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Topic: Negotiability

Salas vs CA

Facts:

Juanita Salas bought a motor vehicle from Violago Motor Sales Corporation (VMS) for P58, 138.20 as evidenced by a
promissory note. The note was subsequently indorsed to Filinvest. Salas defaulted in her installments allegedly due to
a discrepancy in the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed
of chattel mortgage. Failure of Salas to pay prompted Filinvest to initiate a case for a sum of money against her in the
RTC.

RTC ordered Salas to pay Filinvest the sum of P28, 414.40 with interest.

Salas appealed to CA on the ground that VMS committed fraud and bad faith in delivering a different vehicle to Salas.

CA modified RTCs decision only to the amount Salas was to pay Filinvest. CA further held that when an action or
defense is founded upon a written instrument, copied or attached to the corresponding pleading, 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 facts.

Salas filed motion for reconsideration but was denied hence the current petition alleging that no contract existed
between her and VMS and therefore non had been assigned in favor of Filinvest.

Issues:

Whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses
of the Salas against Filinvest.

Ruling:

The promissory note is a negotiable instrument.

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.

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.

Accordingly, Filinvest 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, Salas cannot set up against Filinvest the defense of nullity of the contract of sale between her and VMS.

Rivera vs Sps. Chua

Facts:

Rivera obtained a loan from the Spouses Chua. In the promissory note, Rivera promised to pay Spouses Salvador
and Violeta Chua the sum of P120, 000.00 on December 31, 1995. In October 1998, almost three years from the date
of payment stipulated in the promissory note, Rivera, as partial payment for the loan, issued and delivered to the
Spouses Chua, as payee, a check. On 21 December 1998, the Spouses Chua received another check presumably
issued by Rivera. Upon presentment for payment, the two checks were dishonored for the reason account closed. As
of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of P120,000.00
plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999. Spouses Chua alleged that they have
repeatedly demanded payment from Rivera to no avail. Because of Riveras unjustified refusal to pay, the Spouses
Chua filed a suit in June 1999.

MeTC ruled in favor Spouses Chua. RTC affirmed the MeTC. CA affirmed RTC.

Rivera alleged that there was no demand for payment prior to the encashment. That demand was necessary in order
to charge him liable. And that it was a grave error for the CA to apply Sec. 70 of the NEgotibale Instruments Law.

Hence the present petition.

Issues:

Whether or not the Negotiable Instruments Law is applicable to Riveras promissory note.

Ruling:

No, the promissory note is not a negotiable instrument this the Negotiable Instruments Law does not apply in this case.
Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:

(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.

Section 184 of the NIL defines what negotiable promissory note as a negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay
on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is
drawn to the makers own order, it is not complete until indorsed by him. The Promissory Note in this case is made out
to specific persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the Spouses
Chua as payees. However, even if Riveras Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable31
December 1995. Rivera had already incurred in delay when he failed to pay the amount of P120,000.00 due to the
Spouses Chua on 31 December 1995 under the Promissory Note. Promissory Note expressly provided that after 31
December 1995, default commences and the stipulation on payment of interest starts.