer in the open
market.’ It involves ‘commercial papers’ which are instruments ‘evidencing
indebtedness of any person or entity . . . which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or
without recourse’. The fundamental
function of the money market device in its operation is to match and bring
together in a most impersonal manner both the ‘fund users’ and the ‘fund
suppliers.’ The money market is an ‘impersonal market’, free from personal
considerations.’ The market mechanism is intended to provide quick mobility of
money and securities.’

The impersonal character of the money market device overlooks the
individuals or entities concerned. The
issuer of a commercial paper in the money market necessarily knows in advance
that it would be expeditiously transacted and transferred to any
investor/lender without need of notice to said issuer. In practice, no notification is given to the
borrower or issuer of commercial paper of the sale or transfer to the investor.

x x x                          x
x x                             x x x

There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial scene. It has been intended to facilitate the
flow and acquisition of capital on an impersonal basis. And as specifically required by Presidential
Decree No. 678, the investing public must be given adequate and effective
protection in availing of the credit of a borrower in the commercial paper
market.”^[18]
(Citations omitted; underscoring supplied)

We turn to Delta’s arguments concerning alleged compensation or
offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time
Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9
February 1981, no compensation had as yet taken place and indeed none could
have taken place. The essential
requirements of compensation are listed in the Civil Code as follows:

“Art. 1279. In order
that compensation may be proper, it is necessary:

(1) That each one of the
obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist
in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts
are due;

(4) That they be liquidated
and demandable;

(5) That over neither of
them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.” (Underscoring supplied)

On 9 February 1981, neither DMC PN No.
2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by Delta in its 10 April 1980
“Letter of Agreement” with Philfinance, where Delta acknowledged that
the relevant promissory notes were “to be offsetted (sic) against
[Philfinance] PN No. 143-A upon co-terminal maturity.”

As noted, the assignment to petitioner was made on 9 February
1981 or from forty-nine (49) days before the “co-terminal maturity”
date, that is to say, before any compensation had taken place. Further, the assignment to petitioner would
have prevented compensation from taking place between Philfinance and Delta, to
the extent of P304,533.33, because upon execution of the assignment in favor of
petitioner, Philfinance and Delta would have ceased to be creditors and debtors
of each other in their own right to the extent of the amount assigned by Philfinance
to petitioner. Thus, we conclude that
the assignment effected by Philfinance in favor of petitioner was a valid one
and that petitioner accordingly became owner of DMC PN No. 2731 to the extent
of the portion thereof assigned to him.

The record shows, however, that petitioner notified Delta of the
fact of the assignment to him only on 14 July 1981,^[19]
that is, after the maturity not only of the money market placement made by
petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta
of his rights as assignee after compensation had taken place by operation of
law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that the
rights of an assignee are not any greater than the rights of the assignor,
since the assignee is merely subtituted in the place of the assignor^[20]
and that the assignee acquires his rights subject to the equities — i.e., the
defenses — which the debtor could have set up against the original assignor
before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides
that:

“ART. 1285. The debtor
who has consented to the assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to the
compensation.

If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the compensation of debts
previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same and also
later ones until he had knowledge of the assignment.” (Underscoring
supplied)

Article 1626 of the same Code states
that: “the debtor who, before
having knowledge of the assignment, pays his creditor shall be released from
the obligation.” In Sison v. Yap-Tico,^[21]
the Court explained that:

“[n]o man is bound to remain a debtor: he may pay to him with whom he contracted to
pay; and if he pay before notice that his debt has been assigned, the law holds
him exonerated, for the reason that it is the duty of the person who has
acquired a title by transfer to demand payment of the debt, to give his debtor
notice.”^[22]

At the time that Delta was first put to
notice of the assignment in petitioner’s favor on 14 July 1981, DMC PN No. 2731
had already been discharged by compensation. Since the assignor Philfinance could not have then compelled payment
anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is
similarly disabled from collecting from Delta the portion of the Note assigned
to him.

It bears some emphasis that petitioner could have notified Delta
of the assignment in his favor as soon as that assignment or sale was effected
on 9 February 1981. He could have also notified
Delta as soon as his money market placement matured on 13 March 1981 without
payment thereof being made by Philfinance; at that time, compensation had yet
to set in and discharge DMC PN No. 2731. Again, petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt
(“DCR”) No. 10805 issued by private respondent Pilipinas in favor of
petitioner. Petitioner could, in fine,
have notified Delta at any time before the maturity date of DMC PN No.
2731. Because petitioner failed to do
so, and because the record is bare of any indication that Philfinance had
itself notified Delta of the assignment to petitioner, the Court is compelled
to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable to
petitioner under the terms of the assignment made by Philfinance to petitioner.

II

We turn now to the relationship between petitioner and private
respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta
when Pilipinas issued DCR No. 10805 with the following words:

“Upon your written instructions, we (Pilipinas) shall
undertake physical delivery of the above securities fully assigned to
you —.”^[23]

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of
liability in solidum with Philfinance and Delta under DMC PN No.
2731. We read the DCR as a confirmation
on the part of Pilipinas that:

(1) it has in its custody, as duly constituted
custodian bank, DMC PN No. 2731 of a certain face value, to mature on 6 April
1981 and payable to the order of Philfinance;

(2) Pilipinas was, from and after said
date of the assignment by Philfinance to petitioner (9 February 1981), holding
that Note on behalf and for the benefit of petitioner, at least to the extent
it had been assigned to petitioner by payee Philfinance;^[24]

(3) petitioner may inspect the Note either
“personally or by authorized representative”, at any time during
regular bank hours; and

(4) upon written instructions of petitioner,
Pilipinas would physically deliver the DMC PN No. 2731 (or a
participation therein to the extent of P307,933.33) “should
this Denominated Custodianship Receipt remain oustanding in [petitioner’s]
favor thirty (30) days after its maturity.”

Thus, we find nothing written in printers ink on the DCR which
could reasonably be read as converting Pilipinas into an obligor under the
terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof
or at any other time. We note that both
in his complaint and in his testimony before the trial court, petitioner
referred merely to the obligation of private respondent Pilipinas to effect
physical delivery to him of DMC PN No. 2731.^[25]
Accordingly, petitioner’s theory that Pilipinas had assumed a solidary
obligation to pay the amount represented by the portion of the Note assigned to
him by Philfinance, appears to be a new theory constructed only after the trial
court had ruled against him. The
solidary liability that petitioner seeks to impute to Pilipinas cannot,
however, be lightly inferred. Under
Article 1207 of the Civil Code, “there is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.” The record here exhibits no express
assumption of solidary liability vis-a-vis petitioner, on the part of
Pilipinas. Petitioner has not pointed
us to any law which imposed such liability upon Pilipinas nor has petitioner
argued that the very nature of the custodianship assumed by private respondent
Pilipinas necessarily implies solidary liability under the securities, custody
of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with
Philfinance and private respondent Delta under DMC PN No. 2731.

We do not, however, mean to suggest that Pilipinas has no
responsibility and liability in respect of petitioner under the terms of the
DCR. To the contrary, we find, after
prolonged analysis and deliberation, that private respondent Pilipinas had
breached its undertaking under the DCR to petitioner Sesbreno.

We believe and so hold that a contract of deposit was constituted
by the act of Philfinance in designating Pilipinas as custodian or depositary
bank. The depositor was initially
Philfinance; the obligation of the depositary was owed, however, to petitioner
Sesbreno as beneficiary of the custodianship or depositary agreement. We do not consider that this is a simple
case of a stipulation pour autri. The custodianship or depositary agreement was established as an
integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN No.
2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note
(to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship
agreements are designed to facilitate transactions in the money market by
providing a basis for confidence on the part of the investors or placers that
the instruments bought by them are effectively taken out of the pocket, as it
were, of the vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds should they have
need of them. The depositary in a
contract of deposit is obliged to return the security or the thing deposited
upon demand of the depositor (or, in the present case, of the beneficiary) of
the contract, even though a term for such return may have been established in
the said contract.^[26]
Accordingly, any stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary, cannot be
enforced as against such beneficiary-placer.

We believe that the position taken above is supported by
considerations of public policy. If
there is any party that needs the equalizing protection of the law in money
market transactions, it is the members of the general public who place their
savings in such market for the purpose of generating interest revenues.^[27]
The custodian bank, if it is not related either in terms of equity ownership or
management control to the borrower of the funds, or the commercial paper
dealer, is normally a preferred or traditional banker of such borrower or
dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client
the borrower or dealer as against the placer of funds. The providers of such funds must be
safeguarded from the impact of stipulations privately made between the
borrowers or dealers and the custodian banks, and disclosed to fund-providers
only after trouble has erupted.

In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when petitioner first
demanded physical delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April 1981, DMC
PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken
place. Instead of complying with the
demand of petitioner, Pilipinas purported to require and await the instructions
of Philfinance, in obvious contravention of its undertaking under the DCR to
effect physical delivery of the Note upon receipt of “written
instructions” from petitioner Sesbreno. The ostensible term written into the DCR (i.e., “should this
[DCR] remain outstanding in your favor thirty [30] days after its
maturity”) was not a defense against petitioner’s demand for physical
surrender of the Note on at least three grounds: firstly, such term was never brought to the attention of
petitioner Sesbreno at the time the money market placement with Philfinance was
made; secondly, such term runs counter to the very purpose of the custodianship
or depositary agreement as an integral part of a money market transaction; and
thirdly, it is inconsistent with the provisions of Article 1988 of the Civil
Code noted above. Indeed, in principle,
petitioner became entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner’s money market placement matured on 13 March 1981
without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must
respond to petitioner for damages sustained by him arising out of its breach of
duty. By failing to deliver the Note to
the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively
and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted
from such conversion or unlawful deprivation inflicted upon petitioner, is of
no moment for present purposes. Prima
facie, the damages suffered by petitioner consisted of P304,533.33, the
portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason
of discharge of the Note by compensation, plus legal interest of six percent
(6%) per annum counting from 14 March 1981.

The conclusion we have here reached is, of course, without
prejudice to such right of reimbursement as Pilipinas may have vis-a-vis
Philfinance.

III

The third principal contention of petitioner — that Philfinance
and private respondents Delta and Pilipinas should be treated as one corporate
entity — need not detain us for long.

In the first place, as already noted, jurisdiction over the
person of Philfinance was never acquired either by the trial court nor by the
respondent Court of appeals. Petitioner
similarly did not seek to implead Philfinance in the Petition before us.

Secondly, it is not disputed that Philfinance and private
respondents Delta and Filipinas have been organized as separate corporate
entities. Petitioner asks us to pierce
their separate corporate entities, but has been able only to cite the presence
of a common Director — Mr. Ricardo Silverio, Sr., sitting on the Boards of
Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the
three (3) concededly related companies used the other two (2) as mere alter
egos or that the corporate affairs of the other two (2) were administered
and managed for the benefit of one. There is simply not enough evidence of record to justify disregarding
the separate corporate personalities of Delta and Pilipinas and to hold them
liable for any assumed or undetermined liability of Philfinance to petitioner.^[28]

WHEREFORE, for all the foregoing, the Decision and
Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 March
1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
extent that such Decision and Resolution had dismissed petitioner’s complaint
against Pilipinas Bank. Private respondent
Pilipinas Bank is hereby ORDERED to indemnify petitioner for damages in the
amount of P304,533.33, plus legal interest thereon at the rate of six percent
(6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals are
hereby AFFIRMED. No pronouncement as to
costs.

SO ORDERED.

Bidin, Davide, Jr., Romero, and
Melo, JJ., concur.

---

^[1]
Exhibit “C”, Folder of Exhibits, p. 3; TSN, 14 June 1983, p. 41.

^[2]
Records, p. 441; Plaintiff’s Memorandum, p. 3.

^[3]
Id., p. 451; Plaintiff’s Memorandum, p. 13.

^[4]
TSN, 14 June 1983, p. 35.

^[5]
Petitioner explained that he did not implead Philfinance as party defendant
because the latter was under rehabilitation by the Securities and Exchange
Commission (TSN of the Pre-trial Conference, pp. 6 and 30; dated 04 March 1983).

^[6]
Court of Appeals’ Decision, p. 8; Rollo, p. 90.

^[7]
Private respondent Delta adopted as its own the Memorandum filed by private
respondent Pilipinas (Rollo, pp. 269-73).

^[8]
Rollo, p. 6.; Petition, p. 5.

^[9]
Id., p. 88.

^[10]
TSN, 17 August 1983, p. 36.

^[11]
Records, pp. 36-37.

^[12]
National Bank of Bristol v. Baltimore & O.R. Co., 59 A. 134,
138. See also, in this connection,
Consolidated Plywood v. IFC Leasing, 149 SCRA 449 (1987).

^[13]
Exhibit “3,” Records, p. 240.

^[14]
National Investment and Development Corporation v. De los Angeles, 40
SCRA 487 (1971); Bastida v. Dy Buncio & Co., 93 Phil 195
(1953). See also Articles 1285 and
1626, Civil Code.

^[15]
Article 1300, Civil Code.

^[16]
Article 1292, id.

^[17]
127 SCRA 636 (1984).

^[18]
127 SCRA at 645-646.

^[19]
Records, p. 451; Plaintiff’s Memorandum, p. 13.

^[20]
Gonzales v. Land Bank of the Philippines, 183 SCRA 520 (1990);
Philippine National Bank v. General Acceptance and Finance Corp., 161
SCRA 449 (1988); National Investment and Development Corporation v. De
los Angeles, 40 SCRA 489 (1971); Montinola v. Philippine National Bank,
88 Phil. 178 (1951); National Exchange Company, Ltd. v. Ramos, 51 Phil.
310 (1927); Sison v. Yap-Tico, 37 Phil. 584 (1918).

^[21]
37 Phil. 584 (1918)

^[22]
37 Phil. at 589. See also Rodriguez v.
Court of Appeals, 207 SCRA 553, 559 (1992). See, generally, Philippine National Bank v. General Acceptance
and Finance Corp., 161 SCRA 449, 457 (1988).

^[23]
Petitioner’s Memorandum, p. 12; Rollo, p. 221.

^[24]
The DCR specified the amount of P307,933.33 as the extent to which DMC PN No.
2731 pertained to petitioner Raul Sesbreno. This amount probably refers to the placement of P300,000.00 by
petitioner plus interest from 9 February 1981 until the maturity date of DMC PN
No. 2731, i.e., 6 April 1981.

^[25]
Complaint, pp. 2-3; Rollo, pp. 23-24; TSN of 11 April 1983, p. 51; TSN,
9 October 1986, pp. 15-16. See also
Minutes of the Pre-trial Conference, dated 04 March 1983, p. 9.

^[26]
Article 1988, Civil Code.

^[27]
See, in this connection, the second and third “whereas” clauses of
P.D. No. 678, dated 2 April 1975.

^[28]
Pabalan v. National Labor Relations Commission, 184 SCRA 495 (1990); Del
Rosario v. National Labor Relations Commission, 187 SCRA 777 (1990);
Remo, Jr. v. Intermediate Appellate Court, 172 SCRA 405 (1989).