NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES

Page 183 of 190

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

In this case, far from it, the fear, if any, harbored by Ty wasn’t real or imminent. Ty claims that she was compelled to issue the checks—a condition the hospital commanded of her before her mother can be discharged. This is only speculative fear. It is also bereft of merit to raise the justifying circumstance of state of necessity, which has the following elements—

1. That the evil sought to be avoided actually exists 2. That the injury feared be greater than the one done to avoid it 3. That there be no other practical and less harmful means of

preventing it And to her claim of lack of consideration because she wasn’t the patient, it is no defense to an action on a promissory note for the maker to say that there was no consideration which was beneficial to him personally. It is sufficient if the consideration was a benefit conferred upon a third person, or a detriment suffered by the promisee, at the instance of the promissor. It is enough that the obligee foresees some right or privilege or suffers some detriment and the release and extinguishment of the original obligation.

186 GREAT ASIAN SALES V. CA 381 SCRA 557

FACTS: Great Asian Sales was a business engaged in the selling and buying of merchandise. In 2 of its board resolutions, it first authorized Arsenio, its treasurer, to secure a loan from Bancasia as well as to sign any pertinent documents related to such. Second, it authorized Arsenio to obtain from Bancasia a discounting line. Pursuant to these, deeds of assignments were issued by Great Asian in favor of Bancasia for receivables—specifically checks. Almost all the checks assigned by Great Asian were dishonored. Notice of dishonor was sent by the bank and its lawyer to Tan Chong Lin. Later, Great Asian filed for insolvency and in its petition, Bancasia was one of those listed as its creditors. In the meanwhile, a complaint was filed against Great Asian and Tan Chong Lin because of the surety agreement it signed in favor of Bancasia. HELD: First, under the 2 board resolutions, indeed Arsenio was authorized to obtain a loan and sign any document related to the securing of the loan. The question is whether the deeds of assignment signed by Arsenio was within the ambits of his authority.

The deeds of assignment enabled Great Asian to generate instant cash, with checks which were not due and demandable then. In the financing industry, a discounting line means a credit facility with a financing bank or company, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount. The term discount means the sale of a receivable at less than its face value. The purpose of discounting line is to enable a business entity to generate instate cash out of its receivables which are still to mature at future debts. The financing company or bank which buys the receivables makes its profits out of the difference between the face value of the receivable and the discounted price. Clearly, the discounting arrangements entered into by Arsenio were the same arrangements authorized under the board resolutions. Second, on the issue of breach of contract, Bancasia alleged that Great Asian committed a breach. In the deeds of assignment, it was stipulated that there is a vital suspensive condition—in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalties and other costs. Failure to pay would give rise to the obligation to pay Bancasia. Great Asian and Bancasia agreed on this specific with recourse stipulation, despite that the receivables were negotiable instruments. The contracting parties are allowed such stipulation in addition to the warranties of an indorser under the NIL. The explicit with recourse stipulation against Great Asian enlarges the liability of Great Asian beyond that of a mere indorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable because of the with recourse stipulation. The recourse of Bancasia to file an action for breach of contract doesn’t leave Great Asian with an empty bag. It is then subrogated back as creditor of the receivables. Great Asian can now proceed against the drawers who issued the checks. Even if there was no timely notice of dishonor, Great Asian is not prejudiced. A notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment. Wednesday: 187 and 189

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