Consolidated Plywood vs.
IFC Leasing • The pertinent portion of the promissory note is as follows:
G.R. No. 72593 | 149 SCRA 448 | April 30, 1987 | Gutierrez, Jr., J.
Petition: Petition for certiorari under Rule 45 of the Rules of Court of a
decision of the CA
Petitioners: Consolidated Plywood Industries, Inc., Henry Wee, and Rodolfo
T. Vergara
Respondents: IFC Leasing and Acceptance Corporation
Negotiable Instruments Law; Chapter 1: Form and Interpretation;
Section 8
DOCTRINE
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.
Negotiable Instruments Law Provision
Sec. 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. It
may be drawn payable to the order of –
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or more several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty.
FACTS
• The petitioner is a corporation engaged in the logging business. For its
logging activities in 1978, it needed 2 units of additional tractors.
• Atlantic Gulf & Pacific Co. of Manila, through its sister company,
Industrial Products Marketing (seller), offered to sell to petitioner 2 used
Allis Crawler Tractors.
• Seller assured petitioner that the tractors were fit for the job and gave a
warranty of 90 days performance of the machines and availability of
parts.
• Petitioner, through its president (Wee) and VP (Vergara), agreed to
purchase on installment the said tractors with a down payment of P210k.
On April 5, 1978, the seller issued the sales invoice for the tractors and
the deed of sale with chattel mortgage with a promissory note was
executed.
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, the seller assigned the deed of sale with chattel
mortgage and promissory note to respondent IFC Leasing.
• 14 days after the delivery, one of the tractors broke down and after
another 9 days, the other tractor also broke down.
• Petitioner requested the seller’s prompt attention under the warranty.
The seller sent its mechanics to the job site but the units were no longer
serviceable.
• Petitioner Wee asked the seller to pull out the units and have them
reconditioned, and thereafter to offer them for sale and give the proceeds
to respondent. The seller did nothing with regard to the request, until a
complaint was filed by respondent against the petitioners for the recovery
of the principal sum of P1,093,789,71, accrued interest of P151,618.86,
as well as attorney’s fees and costs of suit.
• The trial court ordered petitioners to pay the aforementioned sums of
money. The CA affirmed the decision of the trial court. The CA held that
the respondent is a holder in due course of the promissory note and thus,
petitioner cannot use the defense of breach of warranty against
respondent.
ISSUES
1. W/N the promissory note is a negotiable instrument – NO
2. W/N respondent is a holder in due course - NO
RULING & RATIO
1. The promissory note is NOT a negotiable instrument.
• Considering that Sec. 1 of the Negotiable Instruments Law requires
that a promissory note “must be payable to order or bearer”, the
promissory note is not a negotiable instrument.
• Section 8 provides that the instrument is payable to order where it is
drawn payable to the order of a specified person or to him or his
order.
2. Respondent is NOT a holder in due course.
• Considering that the subject promissory note is not a negotiable
instrument, it follows that the respondent can never be a holder in
due course but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent all defenses
available to it as against the seller-assignor Industrial Products
Marketing.
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 • The documents evidencing the sale were all executed on the same
day among the 3 parties (petitioner, seller, and respondent).
Therefore, the respondent had actual knowledge of the fact that the
seller-assignor's right to collect the purchase price was not
unconditional, and that it was subject to the condition that the
tractors sold were not defective. The respondent, whose actions
amounted to bad faith, is not a holder in due course (Sec 52 and 56).

DISPOSITION
• WHEREFORE, in view of the foregoing, the decision of the respondent
appellate court dated July 17, 1985, as well as its resolution dated
October 17, 1986, are hereby ANNULLED and SET ASIDE. The
complaint against the petitioner before the trial court is DISMISSED.

NOTES
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:
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in
the instrument of deffect in the title of the person negotiating it
xxx xxx xxx
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. — To constitute
notice of an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have had
actual knowledge of the infirmity or defect, or knowledge of such facts that
his action in taking the instrument amounts to bad faith.

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