Traders Royal Bank vs Court of Appeals

Facts:
Filriters Guaranty Assurance Corporation (Filriters) is the owner of several Central Bank Certificates
of Indebtedness (CBCI). In 1979, Filriters agreed to assign said CBCI to Philippine Underwriters
Finance Corporation (Philfinance). However, the transfer of CBCI was done by one of its officers
without authorization from the company. Later, Philfinance sold said CBCI to Traders Royal Bank
(TRB). Said sale with TRB comes with a right to repurchase on a date certain. However, when the
day to repurchase arrived, Philfinance failed to repurchase said CBCI hence TRB requested the
Central Bank to have said CBCI be registered in TRB’s name. Central Bank refused as it alleged that
the CBCI are not negotiable; that as such, the transfer from Filriters to Philfinance is not valid; that
since it was invalid, Philfinance acquired no valid title over the CBCI; that the subsequent transfer
from Philfinance to TRB is likewise invalid.
TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRB’s
name. TRB averred that Philfinance is the alter ego of Filriters; that Philfinance owns 90% of Filriters;
that the two corporations have identical sets of directors; that payment of said CBCI to Philfinance
is like a payment to Filriters hence the sale between Philfinance and TRB is valid. In short, TRB avers
that that the veil of corporate fiction, between Philfinance and Filriters, should be pierced because
the two corporations allegedly used their separate identity to defraud TRB into buying said CBCI.

The RTC ruled that the transfer was null and void. CA affirmed this decision stating that the
subject CBCI is not a negotiable instrument for the the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed thereon, and that the
certificate lacked the words of negotiability which serve as an expression of consent that the
instrument may be transferred by negotiation.

Issue:
1. W/N the CBCI is a negotiable instrument. (No)

Ruling:

No. It is not a negotiable instrument.

The pertinent portion of the CBCI state that:

“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. “

In this case, 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. Properly
understood, a certificate of indebtedness rather 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.

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
indebtedness as it merely to pay a sum of money to a specified person or entity for a period of
time. As such, the transfer of the instrument from Philfinance to TRB was merely an assignment,
and is not governed by the negotiable instruments law.