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Wednesday, November 5, 2014

Traders Royal Bank v CA (Negotiable Instruments Law)

TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997
FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters
transferred it to Philfinance by one of its officers without authorization from the company.
Subsequently, Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a
repurchase agreement. When Philfinance failed to do so, The TRB tried to register in its name
in the CBCI. The Central Bank did not want to recognize the transfer.
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).
DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court ruled
that the subject CBCI is not a negotiable instrument. 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. Thus, the transfer of the instrument from Philfinance
to TRB was merely an assignment, and is not governed by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the following
requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand,
or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.
Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the 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. ISSUES & RULING: 1. Whether the
CBCI is negotiable instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
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.
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, and the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the
parties.
2. Whether the Assignment of registered certificate is valid or null and void.
IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance was
null and void. One of officers who signed the deed of assignment in behalf of Filriters did not
have the necessary written authorization from the Board of Directors of Filriters. For lack of
such authority the assignment is considered null and void.
Clearly shown in the record is the fact that Philfinance's title over CBCI is defective
since it acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code those
contracts which are absolutely simulated or fictitious are considered void and inexistent from
the beginning.
Petitioner knew that Philfinance is not registered owner of the 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 of inquire as to the title Philfinance to dispose to the CBCI.
OTHER NOTES:
1. 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.
Victor Morvis

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