CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and
RODOLFO T. VERGARA, petitioners, vs. IFC LEASING AND ACCEPTANCE CORPORATION,
respondentG.R. No. L-72593
| April
30, 1987
FACTS:
Industrial Products Marketing, a corporation dealing in
tractors and other heavy equipment business, offered to sell to petitioner
Consolidated Plywood Industries Inc. 2 "Used" Allis Crawler Tractors,
1 an HD-21-B and the other an HD-16-B.
In order to ascertain the extent of work to which the
tractors were to be exposed, petitioner-corporation requested the
seller-assignor to inspect the jobsite. After conducting said inspection, the
seller-assignor assured petitioner-corporation that the "Used" Allis
Crawler Tractors which were being offered were fit for the job, and gave the
corresponding warranty of 90 days performance of the machines and availability
of parts.
With said assurance and warranty, petitioner-corporation
agreed to purchase on installment said 2 units of "Used" Allis
Crawler Tractors. It also paid the down payment of P210,000.00
On April 5, 1978, the seller-assignor issued the sales
invoice for the 2 units of tractors. At the same time, the deed of sale with
chattel mortgage with promissory note was executed.
Simultaneously with the execution of the deed of sale with
chattel mortgage with promissory note, the seller- assignor, assigned its
rights and interest in the chattel mortgage in favor of the respondent.
14 days after the delivery, one of the tractors broke down
and after another 9 days, the other tractor also broke down.
On April 25, 1978, petitioner formally advised the
seller-assignor of the fact that the tractors broke down and requested for the
seller-assignor's usual prompt attention under the warranty. In response, the
seller-assignor sent to the jobsite its mechanics to conduct the necessary
repairs but the tractors were no longer serviceable.
Because of the breaking down of the tractors, the road
building and simultaneous logging operations of petitionercorporation were
delayed and petitioner Vergara advised the seller-assignor that the payments of
the installments as listed in the promissory note would likewise be delayed
until the seller-assignor completely fulfills its obligation under its
warranty.
Since the tractors were no longer serviceable, petitioner
Wee asked the seller-assignor to pull out the units and have them
reconditioned, and thereafter to offer them for sale. The proceeds were to be
given to the respondent and the excess, if any, to be divided between the
seller-assignor and petitioner-corporation which offered to bear ½ of the
reconditioning cost.
Petitioner-corporation did not receive any response from
seller-assignor despite several follow-up, the seller-assignor did nothing with
regard to the request, until the complaint in this case was filed by the
respondent against the petitioners.
The complaint was filed by the respondent against the
petitioners for the recovery of the principal sum of P1,093,789.71 with accrued
interest.
The petitioners filed their amended answer praying for the
dismissal of the complaint and asking the trial court to order the respondent
to pay the petitioners damages.
The trial court ruled in favor of respondents and
petitioner’s counterclaim was disallowed. Their motion for reconsideration was
likewise, denied. Thus petitioner appealed to the IAC.
The IAC affirmed the trial court’s decision in toto. It
ratiocinated that the promissory note was a negotiable instrument which was
discounted or sold to the IFC Leasing and Acceptance Corporation and that the
defense of warranty is not available in this case as warranty lies only between
Industrial Products Marketing and Consolidated Plywood Industries, Inc. and
that IFC held the instrument free from any defect of title of prior parties and
free from defenses available to prior parties among themselves and may enforce
payment of the instrument for the full amount thereof against all parties
liable thereon.
Hence this petition.
ISSUE:
whether or not the promissory note in question is a
negotiable instrument so as to bar completely all the available defenses of the
petitioner against the respondent-assignee
RULING:
The promissory note in question is not a negotiable
instrument.
Considering that
paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer," it cannot be
denied that the promissory note in question is not a negotiable instrument.
"SEC. 8. WHEN PAYABLE TO ORDER.—The instrument is
payable to order where it is drawn payable to the order of a specified person
or to him or his order. . . .
x x x x x x x x x
"These are the only two ways by which an instrument may
be made payable to order. There must always be a specified person named in the
instrument. It means that the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and
delivered the same. Without the words 'or order' or 'to the order of,' the
instrument is payable only to the person designated therein and is therefore
non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages
of being a holder of a negotiable instrument, but will merely 'step into the
shoes' of the person designated in the instrument and will thus be open to all
defenses available against the latter."
Therefore, considering that the subject promissory note is
not a negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in question. Thus,
the petitioner may raise against the respondent all defenses available to it as
against the sellerassignor, Industrial Products Marketing.
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