Negotiable Instruments Case Digest: Great Asian Sales Center Corp. v. CA (2002)

G.R. No. 105774 April 25, 2002

Lessons Applicable: Notice of Dishonor (Negotiable Instruments Law)

FACTS:

March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2M

also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line

Tan Chong Lin signed 2 surety agreements in favor of Bancasia
Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated checks:

9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise.

January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982, 2 were dishonored
January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4 were dishonored
February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8 checks were dishonored
March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also dishonored

Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks
Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the checks

8 dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales Center"
7 dishonored checks just bore the signature of Arsenio

The drawee banks dishonored the 15 checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor:

March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan Chong Lin a letter notifying him of the dishonor and demanding payment from him
June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin
May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00
June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin
CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and severally
CA: deleted atty. fees

ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a separate and distinct deed of assignment

HELD: YES. Affirmed with Modification

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.
the endorsement does not operate to make the finance company a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks. (only security)

Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed Bancasia’s cause of action. Bancasia, however, did not choose this route.

Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian.

Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment

In the instant case, all the checks were dishonored for any of the following reasons:

Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay.
Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law.Civil Code are applicable and not the Negotiable Instruments Law.
separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT Negotiable Instruments Law)
Great Asian’s four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia
The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian

Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor"