G.R. No. 158262
Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law)
FACTS:
- 1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a Toyota Cressida Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his wife, Florencia.
- spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed by BA Finance.
- The spouses would pay the monthly installments to BA Finance while Avelino would take care of the documentation and approval of financing of the car.
- August 4, 1983: the spouses 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 PhP 5,822.25 a month, the first installment to be due and payable on September 16, 1983.
- Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment, balance, and finance charges.
- VMSC then issued a sales invoice in favor of the spouses with a detailed description of the Toyota Cressida car.
- In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP 209,601.
- VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After receiving the amount of PhP 209,601,
- VMSC executed a Deed of Assignment of its rights and interests under the promissory note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through Avelino
- spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino
- Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
- March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against the spouses
- RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino
- CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in due course
ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course
HELD: YES. CA reversed because Avelino and VMSC are the same
- negotiable:
(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.
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.
- (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. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course
- 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.
- VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelino’s other cousin, Esmeraldo
- Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners’ loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners.
- obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same