G.R. No.

93397

TRADERS ROYAL BANK vs. COURT OF APPEALS, FILRITERS GUARANTY

ASSURANCE CORPORATION AND CENTRAL BANK OF TH PHILIPPINES
FACTS:
A “Detached Assignment” was executed by Filtriters Guaranty in favor of Philippine Underwriters
Finance Corporation or PhilFinance. It was stipulated that Filriters, as registered owner, sold,
transferred, assigned and delivered unto PhilFinance all its rights and title to Central Bank Certificates
of Indebtedness (CBCI) the amount of 500,000 pesos and having an aggregate value of 3.5 Million
pesos.

The said “Detached Assignment” contains an express authorization whereby Filriters irrevocably
authorized the issuer – Central Bank – to transfer the said bond/certificates on the books of its fiscal
agent. This authorization was intended to complete the assignment through the registration of the
transfer in the name of PhilFinance.

More than a year after the above transaction, Traders Royal Bank entered into a Repurchase Agreement
with PhilFinance. It was stated that PhilFinance for and in consideration of the sum of 500,000 pesos
sold, transferred and delivered to Traders Royal Bank CBCI Serial No. 891. The CBCI involved here
was among those previously acquired CBCIs by PhilFinance from Filriters. And pursuant to said
Repurchase Agreement, PhilFinance agreed to repurchase the CBCI Serial No. 891.
But, PhilFinance failed to repurchase the CBCI on the agreed date so it subsequently executed a
Detached Assignment in favor of Traders so as to enable Traders to have its title completed and
registered in the books of Central Bank and for PhilFinance to have all its rights and title over the
CBCI transferred and assigned to Traders.

When Traders presented the CBCI together with the two Detached Assignments to Central Bank, the
latter failed and refused to register the transfer. Traders contended that it has substantially complied
with the requirements to duly register the CBCI in its favor and that the ministerial duties of registering
a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the
respondent.

Upon these assertions, Traders prayed for the registration by the Central Bank of the subject CBCI in
its name.
A petition for mandamus was then filed by Traders against Central Bank. In which, the latter filed its
answer with counter claim for interpleader thereby calling Filriters. Filriters interposed among other
things that Traders acted in bad faith and with knowledge of the illegality of the assignment. Further, it
claims that the CBCI was not a negotiable instrument and as a certificate of indebtedness it is not
payable to bearer but is registered in the name of Filriters. Filriters contended that the “Detached
Assignment” was null and void as it was executed only by Alfredo Banaria, then Senior Vice
President-Treasury without the knowledge and consent of its board of directors and that Traders knew
so well that the assignment of Filriters to PhilFInance of CBCI-891 was not a regular transaction made
in the usual ordinary course of business.
Traders argued that the CBCI was a negotiable document and that it has acquired it from PhilFinance
as a holder in due course. That the possession of the same was free from any defect of title of prior
parties and from any defense available to prior parties among themselves and that it may enforce
payment thereof.
The trial court rendered its decision in favor of Filriters. Court of Appeals affirmed. Thus, Traders
filed a Petition for Review on Certiorati before the Supreme Court.
ISSUE:
Whether or not the questioned CBCI was a negotiable instrument contemplated by law.

HELD:
The court ruled in the negative. the subject 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.
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 petitioner'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 due course. This freedom in negotiability is
totally absent in a certificate of indebtedness as it 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 PhilFinance to Traders was merely an assignment, and is not
governed by the negotiable instruments law.