EQUITABLE BANKING CORPORATION, 

petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL
CO., respondents.

William R. Veto for petitioner.

Pelaez, Adriano & Gregorio for respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment against it rendered by
respondent Appellate Court, 1 dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, 2 be annulled and set aside.

The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference
by Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs.
Liberato V. Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of
First Instance of Rizal (Civil Case No. 25112), and read:

From the evidence submitted by the parties, the Court finds that sometime in
1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and
told its senior sales engineer, Amado Claustro that he was interested in buying
one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself as the majority
stockholder, president and general manager of Casville Enterprises, Inc., a firm
engaged in the large scale production, procurement and processing of logs and
lumber products, which had a plywood plant in Sta. Ana, Metro Manila.

After defendant Casals talked with plaintiff's sales engineer, he was referred to
plaintiffs executive vice-president, Apolonio Javier, for negotiation in connection
with the manner of payment. When Javier asked for cash payment for the
skidders, defendant Casals informed him that his corporation, defendant Casville
Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation.
Apparently, impressed with this assertion, Javier agreed to have the skidders
paid by way of a domestic letter of credit which defendant Casals promised to
open in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22,
1975, defendant Casville, through its president, defendant Casals, ordered from
plaintiff two units of garrett skidders ...

The purchase order for the garrett skidders bearing No. 0051 and dated
December 22, 1975 (Exhibit "A") contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A complete as basically described in
the bulletin

PRICE: F.O.B. dock

Manila P485,000.00/unit

For two (2) units P970,000.00

SHIPMENT: We will inform you the date and name of the vessel as soon as
arranged.

TERMS: By irrevocable domestic letter of credit to be issued in favor of THE

EDWARD J. NELL CO. or ORDER payable in thirty six (36) months and will be
opened within ninety (90) days after date of shipment. at first installment will be
due one hundred eighty (180) days after date of shipment. Interest-14% per
annum (Exhibit A)

xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals and Casville requested from
plaintiff the delivery of one (1) unit of the bidders, complete with tools and cables,
to Cagayan de Oro, on or before Saturday, April 24,1976, on board a Lorenzo
shipping vessel, with the information that an irrevocable Domestic Letter of Credit
would be opened in plaintiff's favor on or before June 30, 1976 under the terms
and conditions agreed upon (Exhibit "B")

On May 3, 1976, in compliance with defendant Casvile's recognition request,

plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the
shipping cost in the amount of P10,640.00 because of the verbal assurance of
defendant Casville that it would be covered by the letter of credit soon to be
opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of
P300,000.00 postdated August 4, 1976, which was followed by another check of
same date. Plaintiff considered these checks either as partial payment for the
skidder that was already delivered to Cagayan de Oro or as reimbursement for
the marginal deposit that plaintiff was supposed to pay.

In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the
plaintiff that their application for a letter of credit for the payment of the Garrett
skidders had been approved by the Equitable Banking Corporation. However, the
defendants said that they would need the sum of P300,000.00 to stand as
collateral or marginal deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of Equitable Banking
Corporation, to clear the title of the Estrada property belonging to defendant
Casals which had been approved as security for the trust receipts to be issued by
the bank, covering the above-mentioned equipment.

Although the marginal deposit was supposed to be produced by defendant

Casville Enterprises, plaintiff agreed to advance the necessary amount in order to
facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a check
in the amount of P400,000.00 (Exhibit "2") drawn against the First National City
Bank and made payable to the order of Equitable Banking Corporation and with
the following notation or memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment

of balance on Estrada Property to be used as security for trust
receipt for opening L/C of Garrett Skidders in favor of the Edward
J. Nell Co." Said check together with the cash disbursement
voucher (Exhibit "2-A") containing the explanation:
 Payment for marginal deposit and other expenses re opening of
L/C for account of Casville Ent..

A covering letter (Exhibit "3") was also sent and when the three documents were
presented to Severino Santos, executive vice president of defendant bank,
Santos did not accept them because the terms and conditions required by the
bank for the opening of the letter of credit had not yet been agreed on.

On August 9, 1976, defendant Casville wrote the bank applying for two letters of
credit to cover its purchase from plaintiff of two Garrett skidders, under the
following terms and conditions:

a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for
P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate Collateral
to secure the Trust Receipts; e) We shall chattel mortgage the equipments
purchased even after payment of the first L/C as additional security for the
balance of the second L/C and f) Other conditions you deem necessary to protect
the interest of the bank."

In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating
that it was ready to open the letters of credit upon defendant's compliance of the
following terms and conditions:

c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the
Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f) Other
terms and conditions that our bank may impose.

Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing
three postdated checks. In said letter, plaintiff was informed of the requirements
imposed by the defendant bank pointing out that the "cash marginal required
under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another
P100,000.00 to clean up the Estrada property or a total of P427,300.00" and that
the check covering said amount should be made payable "to the Order of
EQUITABLE BANKING CORPORATION for the account of Casville Enterprises
Inc." Defendant Casville also stated that the three (3) enclosed postdated checks
were intended as replacement of the checks that were previously issued to
plaintiff to secure the sum of P427,300.00 that plaintiff would advance to
defendant bank for the account of defendant Casville. All the new checks were
postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"),
P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H").

On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of
the Register of Deeds of Quezon City and TCT No. 50851 of the Register of
Deeds of Rizal covering two pieces of real estate properties.

Subsequently, Cesar Umali, plaintiffs credit and collection manager,

accompanied by a representative of defendant Casville, went to see Severino
Santos to find out the status of the credit line being sought by defendant Casville.
Santos assured Umali that the letters of credit would be opened as soon as the
requirements imposed by defendant bank in its letter dated August 11, 1976 had
been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the
"order of EQUITABLE BANKING CORPORATION A/C CASVILLE
ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit "E-
l"). The check did not contain the notation found in the previous check issued by
 the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a
covering letter dated August 16,1976 that went with the check (Exhibit "E"). Both
<äre||anº•1àw> 

the check and the covering letter were sent to defendant bank through defendant
Casals. Plaintiff entrusted the delivery of the check and the latter to defendant
Casals because it believed that no one, including defendant Casals, could
encash the same as it was made payable to the defendant bank alone. Besides,
defendant Casals was known to the bank as the one following up the application
for the letters of credit.

Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant
Casals immediately deposited it with the defendant bank and the bank teller
accepted the same for deposit in defendant Casville's checking account. After
depositing said check, defendant Casville, acting through defendant Casals, then
withdrew all the amount deposited.

Meanwhile, upon their presentation for encashment, plaintiff discovered that the
three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00, that
were issued by defendant Casville as collateral were all dishonored for having
been drawn against a closed account.

As defendant Casville failed to pay its obligation to defendant bank, the latter
foreclosed the mortgage executed by defendant Casville on the Estrada property
which was sold in a public auction sale to a third party.

Plaintiff allowed some time before following up the application for the letters of
credit knowing that it took time to process the same. However, when the three
checks issued to it by defendant Casville were dishonored, plaintiff became
apprehensive and sent Umali on November 29, 1976, to inquire about the status
of the application for the letters of credit. When plaintiff was informed that no
letters of credit were opened by the defendant bank in its favor and then
discovered that defendant Casville had in the meanwhile withdrawn the entire
amount of P427,300.00, without paying its obligation to the bank plaintiff filed the
instant action.

While the the instant case was being tried, defendants Casals and Casville
assigned the garrett skidder to plaintiff which credited in favor of defendants the
amount of P450,000.00, as partial satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only
did they show lack of interest in disputing plaintiff's claim by not appearing in
most of the hearings, but they also assigned to plaintiff the garrett skidder which
is an action of clear recognition of their liability.

What is left for the Court to determine, therefore, is only the liability of defendant
bank to plaintiff.

xxx xxx xxx

Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto,
the pertinent portion of which reads:

xxx xxx xxx

Defendants Casals and Casville Enterprises and Equitable Banking Corporation

are ordered to pay plaintiff, jointly and severally, the sum of P427,300.00,
 representing the amount of plaintiff's check which defendant bank erroneously
credited to the account of defendant Casville and which defendants Casal and
Casville misappropriated, with 12% interest thereon from April 5, 1977, until the
said sum is fully paid.

Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's

fees in the sum of P25,000.00 .

Proportionate cost against all the defendants.

SO ORDERED.

The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly,
the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the
second check issued by NELL, Exhibit "E-l," which was made payable

to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF

CASVILLE ENTERPRISES INC.

and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check had been erroneously credited to the
Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to
pay NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the
Trial Court:

The Court finds that the check in question was payable only to the defendant
bank and to no one else. Although the words "A/C OF CASVILLE
ENTERPRISES INC. "appear on the face of the check after or under the name of
defendant bank, the payee was still the latter. The addition of said words did not
in any way make Casville Enterprises, Inc. the Payee of the instrument for the
words merely indicated for whose account or in connection with what account the
check was issued by the plaintiff.

Indeed, the bank teller who received it was fully aware that the check was not
negotiable since he stamped thereon the words "NON-NEGOTIABLE For
Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August
17,1976 EQUITABLE BANKING CORPORATION.

But said teller should have exercised more prudence in the handling of Id check
because it was not made out in the usual manner. The addition of the words A/C
OF CASVILLE ENTERPRISES INC." should have placed the teller on guard and
he should have clarified the matter with his superiors. Instead of doing so,
however, the teller decided to rely on his own judgment and at the risk of making
a wrong decision, credited the entire amount in the name of defendant Casville
although the latter was not the payee named in the check. Such mistake was
crucial and was, without doubt, the proximate cause of plaintiffs defraudation.

xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating in addition:

1) The appellee made the subject check payable to appellant's order, for the
account of Casville Enterprises, Inc. In the light of the other facts, the directive
was for the appellant bank to apply the value of the check as payment for the
 letter of credit which Casville Enterprises, Inc. had previously applied for in favor
of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was
precisely to meet the bank's prior requirement of payment before issuing the
letter of credit previously applied for by Casville Enterprises in favor of the
appellee;

xxx xxx xxx

We disagree.

1) The subject check was equivocal and patently ambiguous. By making the check read:

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE

ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law.   As worded, it could be accepted as deposit to the account of the
3

party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for
Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against NELL who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.

2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-
negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the
subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel
lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by
the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of
the check, and simply meant that thereafter the same check could no longer be negotiated.

3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the
16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of
its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the
order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check,
Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon
Casals request. NELL also eliminated both the cash disbursement voucher accompanying the
check which read:

Payment for marginal deposit and other expense re opening of L/C for account of
Casville Enterprises.

and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on
Estrada Property to be used as security for trust receipt for opening L/C of Garrett
Skidders in favor of the Edward Ashville J Nell Co.

Evidencing the real nature of the transaction was merely a separate covering letter, dated 16
August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who,
obviously, had his own antagonistic interests to promote. Thus it was that Casals did not
purposely present the subject check to the Executive Vice-President of the Bank, who was aware
of the negotiations regarding the Letter of Credit, and who had rejected the previous check,
Exhibit "2," including its three documents because the terms and conditions required by the Bank
for the opening of the Letter of Credit had not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction,
NELL even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the
seller of goods, the price of which is to be covered by a letter of credit, to advance the marginal
deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties
as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests
were sufficiently protected. Never had it suspected that those postdated checks would be
dishonored, nor that the subject check would be utilized by Casals for a purpose other than for
opening the letter of credit.

In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau,
et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking
Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation,
L-15895, January 30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of confidence must
bear the loss.

WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4
October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of
Rizal, Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from
any and all liabilities to the private respondent, Edward J. Nell Company, and the Amended
Complaint against petitioner bank is hereby ordered dismissed. No costs.

SO ORDERED.
JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION, respondents.

Arsenio C. Villalon, Jr. for petitioner.

Labaguis, Loyola, Angara & Associates for private respondent.

FERNAN, C.J.:

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-
G.R. CV No. 00757 entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified
the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a
collection suit between the same parties.

Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner)
bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for
P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to
Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which
financed the purchase.

Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in
the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when
the vehicle figured in an accident on 9 May 1980.

This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of
money against petitioner before the Regional Trial Court of San Fernando, Pampanga.

In its decision dated September 10, 1982, the trial court held, thus:

WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the
defendant to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of
14% from October 2, 1980 until the said sum is fully paid; and the further amount of
P1,000.00 as attorney's fees.

The counterclaim of defendant is dismissed.

With costs against defendant.  1

Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.

Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different
vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may
be absolved from the obligation under the contract.

On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion
of which is quoted hereunder:
 The allegations, statements, or admissions contained in a pleading are conclusive as
against the pleader. A party cannot subsequently take a position contradictory of, or
inconsistent with his pleadings (Cunanan vs. Amparo, 80 Phil. 227). Admissions made by
the parties in the pleadings, or in the course of the trial or other proceedings, do not
require proof and cannot be contradicted unless previously shown to have been made
through palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana vs.
Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).

When an action or defense is founded upon a written instrument, copied in or attached to

the corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party,
under oath, specifically denied them, and sets forth what he claims to be the facts (Sec.
8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).

A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory
note is the amount assumed by the plaintiff in financing the purchase of defendant's
motor vehicle from the Violago Motor Sales Corp., the monthly amortization of winch is
Pl,614.95 for 36 months. Considering that the defendant was able to pay twice (as
admitted by the plaintiff, defendant's account became delinquent only beginning May,
1980) or in the total sum of P3,229.90, she is therefore liable to pay the remaining
balance of P54,908.30 at l4% per annum from October 2, 1980 until full payment.

WHEREFORE, considering the foregoing, the appealed decision is hereby modified

ordering the defendant to pay the plaintiff the sum of P54,908.30 at 14% per annum from
October 2, 1980 until full payment. The decision is AFFIRMED in all other respects. With
costs to defendant. 2

Petitioner's motion for reconsideration was denied; hence, the present recourse.

In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud,
bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business
and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability
to private respondent who should instead proceed against VMS.  3

Petitioner argues that in the light of the provision of the law on sales by description   which she
4

alleges is applicable here, no contract ever existed between her and VMS and therefore none
had been assigned in favor of private respondent.

She contends that it is not necessary, as opined by the appellate court, to implead VMS as a
party to the case before it can be made to answer for damages because VMS was earlier sued
by her for "breach of contract with damages" before the Regional Trial Court of Olongapo City,
Branch LXXII, docketed as Civil Case No. 2916-0. She cites as authority the decision therein
where the court originally ordered petitioner to pay the remaining balance of the motor vehicle
installments in the amount of P31,644.30 representing the difference between the agreed
consideration of P49,000.00 as shown in the sales invoice and petitioner's initial downpayment of
P17,855.70 allegedly evidenced by a receipt. Said decision was however reversed later on, with
the same court ordering defendant VMS instead to return to petitioner the sum of P17,855.70.
Parenthetically, said decision is still pending consideration by the First Civil Case Division of the
Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922.  5

Private respondent in its comment, prays for the dismissal of the petition and counters that the
issues raised and the allegations adduced therein are a mere rehash of those presented and
already passed upon in the court below, and that the judgment in the "breach of contract" suit
cannot be invoked as an authority as the same is still pending determination in the appellate
court.
We see no cogent reason to disturb the challenged decision.

The pivotal issue in this case is whether the promissory note in question is a negotiable
instrument which will bar completely all the available defenses of the petitioner against private
respondent.

Petitioner's liability on the promissory note, the due execution and genuineness of which she
never denied under oath is, under the foregoing factual milieu, as inevitable as it is clearly
established.

The records reveal that involved herein is not a simple case of assignment of credit as petitioner
would have it appear, where the assignee merely steps into the shoes of, is open to all defenses
available against and can enforce payment only to the same extent as, the assignor-vendor.

Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance
Corp.,   this Court had the occasion to clearly distinguish between a negotiable and a non-
6

negotiable instrument.

Among others, the instrument in order to be considered negotiable must contain the so-called
"words of negotiability — i.e., must be payable to "order" or "bearer"". Under Section 8 of the
Negotiable Instruments Law, there are only two ways by which an instrument may be made
payable to order. There must always be a specified person named in the instrument and 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. Such being the situation in the
above-cited case, it was held that therein private respondent is not a holder in due course but a
mere assignee against whom all defenses available to the assignor may be raised.  7

In the case at bar, however, the situation is different. Indubitably, the basis of private
respondent's claim against petitioner is a promissory note which bears all the earmarks of
negotiability.

The pertinent portion of the note reads:

PROMISSORY NOTE
(MONTHLY)

P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980

For value received, I/We jointly and severally, promise to pay Violago Motor Sales
Corporation or order, at its office in San Fernando, Pampanga, the sum of FIFTY
EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY
(P58,138.20) Philippine currency, which amount includes interest at 14% per
annum based on the diminishing balance, the said principal sum, to be payable, without
need of notice or demand, in installments of the amounts following and at the dates
hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on the
21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983.
P_________ monthly for ______ months due and payable on the ______ day of each
month starting _____198__ thru and inclusive of _____, 198________ provided that
interest at 14% per annum shall be added on each unpaid installment from maturity
hereof until fully paid.
 x x x           x x x          x x x

Maker; Co-Maker:

(SIGNED) JUANITA SALAS _________________

Address:

____________________ ____________________

WITNESSES

SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE

TAN # TAN #

PAY TO THE ORDER OF

FILINVEST FINANCE AND LEASING CORPORATION

VIOLAGO MOTOR SALES CORPORATION

BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager  8

A careful study of the questioned promissory note shows that it is a negotiable instrument, having
complied with the requisites under the law as follows: [a] it is in writing and signed by the maker
Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly for 36 months due
and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb.
21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the
drawee is named or indicated with certainty.  9

It was negotiated by indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation   and it is an indorsement of the entire instrument. 
10 11

Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and regular
upon its face; [b] it became the holder thereof before it was overdue, and without notice that it
had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it
was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in
the title of VMS Corporation. 12

Accordingly, respondent corporation holds 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.   This being so, petitioner cannot set up
13

against respondent the defense of nullity of the contract of sale between her and VMS.

Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that
there was in fact deception made upon her in that the vehicle she purchased was different from
that actually delivered to her, this matter cannot be passed upon in the case before us, where the
VMS was never impleaded as a party.

Whatever issue is raised or claim presented against VMS must be resolved in the "breach of
contract" case.

Hence, we reach a similar opinion as did respondent court when it held:

 We can only extend our sympathies to the defendant (herein petitioner) in this
unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor
Sales Corporation is concerned since it is not a party in this case. To even discuss the
issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction
in question would amount, to denial of due process, hence, improper and
unconstitutional. She should have impleaded Violago Motor Sales. 14

IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against
petitioner.

SO ORDERED.