Negotiable Instruments

An instrument to be negotiable must conform to the following

requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a

sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable

future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.

Holder in Due Course

A holder in due course is a holder who has taken the instrument

under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and

without notice that it had been previously dishonored, if such
was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice

of any infirmity in the instrument or defect in the title of the
person negotiating it.
 Violago vs BA Finance and Avelino Violago
G.R. No. 158262 July 21, 2008

Ponente

Velasco Jr., J.

FACTS

Avelino Violago, President of Violago Motor Sales Corporation

(VMSC), persuaded his cousins to buy a Toyota Cressida Model
1983 to increase the sales quota to his cousin, petitioners Pedro
F. Violago and his wife, Florencia (Spouses Violago). Petitioners
would pay a down payment of P 60,500 while the balance
would be financed by BA Finance.

Petitioners would pay the monthly installments to BA Finance

while Avelino would take care of the documentation and
approval of financing of the car.

Petitioners and Avelino signed a promissory note under which

they bound themselves to pay jointly and severally to the order
of VMSC the amount of PhP 209,601 in 36 monthly installments
of P5,822.25 a month, the first installment to be due and
payable on September 16, 1983. A chattel mortgage of the car
in favor of BA Finance was executed. The promissory note was
indorsed to BA Finance.

The note reads:

Makati, Metro Manila, Philippines, August 4, 1983

For value received, I/we, jointly and severally, promise to pay to the
order of VIOLAGO MOTOR SALES CORPORATION, its office, the
principal sum of TWO HUNDRED NINE THOUSAND SIX HUNDRED
ONE ONLY Pesos (P209,601.00), Philippines Currency, with interest
at the rate stipulated herein below, in installments as follows:

Thirty Six (36) successive monthly installments of P5,822.25, the

first installment to be paid on 9-16-83, and the succeeding monthly
installments on the 16th day of each and every succeeding month
 thereafter until the account is fully paid, provided that the penalty
charge of three (3%) per cent per month or a fraction thereof shall
be added on each unpaid installment from maturity thereof until
fully paid.

xxxx

Notice of demand, presentment, dishonor and protest are hereby

waived.

(Sgd.)
PEDRO F. VIOLAGO (Sgd.)
FLORENCIA R. VIOLAGO
763 Constancia St., Sampaloc, Manila
(Address) same
(Address)
(Sgd.)
Marivic Avaria (Sgd.)
Jesus Tuazon
(WITNESS) (WITNESS)
PAY TO THE ORDER OF BA FINANCE CORPORATION

WITHOUT RECOURSE

VIOLAGO MOTOR SALES CORPORATION

By: (Sgd.)
AVELINO A. VIOLAGO, Pres.

However, it turned out, without the knowledge of the Spouses

Violago, that Avelino had already sold the car to another cousin,
Esmeraldo Violago. As a result, despite several demands, he
was unable to deliver the said car. Therefore, petitioners did not
pay any monthly amortization to BA Finance.
BA Finance filed with the Regional Trial Court a complaint for
Replevin with Damages against the petitioners. It prayed that
the car be delivered, or if that was impossible, for the payment
of P199,049.41 plus associated penalties until fully paid.

The Petitioners interposed the defense that they never received

the vehicle from VMSC; the vehicle was previously sold to
Esmeraldo; BA Finance was not a holder in due course under
Section 59 of the Negotiable Instruments Law (NIL); and the
recourse of BA Finance should be against VMSC.
ISSUE

Whether or not the instrument is a negotiable instrument. And

if it was, whether or not BA Finance was a holder in due course.

RULING

The NIL provides:

Section 1. Form of Negotiable Instruments. An instrument to be

negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum

certain in money;

(c) Must be payable on demand, or at a fixed or determinable future

time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.

The promissory note clearly satisfies the requirements of a

negotiable instrument under the NIL. It is in writing; signed by
the Violago spouses; has an unconditional promise to pay a
certain amount, i.e., PhP 209,601, on specific dates in the
future which could be determined from the terms of the note;
made payable to the order of VMSC; and names the drawees
with certainty. The indorsement by VMSC to BA Finance appears
likewise to be valid and regular.

The more important issue now is whether or not BA Finance is a

holder in due course. The resolution of this issue will determine
whether petitioners defense of fraud and nullity of the sale
could validly be raised against respondent corporation. Sec. 52
of the NIL provides:
 Section 52. What constitutes a holder in due course.A holder in
due course is a holder who has taken the instrument under the
following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and

without notice that it had been previously dishonored, if such was
the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.

The law presumes that a holder of a negotiable instrument is a

holder thereof in due course.

In the present recourse, on its face, (a) the "Promissory Note",

Exhibit "A", is complete and regular; (b) the "Promissory Note"
was endorsed by the VMSC in favor of the Appellee; (c) the
Appellee, when it accepted the Note, acted in good faith and for
value; (d) the Appellee was never informed, before and at the
time the "Promissory Note" was endorsed to the Appellee, that
the vehicle sold to the Defendants-Appellants was not delivered
to the latter and that VMSC had already previously sold the
vehicle to Esmeraldo Violago.

In the hands of one other than a holder in due course, a

negotiable instrument is subject to the same defenses as if it
were non-negotiable.18 A holder in due course, however, holds
the instrument free from any defect of title of prior parties and
from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount
thereof. Since BA Finance is a holder in due course, petitioners
cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation. The NIL considers
every negotiable instrument prima facie to have been issued
for a valuable consideration. A party holding an instrument
may enforce payment of the instrument for the full amount
thereof. As such, the maker cannot set up the defense of nullity
of the contract of sale.
Thus, petitioners are liable to respondent corporation for the
payment of the amount stated in the instrument.