Salas v. CA G.R. No.

76788
Jan. 22, 1990 Fernan, C.J.
TOPIC IN SYLLABUS: Holder in good faith – Financing company not a holder in GF as to buyer
SUMMARY: Salas bought a motor vehicle from VMS – as evidenced by a promissory note endorsed by Filinvest. Salas
defaulted in her installments because there was an alleged discrepancy with the motor vehicle and sales invoice. Filinvest
sued Salas, but Salas claims she has been absolved of the obligation due to VMS’ bad faith. Court held that since
Filinvest is a holder in due course (i.e. complied with Se.c 52) and the PN was a negotiable instrument (i.e. complied
with Sec.1), Filinvest holds the instrument free from any defect in the title and may enforce payment. Salas cannot put
up the defense of nullity of sale between her and VMS.
DOCTRINE: A financing company who is a holder in due course of a negotiable instrument is free from any defect of
title of prior parties, and free from defenses available to prior parties, and may enforce payment of the instrument for the
full amount.
FACTS:
 Salas bought a motor vehicle from Violago Motor Sales Corporation (VMS) for P58,138.20 as evidence by a promissory
note. This PN was subsequently endorsed by the Filinvest Finance & Leasing Corp.
 Salas defaulted in her installments because of an alleged discrepancy in the engine and chassis number in the vehicle
delivered and the sales invoice, certificate of registration and deed of chattel mortgage.
 Filinvest initiated a case for a sum of money against Salas.

TC and CA: ordered Salas to pay the balance

PETITIONER’S ARGUMENT:
 Salas claims that she is absolved from the obligation because of VMS’ bad faith, fraud and misrepresentation.
 Applying the law on Sales, no contract existed between her and VMS, so none had been assigned to Filinvest.
 No need to implead VMS because it was earlier sued for “breach of contract with damages” in the RTC. (Case pending
determination – currently before CA)

RESPONDENT’S ARGUMENT: Cannot invoke RTC decision in breach of contract suit since it is still pending in CA.

ISSUE: W/N the PN is a negotiable instrument which will bar all the available defenses of Salas against Filinvest? YES

HELD:
 This is not a simple case of assignment, as Salas would have it appear, where the assignee merely steps into the shoes of
the assignorvendor.
 To be considered negotiable, an instrument must contain “words of negotiability” 1 (payable to “order” or “bearer.”)
 2 ways by which an instrument may be made payable to order: 1) must always be a specified person named in the
instrument and 2) 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.
 CAB, the instrument is negotiable: “I/We jointly and severally, promise to pay VMS or order”
 Because Filinvest is a HiDC2, it 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 respondent the defense of nullity of the contract of sale between her and VMS.
 Even assuming that the discrepancies were true, the Court cannot rule on the issue since VMS was not impleaded as a party.

Decision AFFIRMED.

1
Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp.
2
Holder in due course
Lopez, Catherine Nicole CASE #51