CASE DIGEST

Salas v. CA
Law 108 – Bills, Notes, and Commercial Papers (Prof. Romero)

Court Supreme Court, Third Division

Citation GR No. 76788

Date January 22, 1990

Petitioner Juanita Salas

Respondents Hon. Court of Appeals and Filinvest Finance & Leasing Corporation

Ponente Fernan, C.J.

Relevant topic Negotiable Instruments; Distinction with Non-negotiable Instruments; Holder in Due
Course

Prepared by Dan

FACTS:
 Feb. 6, 1980: Petitioner Salas purchased a motorcycle from Violago Motor Sales Corp. (VMS) for P58,138.20,
payable in 36 monthly instalments, evidenced by a promissory note. Said PN was later endorsed to private
respondent, Filinvest, which financed the purchase
 May 21, 1980: Salas defaulted on her instalment payments allegedly due to a discrepancy in the engine and
chassis numbers of the motorcycle. This prompted Filinvest to initiate a collection suit against Salas
 The RTC ordered Salas to pay Filinvest the sum of P28,414.40 with interest at the rate of 14%
 Both parties appealed to the CA. As regards the petitioner, Salas claims that no contract ever existed between
her and VMS, hence, none had been assigned in favor of Filinvest, on the ground of fraud, bad faith, and
misrepresentation on the part of VMS.
 The CA rendered the assailed decision ordering Salas to pay P54,908.30 on the ground that she was only
able to pay two instalments

ISSUE – HELD – RATIO:

ISSUE HELD

WON the PN in question is a negotiable instrument which will bar completely all YES
the available defenses of Salas against Filinvest

RATIO:
Negotiable Instrument vs. Non-negotiable Instrument
 The case does not involve a mere assignment of credit, as Salas 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.
o 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.')
o 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.
o 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.

Requisites of a Negotiable Instrument

 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 PN complied with all
the requisites of a negotiable instrument as follows:
1. It is in writing and signed by the maker Juanita Salas;

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CASE DIGEST
Salas v. CA
Law 108 – Bills, Notes, and Commercial Papers (Prof. Romero)

2. It contains an unconditional promise to pay the amount of P58,138.20;

3. It is payable at a fixed or determinable future time which is "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 Feb. 21, 1983;"
4. It is payable to VMS, or order and as such,
5. The drawee is named or indicated with certainty.
 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

Holder in Due Course

 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:
1. It is complete and regular upon its face;
2. It became the holder thereof before it was overdue, and without notice that it had previously been
dishonored;
3. It took the same in good faith and for value; and
4. 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
 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
o This being so, Salas cannot set up against Filinvest 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 Salas’ 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
o Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract"
case.

RULING:

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

SEPARATE OPINIONS:
N/A

RELEVANT NIL PROVISIONS:

Sec. 1. Form of negotiable instruments. — An instrument to be negotiable must conform to the following
requirements:
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.

Sec. 52. What constitutes a holder in due course. — A holder in due course is a holder who has taken the
instrument under the following conditions:
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
3. That he took it in good faith and for value;
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it.

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