1. CONSOLIDATED PLYWOOD INDUSTRIES, INC v.

IFC LEASING,
GR NO. 72593,APRIL 30, 1987 (Santiago)

DOCTRINE: 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. The instrument must
contain the so-called words of negotiability. These words serve as an expression of consent that the instrument may be
transferred. Hence, this consent is indispensable since a maker assumes greater risks under a negotiable instrument.

FACTS:

- Petitioner is a corporation in logging business.

- Respondent is a financing company.

- Seller-assignor (Industrial Products Marketing), who is also the sister company and marketing arm of the petitioner offered
to sell USED two tractors. Seller-assignor assured the petitioner that the tractors were fit for the job after it was tasked to
inspect the tractors in the jobsite.

- With the assurance and warranty, they agreed to purchase the tractors on installment + 200,000 downpayment. A chattel
mortgage + promissory note was also executed.

- The promissory note was indorsed by Seller-Assignor to IFC Leasing by entering a discounting agreement.

- After 14 days from day of purchase, one of the tractors broke down and 9 days after, the other likewise broke down.

- Under warranty, seller-assignor was advised and immediately conduct the necessary repairs. Hence, the tractors did not come
out what they should be after the repairs were undertaken.

- In effect, it caused delay in the petitioners operations. Petitioner advised that the payments on installment as listed in the
Promissory note will be delayed until the Seller-assignor fulfills its obligation under warranty.

- Petitioner suggested the following:

- pull out the tractors and have them reconditioned

- offer them for sale.

- The proceed will be given to the respondent.

- For any excess, is will be divided between petitioner and seller-assignor.

- half amount of the reconditioning cost will be paid by the petitioner

- Hence, no response was given by the seller-assignor, until a case was filed in the court.

- CONTENTION OF THE PETITIONER:

 - Recovery of Principal sum of 1,093,789.71

- Interest of 151,618.86

- Accruing interest at 12%

- Attorneys fees of 249.081.71 and Cost of suit.

- CONTENTION OF RESPONDENT (IFC Leasing): (since the petitioner stopped paying installments and as holder of the
Promissory Note)

- Asking for counter-claim

- Dismissal of the complaint

- Damages of 20,000.

- Attorneys fees

- Expenses of Litigation for 5,000.

- RTC and CA ruled in favor of Petitioner.

- According to both lowercourts, there is implied warranty despite the absence of provision of warranty in the deed of sale.

- The instrument is negotiable.

- Plaintiff-appellee is a holder in due course of the promissory note.

ISSUES:

1. Whether the Promissory Note is not a negotiable instrument under the law since it is neither payable to order nor to bearer.
- Non-negotiable

2. Whether, respondent is not a holder in due course, merely an assignee of the subject of the Promissory note. - not a holder
in due course

3. Since it is a non-negotiable instrument, the transfer of rights is merely by assignment. Hence, all defenses are available. -
Yes

4. Whether, petitioner is not liable for the payment of Promissory Note because of breach of warranty and respondent is only
entitled reimbursement to seller assignor. - No, still liable.

5. Whether the Promissory Note is an admissible evidence since documentary stamp tax have not been affixed or cancelled. -
No discussion.

RULING:

1. Negotiability of the Promissory Note - it was ruled non-negotiable. The note is read as follows:
- FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE
MILLION NINETY THREE THOUSAND EVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine Currency, the
said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until
fully paid.

- In this case, the court held 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.

- Further, the instrument must contain the so-called words of negotiability. These words serve as an expression of consent
that the instrument may be transferred. Hence, this consent is indispensable since a maker assumes greater risks under a
negotiable instrument.

- Discussion whether it is payable to order:

- 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 . . . .

- These are only two ways for it to be made payable to order. 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. Hence, the holder merely
stepped into the shoes of the person designated, subject to all defenses against the latter.

- In this case, it was shown in the testimonies that the respondent is mere assignee of the promissory note.

2. Discussion on whether respondent is a Holder in Due Course - No.

3. Discussion on whether the all defenses are available. - Yes

- In this case, there was an evidence in the instant case that prior to the sale on installment, there was agreement between
seller-assignor, and respondent that the entire purchase price will be paid by the seller-assignor, in turn, the right collect the
price to the petitioner.

- Also, all documents were all executed on the same day between all the parties. Therefore, it affirms that the respondent had
actual knowledge of the fact that the seller- assignor's right to collect the purchase price was not unconditional, and that it
was subject to the condition that the tractors sold were not defective. In the event, tractors are defective, defenses are
available to the petitioner.

- In a US case, it was cited by SC that the finance company was a moving force in the transaction from its very inception and
acted as a party to it.When a finance company actively participates in a transaction of this type from its inception, it cannot
be regarded as a holder in due course of the note given in the transaction.

4. Discussion whether petitioner is not liable for the payment of Promissory Note because of breach of warranty and respondent
is only entitled reimbursement to seller-assignor.

- Pursuant to 1561, 1562, 1564, 1566 of the civil code, there is breach of implied warranty.

- In this case, the seller-assignor is liable for its breach of warranty against the petitioner. This liability as a general rule, extends
to the corporation to whom it assigned its rights and interests unless the holder of the instrument is a holder in due course.
5. Discussion on Documentary stamp tax

- No discussion in the case but raised as an issue.