SECOND DIVISION
G.R. No. 72593 April 30, 1987
CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and
RODOLFO T. VERGARA, Petitioners, vs. IFC LEASING AND ACCEPTANCE CORPORATION,
Respondent.
GUTIERREZ, JR., J.:
This is a petition for certiorari under Rule 45 of the Rules
of Court which assails on questions of law a decision of the Intermediate
Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its
resolution dated October 17, 1985, denying the motion for reconsideration.
The antecedent facts culled from the petition are as follows:
The petitioner is a corporation engaged in the logging
business. It had for its program of logging activities for the year 1978 the
opening of additional roads, and simultaneous logging operations along the
route of said roads, in its logging concession area at Baganga, Manay, and
Caraga, Davao Oriental. For this purpose, it needed two (2) additional units of
tractors.
Cognizant of petitioner-corporation's need and purpose,
Atlantic Gulf & Pacific Company of Manila, through its sister company and
marketing arm, Industrial Products Marketing (the "seller-assignor"),
a corporation dealing in tractors and other heavy equipment business, offered
to sell to petitioner-corporation two (2) "Used" Allis Crawler
Tractors, one (1) an HDD-21-B and the other an HDD-16-B.
In order to ascertain the extent of work to which the
tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to determine the
capability of the "Used" tractors being offered,
petitioner-corporation requested the seller-assignor to inspect the job site.
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
ninety (90) days performance of the machines and availability of parts.
(t.s.n., May 28, 1980, pp. 59-66).
With said assurance and warranty, and relying on the
seller-assignor's skill and judgment, petitioner-corporation through petitioners
Wee and Vergara, president and vice- president, respectively, agreed to
purchase on installment said two (2) units of "Used" Allis Crawler
Tractors. It also paid the down payment of Two Hundred Ten Thousand Pesos
(P210,000.00).
On April 5, 1978, the seller-assignor issued the sales
invoice for the two 2) units of tractors (Exh. "3-A"). At the same
time, the deed of sale with chattel mortgage with promissory note was executed
(Exh. "2").
Simultaneously with the execution of the deed of sale with
chattel mortgage with promissory note, the seller-assignor, by means of a deed
of assignment (E exh. " 1 "), assigned its rights and interest in the
chattel mortgage in favor of the respondent.
Immediately thereafter, the seller-assignor delivered said
two (2) units of "Used" tractors to the petitioner-corporation's job
site and as agreed, the seller-assignor stationed its own mechanics to
supervise the operations of the machines.
Barely fourteen (14) days had elapsed after their delivery
when one of the tractors broke down and after another nine (9) days, the other
tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara 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
(E exh. " 5 ").
In response to the formal advice by petitioner Rodolfo T.
Vergara, Exhibit "5," the seller-assignor sent to the job site its
mechanics to conduct the necessary repairs (Exhs. "6,"
"6-A," "6-B," 16 C," "16-C-1,"
"6-D," and "6-E"), but the tractors did not come out to be what
they should be after the repairs were undertaken because the units were no
longer serviceable (t. s. n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road
building and simultaneous logging operations of petitioner-corporation 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
(t.s.n, May 28, 1980, p. 79).
Since the tractors were no longer serviceable, on April 7,
1979, 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 one-half (1/2)
of the reconditioning cost (E exh. " 7 ").
No response to this letter, Exhibit "7," was
received by the petitioner-corporation and despite several follow-up calls, 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 corporation,
Wee, and Vergara.
The complaint was filed by the respondent against the
petitioners for the recovery of the principal sum of One Million Ninety Three
Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued
interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos &
86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the
rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty
Nine Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit.
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 in an amount at the sound discretion of the
court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five
Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise
prayed for such other and further relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered
the following judgment:
WHEREFORE,
judgment is hereby rendered:
1. ordering
defendants to pay jointly and severally in their official and personal
capacities the principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED
NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE
HUNDRED FIFTY ONE THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100
(P151,618.,86) as of August 15, 1979 and accruing interest thereafter at the
rate of 12% per annum;
2. ordering
defendants to pay jointly and severally attorney's fees equivalent to ten
percent (10%) of the principal and to pay the costs of the suit.
Defendants'
counterclaim is disallowed. (pp. 45-46, Rollo)
On June 8, 1981, the trial court issued an order denying the
motion for reconsideration filed by the petitioners.
Thus, the petitioners appealed to the Intermediate Appellate
Court and assigned therein the following errors:
I
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER
ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT APPROVE
DEFENDANTS-APPELLANTS CLAIM OF WARRANTY.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF-
APPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID
NOTE AS HOLDER THEREOF IN DUE COURSE.
On July 17, 1985, the Intermediate Appellate Court issued
the challenged decision affirming in toto the decision of the trial court. The
pertinent portions of the decision are as follows:
xxx xxx xxx
From the evidence presented by the
parties on the issue of warranty, We are of the considered opinion that aside
from the fact that no provision of warranty appears or is provided in the Deed
of Sale of the tractors and even admitting that in a contract of sale unless a
contrary intention appears, there is an implied warranty, the defense of breach
of warranty, if there is any, as in this case, does not lie in favor of the
appellants and against the plaintiff-appellee who is the assignee of the promissory
note and a holder of the same in due course. Warranty lies in this case only
between Industrial Products Marketing and Consolidated Plywood Industries, Inc.
The plaintiff-appellant herein upon application by appellant corporation
granted financing for the purchase of the questioned units of Fiat-Allis
Crawler,Tractors.
xxx xxx xxx
Holding that
breach of warranty if any, is not a defense available to appellants either to
withdraw from the contract and/or demand a proportionate reduction of the price
with damages in either case (Art. 1567, New Civil Code). We now come to the
issue as to whether the plaintiff-appellee is a holder in due course of the promissory
note.
To begin with,
it is beyond arguments that the plaintiff-appellee is a financing corporation
engaged in financing and receivable discounting extending credit facilities to
consumers and industrial, commercial or agricultural enterprises by discounting
or factoring commercial papers or accounts receivable duly authorized pursuant
to R.A. 5980 otherwise known as the Financing Act.
A study of the
questioned promissory note reveals that it is a negotiable instrument which was
discounted or sold to the IFC Leasing and Acceptance Corporation for
P800,000.00 (Exh. "A") considering the following. it is in writing
and signed by the maker; it contains an unconditional promise to pay a certain
sum of money payable at a fixed or determinable future time; it is payable to
order (Sec. 1, NIL); the promissory note was negotiated when it was transferred
and delivered by IPM to the appellee and duly endorsed to the latter (Sec. 30,
NIL); it was taken in the conditions that the note was complete and regular
upon its face before the same was overdue and without notice, that it had been
previously dishonored and that the note is in good faith and for value without
notice of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC
Leasing and Acceptance Corporation 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 (Sec. 57, NIL); the appellants
engaged that they would pay the note according to its tenor, and admit the
existence of the payee IPM and its capacity to endorse (Sec. 60, NIL).
In view of the
essential elements found in the questioned promissory note, We opine that the
same is legally and conclusively enforceable against the defendants-appellants.
WHEREFORE,
finding the decision appealed from according to law and evidence, We find the
appeal without merit and thus affirm the decision in toto. With costs against
the appellants. (pp. 50-55, Rollo)
The petitioners' motion for reconsideration of the decision
of July 17, 1985 was denied by the Intermediate Appellate Court in its
resolution dated October 17, 1985, a copy of which was received by the
petitioners on October 21, 1985.
Hence, this petition was filed on the following grounds:
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE
INSTRUMENT AS DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO
BEARER.
II
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS
A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE.
III.
SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT
AND THE TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY
RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST
THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING.
IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE
PROMISSORY NOTE BECAUSE:
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER
THE LAW;
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE
SELLER-ASSIGNOR OF THE PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER-
ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE
TRANSACTION FROM BEING A SALE ON INSTALLMENTS TO A PURE LOAN.
VI.
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE
IN ANY COURT BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED
THEREON OR CANCELLED.
The petitioners prayed that judgment be rendered setting
aside the decision dated July 17, 1985, as well as the resolution dated October
17, 1985 and dismissing the complaint but granting petitioners' counterclaims
before the court of origin.
On the other hand, the respondent corporation in its comment
to the petition filed on February 20, 1986, contended that the petition was
filed out of time; that the promissory note is a negotiable instrument and
respondent a holder in due course; that respondent is not liable for any breach
of warranty; and finally, that the promissory note is admissible in evidence.
The core issue herein is 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.
Preliminarily, it must be established at the outset that we
consider the instant petition to have been filed on time because the
petitioners' motion for reconsideration actually raised new issues. It cannot,
therefore, be considered pro- formal.
The petition is impressed with merit.
First, there is no question that the seller-assignor
breached its express 90-day warranty because the findings of the trial court,
adopted by the respondent appellate court, that "14 days after delivery,
the first tractor broke down and 9 days, thereafter, the second tractor became
inoperable" are sustained by the records. The petitioner was clearly a
victim of a warranty not honored by the maker.
The Civil Code provides that:
ART. 1561. The
vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would not have acquired it or would
have given a lower price for it; but said vendor shall not be answerable for
patent defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or profession,
should have known them.
ART. 1562. In
a sale of goods, there is an implied warranty or condition as to the quality or
fitness of the goods, as follows:
(1) Where the
buyer, expressly or by implication makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies
on the sellers skill or judge judgment (whether he be the grower or manufacturer
or not), there is an implied warranty that the goods shall be reasonably fit
for such purpose;
xxx xxx xxx
ART. 1564. An
implied warranty or condition as to the quality or fitness for a particular
purpose may be annexed by the usage of trade.
xxx xxx xxx
ART. 1566. The
vendor is responsible to the vendee for any hidden faults or defects in the
thing sold even though he was not aware thereof.
This provision
shall not apply if the contrary has been stipulated, and the vendor was not
aware of the hidden faults or defects in the thing sold. (Emphasis supplied).
It is patent then, that 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 assignee is a holder in due course of the promissory note in question,
assuming the note is negotiable, in which case the latter's rights are based on
the negotiable instrument and assuming further that the petitioner's defenses
may not prevail against it.
Secondly, it likewise cannot be denied that as soon as the
tractors broke down, the petitioner-corporation notified the seller-assignor's
sister company, AG & P, about the breakdown based on the seller-assignor's
express 90-day warranty, with which the latter complied by sending its
mechanics. However, due to the seller-assignor's delay and its failure to
comply with its warranty, the tractors became totally unserviceable and useless
for the purpose for which they were purchased.
Thirdly, the petitioner-corporation, thereafter,
unilaterally rescinded its contract with the seller-assignor.
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The
power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured
party may choose between the fulfillment and the rescission of the obligation
with the payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.
xxx xxx xxx
ART. 1567. In the cases of articles
1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from
the contract and demanding a proportionate reduction of the price, with damages
in either case. (Emphasis supplied)
Petitioner, having unilaterally and extrajudicially
rescinded its contract with the seller-assignor, necessarily can no longer sue
the seller-assignor except by way of counterclaim if the seller-assignor sues
it because of the rescission.
In the case of the University of the Philippines v. De los
Angeles (35 SCRA 102) we held:
In other
words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds
at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was
not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for
adjudgement before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until the
final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages (Civil Code, Article
2203). (Emphasis supplied)
Going back to the core issue, we rule that the promissory
note in question is not a negotiable instrument.
The pertinent portion of the note is 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 SEVEN HUNDRED EIGHTY
NINE PESOS & 71/100 only (P 1,093,789.71), 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. ...
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.
The instrument
in order to be considered negotiablility-i.e. must contain the so-called 'words
of negotiable, must be payable to 'order' or 'bearer'. These words serve as an
expression of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable instrument
than under a non-negotiable one. ...
xxx xxx xxx
When
instrument 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. . . .
xxx xxx xxx
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." (Campos and Campos, Notes and Selected
Cases on Negotiable Instruments Law, Third Edition, page 38). (Emphasis
supplied)
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 seller-assignor Industrial Products Marketing.
This being so, there was no need for the petitioner to
implied the seller-assignor when it was sued by the respondent-assignee because
the petitioner's defenses apply to both or either of either of them. Actually,
the records show that even the respondent itself admitted to being a mere
assignee of the promissory note in question, to wit:
ATTY.
PALACA:
Did we
get it right from the counsel that what is being assigned is the Deed of Sale
with Chattel Mortgage with the promissory note which is as testified to by the
witness was indorsed? (Counsel for Plaintiff nodding his head.) Then we have no
further questions on cross,
COURT:
You
confirm his manifestation? You are nodding your head? Do you confirm that?
ATTY. ILAGAN:
The
Deed of Sale cannot be assigned. A deed of sale is a transaction between two
persons; what is assigned are rights, the rights of the mortgagee were assigned
to the IFC Leasing & Acceptance Corporation.
COURT:
He
puts it in a simple way as one-deed of sale and chattel mortgage were assigned;
. . . you want to make a distinction, one is an assignment of mortgage right
and the other one is indorsement of the promissory note. What counsel for
defendants wants is that you stipulate that it is contained in one single
transaction?
ATTY. ILAGAN:
We
stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980).
Secondly, even conceding for purposes of discussion that the
promissory note in question is a negotiable instrument, the respondent cannot
be a holder in due course for a more significant reason.
The evidence presented in the instant case shows that prior
to the sale on installment of the tractors, there was an arrangement between
the seller-assignor, Industrial Products Marketing, and the respondent whereby
the latter would pay the seller-assignor the entire purchase price and the
seller-assignor, in turn, would assign its rights to the respondent which acquired
the right to collect the price from the buyer, herein petitioner Consolidated
Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage
with Promissory Note, the Deed of Assignment and the Disclosure of Loan/Credit
Transaction shows that said documents evidencing the sale on installment of the
tractors were all executed on the same day by and among the buyer, which is
herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor
which is the Industrial Products Marketing; and the assignee-financing company,
which is the respondent. Therefore, 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. The respondent knew that when the tractors turned out to be
defective, it would be subject to the defense of failure of consideration and
cannot recover the purchase price from the petitioners. Even assuming for the
sake of argument that the promissory note is negotiable, the respondent, which
took the same with actual knowledge of the foregoing facts so that its action
in taking the instrument amounted to bad faith, is not a holder in due course.
As such, the respondent is subject to all defenses which the petitioners may
raise against the seller-assignor. Any other interpretation would be most
inequitous to the unfortunate buyer who is not only saddled with two useless
tractors but must also face a lawsuit from the assignee for the entire purchase
price and all its incidents without being able to raise valid defenses
available as against the assignor.
Lastly, the respondent failed to present any evidence to
prove that it had no knowledge of any fact, which would justify its act of
taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide
that: negotiating it.
xxx xxx xxx
SEC. 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:
xxx xxx xxx
xxx xxx xxx
(c) That he
took it in good faith and for value
(d) That the
time it was negotiated by him he had no notice of any infirmity in the
instrument of deffect in the title of the person negotiating it
xxx xxx xxx
SEC. 56. WHAT
CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the
person to whom it is negotiated must have had actual knowledge of the infirmity
or defect, or knowledge of such facts that his action in taking the instrument
amounts to bad faith. (Emphasis supplied)
We subscribe to the view of Campos and Campos that a
financing company is not a holder in good faith as to the buyer, to wit:
In installment
sales, the buyer usually issues a note payable to the seller to cover the
purchase price. Many times, in pursuance of a previous arrangement with the
seller, a finance company pays the full price and the note is indorsed to it,
subrogating it to the right to collect the price from the buyer, with interest.
With the increasing frequency of installment buying in this country, it is most
probable that the tendency of the courts in the United States to protect the
buyer against the finance company will , the finance company will be subject to
the defense of failure of consideration and cannot recover the purchase price
from the buyer. As against the argument that such a rule would seriously affect
"a certain mode of transacting business adopted throughout the
State," a court in one case stated:
It may
be that our holding here will require some changes in business methods and will
impose a greater burden on the finance companies. We think the buyer-Mr. &
Mrs. General Public-should have some protection somewhere along the line. We
believe the finance company is better able to bear the risk of the dealer's
insolvency than the buyer and in a far better position to protect his interests
against unscrupulous and insolvent dealers. . . .
If
this opinion imposes great burdens on finance companies it is a potent argument
in favor of a rule which win afford public protection to the general buying
public against unscrupulous dealers in personal property. . . . (Mutual Finance
Co. v. Martin, 63 So. 2d 649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and
Selected Cases on Negotiable Instruments Law, Third Edition, p. 128).
In the case of Commercial Credit Corporation v. Orange
Country Machine Works (34 Cal. 2d 766) involving similar facts, it was held
that in a very real sense, 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.
In like manner, therefore, even assuming that the subject
promissory note is negotiable, the respondent, a financing company which
actively participated in the sale on installment of the subject two Allis
Crawler tractors, cannot be regarded as a holder in due course of said note. It
follows that the respondent's rights under the promissory note involved in this
case are subject to all defenses that the petitioners have against the
seller-assignor, Industrial Products Marketing. For Section 58 of the
Negotiable Instruments Law provides that "in the hands of any holder other
than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable. ... "
Prescinding from the foregoing and setting aside other
peripheral issues, we find that both the trial and respondent appellate court
erred in holding the promissory note in question to be negotiable. Such a
ruling does not only violate the law and applicable jurisprudence, but would
result in unjust enrichment on the part of both the assigner- assignor and
respondent assignee at the expense of the petitioner-corporation which
rightfully rescinded an inequitable contract. We note, however, that since the
seller-assignor has not been impleaded herein, there is no obstacle for the
respondent to file a civil Suit and litigate its claims against the seller-
assignor in the rather unlikely possibility that it so desires,
WHEREFORE, in view of the foregoing, the decision of the
respondent appellate court dated July 17, 1985, as well as its resolution dated
October 17, 1986, are hereby ANNULLED and SET ASIDE. The complaint against the
petitioner before the trial court is DISMISSED.
SO ORDERED.
Fernan, Paras, Padilla, Bidin and Cortes, JJ., concur.