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.