CONSOLIDATED PLYWOOD v IFC LEASING 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. FACTS Consolidated Plywood (CPI), a company engaged in logging business, had a project in 1978 for 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. The said company then bought two (2) "Used" Allis Crawler Tractors from Industrial Products Marketing (IPM) which dealt in tractors and other heavy equipment business. IPM assured CPI that the said tractors were fit for the job. Relying on the assurance, the tractors were purchased on installment basis with Php210k as down payment. The deed of sale was accompanied by a chattel mortgage and a promissory note. 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. Simultaneously, with the execution of the deed of sale with chattel mortgage with promissory note, IPM assigned its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corporation. Barely 14 days after delivery of the tractors, one of the tractors broke down, with the second following after a further 9 days. The mechanics sent by IPM found that the tractors could not be repaired and were no longer serviceable. Thus, the operations were delayed and as such Vergara, the VP of CPI, advised IPM that the payments for the installments in the promissory note will also be delayed.

Wee, CPIs President, requested IPM to pull out the units and have them reconditioned for subsequent sale, with the proceeds given to IPM. The letter was not responded to by the latter despite follow ups. Thereafter, IFC Leasing filed a case against CPI for principal of about Php 1.1m, accrued interest of P151k, and P249k of attorneys fees and costs of suit. (Php 1.5m). The petitioners sought to dismiss and prayed for other reliefs. However, the trial court rendered judgment in favor of IFC Leasing and ordered CPI to pay the amount. In its appeal to the IAC, CPI argued that the trial court erred in not approving its claim of warranty and finding that IFC Leasing as a holder in due course of the promissory note, and suing under the said note as holder in due course. The IAC, however, affirmed the trial courts decision. On the second issue, the IAC ruled that the promissory note satisfied the requirements of a negotiable instrument which was discounted or sold to IFC Leasing which was engaged in financing and receivable discounting for extending credit facilities, and a holder in due course. ISSUE Whether or not the promissory note in question is a negotiable instrument HELD No. The trial court and IAC erred. The promissory note is NOT a negotiable instrument. RATIO Section 1(d) of the NIL requires that the promissory note must be payable to order or bearer. The instrument, in order to be considered negotiable, 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. Under Section 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. 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." 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. Thus, the CPI may raise against the IFC Leasing all defenses available to it as against the seller-assignor IPM.