CONSOLIDATED PLYWOOD V.

IFC
149 SCRA 448

FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company Industrial Products
Marketing, two used tractors. Petitioner was issued a sales invoice for the two used tractors. At
the same time, the deed of sale with chattel mortgage with promissory note was issued.
Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory note to
respondent. The used tractors were then delivered but barely 14 days after, the tractors broke
down. The seller sent mechanics but the tractors were not repaired accordingly as they were no
longer serviceable. Petitioner would delay the payments on the promissory notes until the seller
completes its obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of the promissory note.

HELD:
It is patent that the seller is liable for the breach in 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 latters rights are based on a negotiable instrument and assuming
further that the petitioners defense may not prevail against it.

The promissory note in question is not a negotiable instrument. The promissory note in question
lacks the so-called words of negotiability. And as such, it follows that the respondent can never be a
holder in due course but remains merely an assignee of the note in question. Thus, the petitioner
may raise against the respondents all defenses available to it against the seller.