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1. Sps. Pedro Violago v. BA Finance Corp.

and Avelino Violago AUTHOR: GOJAR


G.R. No. 158262, July 21, 2008
TOPIC: Elements of Negotiable Instrument
PONENTE: VELASCO, JR., J.
CASE LAW/ DOCTRINE:

Sec 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.
Emergency Recit:
AVELINO is the president of Violago Motor Sales Corporation (VMSC). AVELINO sold a car to spouses PEDRO and FLORENCIA. Terms were
that spouses would pay down payment and the balance would be paid through BA Finance. Spouses executed a Promissory Note in favor of
VMSC plus chattel mortgage on car. Deed of Assignment from VMSC in favor of BA Finance. Spouses didn’t know that AVELINO sold and
delivered the car to another cousin, ESMERALDO. Since they didn’t get the car, they stopped paying BA Finance. BA Finance filed a case in the
RTC against spouses and Avelino. Found the spouses guilty but are entitled to be repaid by Avelino. CA said that the PN was a negotiable
instrument & that BA finance was a holder in due course. Spouses insist that BA Finance is not a holder in due course. SC held that in
order to determine if BA Finance is a holder in due course, it must determine first if the promissory note is a negotiable instrument
covered by NIL. ISSUE: Is a PN a negotiable instrument? YES. All the requisites of a negotiable instrument are present.
FACTS:
1. 1983: Avelino Violago, Pres of Violago Motor Sales Corp (VMSC) offered to sell a car (Toyoto Cressida) to his cousin PEDRO &
Pedro’s wife Florencia so that the sale quota of the corporation would increase. He said that the spouses just needed to pay a
downpayment of P60k & the balance will be financed by BA Finance. The spouses agreed.
2. 1983: Sps. Violago + Avelino signed a promissory note (PN) & bound themselves to be solidarily liable to the order of VMSC in
the amount of P200k. They also executed a chattel mortgage over the car in favor of VMSC.
3. VMSC, thru Pres. Avelino, ENDORSED the promissory note to BA Finance without recourse.
4. VMSC assigned its rights under the PN & chattel mortgage in favor of BA Finance.
5. The sales invoice issued by VMSC was filed w/ LTO Baliwag Branch & issued a Certificate of Registration to Pedro.
a. BUT the Spouses weren’t aware that in 1982 VMSC sold the same car to Pres. Avelino’s other cousin named Esmeraldo.
6. Despite demands of Sps. Viologo to deliver the car, VMSC failed to do so. So they didn’t pay any monthly amortization to BA
Finance.
7. BA Finance filed a complaint for Replevin (granted) w/ Damages against the spouses for the delivery of the car or it can’t be
delivered, to pay the balance of P199k.
8. In the meantime, Emeraldo (other cousin) conveyed the car to Jose. LTO-Cebu Branch issued Jose a certification of registration.
9. Jose executed a chattel mortgage in favor of Lopez as a security for a loan w/c was covered by a PN. This PN was LATER
ENDORSED to BA FINANCE - Cebu City Branch.
10. Sps filed their Answer:
a. Never received the car from VMSC & this car was sold by the corporation to Esmeraldo
b. They affixed their signatures on the PN & chattel mortgage in favor of VMSC in blank
c. BA Finance was NOT A HOLDER in due court under Sec. 59 NIL
d. Recourse of BA Finance should be against VMSC
11. Sps also filed a 3rd Party complaint against Avelino to hold him liable in case the spouses will be held liable to BA Finance.
12. RTC: In favor of Violago spouses but they are entitled to be indemnified by Pres. Avelino
13. Before their appeal to the CA, spouses argued:
a. The PN is negotiable instrument so the RTC should have applied the NIL not the Civil Code.
b. Since VMSC was not the owner of the car at the time of sale, the sale was void for lack of cause/consideration of the
PN (sale & delivery of the car)
c. BA Finance is not a holder in due course of the note because it knew thru its Cebu Branch that the car was never
delivered to the spouses.
14. Avelino argued: Dismiss the complaint against him since he was not a party to the transaction.
15. CA:
a. PN is negotiable instrument
b. BA Finance a holder in due course applied (Sec. 8,24, & 52 of the NIL)
16. Before the CA, the spouses argued that the NIL should be applied not NCC. But this present petition before the SC, the spouses
claimed that Art. 1318 NCC should applied because their consent was vitiated by fraud w/c makes the PN also void DESPITE
its negotiation. (SC held: Either way, their arguments deserve no merit)

ISSUES:
1) W/N the promissory note is a negotiable instrument? Yes, all the requisites of a negotiable instrument are present.
2) Is BA Finance a holder in due course of the PN? Yes.

RATIO: In order to determine if if BA Finance is a holder in due course, it must determine first if the promisery note is a negotiable
instrument covered by NIL.
1) Requisites of a negotiable instrument:
Sec 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 subject PN of this case:


209,601.00 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.) (Sgd.)

PEDRO F. VIOLAGO FLORENCIA R. VIOLAGO

763 Constancia St., Sampaloc, Manila same

(Sgd.) (Sgd.)

Marivic Avaria Jesus Tuazon

(WITNESS) (WITNESS)

PAY TO THE ORDER OF BA FINANCE CORPORATION


WITHOUT RECOURSE
VIOLAGO MOTOR SALES CORPORATION
By: (Sgd.)
AVELINO A. VIOLAGO, Pres

Applying it in this case:


 (a) It is in writing; (b) signed by the Violago spouses; (c) 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; (d) made payable to the order of VMSC; (e)
and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.

2) BA FINANCE is a HOLDER IN DUE COURSE ; Petitioner’s defense of fraud & nullity of sale cannot be raised against BA Finance.

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:
(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.

Law presumes that a holder of a negotiable instrument (PN) is a holder in due course.

 HERE, BA Finance was never informed before & at the time the PN was endorsed to it that the car sold to the spouses was not
delivered to the spouse. BA Finance wasn’t aware also that VMSC previously sold the vehicle to Esmeraldo. ALSO even if Jose
mortgage the car to Lopez who assigned his right to BA Finance (Cebu Branch), such events occurred on 1987 w/c was 7 yrs. later
when VMSC assigned its rights over the PN & chattel mortgage to BA Finance. Hence, BA Finance was a holder in due course.

 Not a holder in due course: Nego instrument is subject to the same defenses as if it were non-negotiable
 Holder in due course:
o 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.

 Hence the spouses can’t raise the defense of non-delivery of the object and nullity of the sale against BA Finance.

Notes:
SC pierced the veil of corporate fiction as against Avelino. VMSC is a family owned corporation. Pres. Avelino was aware the car was already
sold to another person. Pres. Avelino clearly defrauded the spouses & can’t hide behind the separate corporate personality of VMSC to
escape liability. Hence, Pres. Avelino should reimburse the spouses who were adjudged to pay BA Finance.

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