149 SCRA 448



Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company Industrial Products Marketing, two used tractors.  Petitioner was issued  a  sales  invoice  for  the  two  used  tractors.    At  the  same  time,  the deed  of  sale  with  chattel  mortgage  with  promissory  note  was  issued.  
Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory note to respondent.  The used tractors were then delivered but  barely  14  days  after,  the  tractors  broke  down.    The  seller  sent mechanics but the tractors were not repaired accordingly as they were no
longer serviceable.  Petitioner would delay the payments on the promissory notes until the seller completes its obligation under the warranty.

Thereafter, a collection suit was filed against petitioner for the payment of the promissory note.  


It is patent that the seller is liable for the breach in warranty against the petitioner.    This  liability  as  a  general  rule  extends  to  the  corporation  to whom it assigned its rights and interests unless the assignee is a holder in due  course  of  the  promissory  note  in  question,  assuming  the  note  is negotiable,  in  which  case,  the  latter’s  rights  are  based  on  a  negotiable instrument  and  assuming  further  that    the  petitioner’s  defense  may  not prevail against it.
The  promissory  note  in  question  is  not  a  negotiable  instrument.    The promissory note in question lacks the so-called words of negotiability.  And as such, it follows that the respondent can never be a holder in due course but  remains  merely  an  assignee  of  the  note  in  question.    Thus,  the petitioner  may  raise  against  the  respondents  all  defenses  available  to  it against the seller.