042. Caltex (Philippines), Inc. v.

CA and Security Bank & Trust Company

August 10, 1992
Regalado, J.
Topic: Certain Financial Transactions and Documents; Security Devices and Other Credit
Supports/Enhancements; Types: Assignment by Way of Security

SV: Angel dela Cruz was issued 280 certificates of time deposit by Security Bank. DelaCruz delivered
said CTDs to Caltex as security for delaCruz fuel products purchase. Thereafter, delaCruz was able to
acquire replacement CTDs from Security Bank, after claiming to have lost them. DelaCruz then took out a
loan from Security Bank and assigned to the latter, via Deed of Assignment, the replacement CTDs as
payment of his loan when it matures. Caltex demanded from Security Bank the value of the CTDs, but
since Caltex did not submit the guarantee agreement between Caltex and delaCruz or details of dela
Cruz obligation to Caltex, Security Bank refused to pay. Subsequently, Security Bank applied the value
of the CTDs for payment of the loan of delaCruz. Caltex filed an action for sum of money against Security
Bank. HELD: Caltex cannot recover from Security Bank, because the CTDs were delivered to it as
security and not as payment. As holder of collateral security, Caltex would be a pledgee thereof. But, no
legal right effective against the bank vested in Caltex because a valid pledge of incorporeal rights
evidenced by negotiable instruments requires delivery and indorsement (NCC 2095) and must be
contained in a public instrument (NCC 2096). There was no indorsement by dela Cruz, and there was no
public instrument evidencing the pledge.

PETITIONER: Caltex Philippines, Inc.
RESPONDENT: Security Bank & Trust Company
Note: Angel dela Cruz was not impleaded! (swerte ni loko)

FACTS:
On various dates, Security Bank & Trust Company (Sucat branch), a commercial bank, issued 280
certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited therein the aggregate
amount of P1,120,000.00.
Dela Cruz delivered the said CTDs to Caltex in connection with his purchase of fuel products.
Dela Cruz informed Security Bank Branch Manager, that he lost all the CTDs in dispute. Pursuant to the
managers advise, dela Cruz executed and delivered to Security Bank the required Affidavit of Loss. 280
replacement CTDs were thereafter issued in favor of dela Cruz.
Dela Cruz then obtained an P875k loan from Security Bank and on the same date, dela Cruz executed a
notarized Deed of Assignment of Time Deposit which stated that he (de la Cruz) surrenders to Security
Bank "full control of the indicated time deposits from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of
whatever amount or amounts may be due" on the loan upon its maturity.
Credit Manager of Caltex went to Security Bank and presented for verification the CTDs declared lost by
Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made
with Caltex Philippines, Inc." by said depositor. Subsequently, Caltex informed Security Bank of its
decision to preterminate the CTDs.
Security Bank requested that Caltex furnish them a copy guarantee agreement and details of Mr. Angel
dela Cruz obligation against which Caltex proposed to apply the time deposits. Caltex did not furnish said
documents. Security Bank rejected the Caltex's demand and claim for payment of the value of the CTDs.
Dela Cruz loan matured and fell due, so Security Bank set-off and applied the time deposits in question
to the payment of the matured loan.
Caltex then filed an action against Security Bank for payment of value of CTDs plus interest, moral and
exemplary damages, as well as attorney's fees.
RTC: dismissed the complaint.
CA: affirmed RTC's dismissal of the complaint and ruled that
(1) the subject CTDs are non-negotiable even though it looks like a bearer instrument, it is not because
it is actually payable to the depositor:
On the CTDs, after the word BEARER stamped on the space provided for the name of
depositor, the words has deposited a certain amount follows
the CTD also provides that the amount deposited shall be repayable to said depositor.
(2) Caltex did not become a holder in due course of the said CTDs;

ISSUES:

1. WON the CTDs are negotiable instruments? YES.

SC: The CTDs in question are negotiable instruments, as they meet the requirements of the law for
negotiability. The negotiability or non-negotiability of an instrument is determined from the face of the
instrument. And from the face of the document
1
, it is clearly a bearer instrument. The CTD provides that
it is payable to the depositor, and according to the document, the depositor is the bearer.

2. (MAIN ISSUE for BANKING) WON Caltex can rightfully recover on the CTDs? NO.

SC: The CTDs were, in reality, delivered to Caltex as a security for dela Cruz purchase of its fuel
products:
Caltexs own representative (Caltex Credit Manager) admitted in a letter to Security Bank that x x
x These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchase of fuel products.
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted.
Caltex was not able to produce receipts showing that the CTDs were delivered to it by dela Cruz
as payment of the latter's alleged indebtedness to it and not merely as security.
Integrated Realty Corp v. PNB: The character of the transaction between the parties is to be
determined by their intention, regardless of what language was used or what the form of the
transfer was. If it was intended to secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge.

There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of Caltex. The
delivery of the CTDs only as security could at most constitute Caltex only as a holder for value by reason
of his lien. As such holder of collateral security, Caltex would be a pledgee.

Pledge is governed by the Civil Code provisions. Pertinent are:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed.


1
Sample text of CTDs in dispute: This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per
annum.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument.
Thus, a valid negotiation of the CTDs for the true purpose and agreement (CTDs as mere security)
between Caltex and dela Cruz requires both delivery and indorsement. As the CTDs were only delivered
but not indorsed, there was no valid pledge of incorporeal rights!!!

Moreover, Caltex failed to produce any document evidencing a contract of pledge or guarantee
agreement as required by Art. 2096, therefore, the alleged pledge contract cannot affect 3
rd
parties
(Security Bank in this case) adversely.

3. WON Security Bank has a better right over the CTDs in question? YES.

The assignment of the CTDs made by dela Cruz in favor of Security Bank was embodied in a public
instrument. As required by Art. 1625 of the Civil Code
2
. As between the Caltex and Security Bank, the
latter has definitely the better right over the CTDs in question.

DISPOSITIVE: CA affirmed.

Digest by: Agee Romero




2
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.