Traders Royal Bank vs Court of Appeals TRADERS ROYAL BANK, petitioner, vs.

COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRALBANK of the PHILIPPINES, respondents. G.R. No. 93397 March 3, 1997

FACTS: Filriters Guaranty Assurance Corporation (Filriters) is the registered owner of Central Bank Certificates of Indebtedness (CBCI) of PhP500,000.00 with an aggregate value of PhP3,500,000.00. On November 27, 1979, Filriters executed a Detached Assignment transferring, assigning and delivering its title and rights over said CBCI to Philippine Underwriters Finance Corporation (Philfinance). Philfinance then entered into a Repurchase Agreement with Traders Royal Bank (TRB) whereby, for a consideration of PhP500,000.00, the former transferred, assigned and delivered its title and rights over the CBCI with a face value of PhP500,000.00. Pursuant to this Repurchase Agreement, Philfinance promised to repurchase from TRB the CBCI for PhP519,361.11. However, it failed to do so. Due to its default, it executed a Detached Assignment in favor of TRB to enable the latter to have its title completed and registered in the books of Central Bank. When TRB tried to have the CBCI registered in its name in the Central Bank, the latter did not recognize the transfer. Upon these assertions, TRB filed a case with the RTC for the registration by the Central Bank of the CBCI in its name. Filriters, in its defense, claimed that its transfer to Philfinance was a personal act of one of its officers and not a corporate act, and was executed without consideration; thus, it is null and void. Moreover, TRB acted in bad faith for it had knowledge of the illegality and invalidity of transfer. ISSUE(S): WON TRB has a right over the CBCI RULING: No. The title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank. RATIO: The CBCI is not a negotiable instrument. The pertinent portions of the subject CBCI:

The Central Bank of the Philippines for value received, hereby promisest o pay bearer, of this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which should have served as an expression of the consent that the instrument may be transferred by negotiation. The language of negotiability which characterize a negotiable paper as a credit instrument is itsfreedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtonerelating to the protection of holders in due course, and the freedom of negotiability is the foundationfor the protection which the law throws around a holder in due course. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law.