TRADERS ROYAL BANK v. CA, FILRITERS GUARANTY ASSURANCE CORPORATION and due course.
due course. This freedom in negotiability is totally absent in a certificate indebtedness as it
CENTRAL BANK
G.R. No. 93397 | March 3, 1997 | Torres, Jr., J.
FACTS:
• Filriters Guaranty Assurance Corporation (FGAC) is the registered owner of several Central
Bank Certificates of Indebtedness (CBCI). These certificates are actually proof that FGAC has
the required reserve investment with the Central Bank to operate as an insurer and to
protect third persons from whatever liabilities FGAC may incur.
• Later, FGAC agreed to assign and deliver said CBCI to Philippine Underwriters Finance
Corporation (PUFC).
• Subsequently, PUFC transferred the CBCI to Traders Royal Bank (TRB) under a repurchase
agreement.
• PUFC failed to repurchase on the agreed date of maturity, when the checked it issued in
favor of TRB were dishonored for insufficient funds, so TRB requested the Central Bank to
have said CBCI be registered in TRB’s name. However, the Central Bank refused to, alleging
that the CBCI are not negotiable, and so the transfer from FGAC to PUFC is not valid.
• The action was originally filed as a Petition for Mandamus under Rule 65 of the ROC, to
compel the Central Bank to register the transfer of the CBCI to TRB. The RTC held that the
transfer is null and void. The CA affirmed and held that the CBCI is not a negotiable
instrument and PUFC acquired no title or rights which it could assign or transfer to TRB and
which it can register with the Central Bank as the instrument is payable only to FGAC, the
registered owner. The certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
ISSUE: WON CBCI is a negotiable instrument - NO
RATIO:
• CBCI is not a negotiable instrument in the absence of words of negotiability within the
meaning of the negotiable instruments law (Act 2031).
• The pertinent portions of the subject CBCI read: “The Central Bank of the Philippines (the
Bank) for value received, hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.”
• 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".
Being equivalent to a bond, it is properly understood as acknowledgment of an obligation
to pay a fixed sum of money. It is usually used for the purpose of long term loans.
• 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 TRB's submission
that the same is a negotiable instrument, and that it is a holder in due course of the
certificate.
• The language of negotiability which characterize a negotiable paper as a credit instrument
is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the
touchtone relating to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which the law throws around a holder in
merely to pay a sum of money to a specified person or entity for a period of time. Thus, the
transfer of the instrument from PUFC to TRB was merely an assignment, and is not
governed by the negotiable instruments law.
Others:
• Whether the transfer from FGAC to PUFC and PUFC to TRB was in accord with existing law
so as to entitle TRB to have the CBCI registered in its name
PUFC’s title is defective since it acquired the instrument from FGAC fictitiously. There was
really no consideration involved, because PUFC merely borrowed the CBCI from FGAC, a
sister corporation, to guarantee its financing operations. The lack of any consideration
means that the assignment is a complete nullity. Also, the assignment from FGAC to PUFC
did not conform to the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness" (CB Circ. No. 769, series of 1980) under which the note was
issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides
that any assignment of registered certificates shall not be valid unless made . . . by the
registered owner thereof in person or by his representative duly authorized in writing.
• Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of
FGAC, did not have the necessary written authorization from the BOC. Thus, the
assignment did not bind FGAC.
• Whether the transfer to TRB must be upheld as FGAC and PUFC have used their corporate
fiction to defraud TRB into purchasing the CBCI, which is now refused registration
• The fact that PUFC owns majority shares in FGAC is not by itself a ground to disregard the
independent corporate status of FGAC. There is sufficient showing that TRB was not
defrauded at all when it acquired the CBCI from PUFC. On its face, the CBCI states that it is
registered in the name of FGAC. This should have put the petitioner on notice, and
prompted it to inquire from FGAC as to PUFC’s title over the same or its authority to assign
the certificate. As it is, there is no showing to the effect that TRB had any dealings
whatsoever with FGAC, nor did it make inquiries as to the ownership of the certificate.
DECISION:
CA Affirmed.