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Submitted by:

Alangre, Gee Meil

Base, Melchor
Beniabon, Mark Joeph
Cabrillos, Michael
Ore, Stephen Fritz
Rebution, Gerson Al

Submitted to:



December 12, 2017

I. The Facts

In 1983, Avelino Violago, president of Violago Motor Sales Corporation (VMSC),

offered to sell a car to his cousin, Pedro F. Violago and the latters wife, Florencia, to
increase the sales quota of VMSC.

A down payment of PhP 60,500 is needed, while the balance would be financed by
respondent BA Finance.

Under the terms of paying monthly installements to BA Finance, the spouses agreed
to purchase a Toyota Cressida Model 1983 from VMSC, while Avelino would take
care of the documentation and approval of financing of the car.

On August 4, 1983, the spouses and Avelino signed a promissory note under which
they bound themselves to pay jointly and severally to the order of VMSC the amount
of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, the first
installment is due and payable on September 16, 1983.

Avelino prepared a Disclosure Statement of Loan/Credit Transportation which

showed the net purchase price of the vehicle, down payment, balance, and finance

VMSC the issued a sales invoice in favor of the spouses with a detailed description of
the Toyota Cressida car.

In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as
security for the amount of PhP 209,601.

VMSC, through Avelino, endorsed the promissory note to BA Finance without


After receiving the amount of PhP 209,601, VMSC executed a Deed of Assignment
of its rights and interests under the promissory note and chattel mortgage in favor of
BA Finance. Meanwhile the spouses remitted the amount of PhpP 60,500to VMSC
through Avelino.

The spouses were unaware that the same car had already been sold in 1982 to
Esmeraldo Violago, another cousin of Avelino, and registered in Esmeraldos name
by the LTO-San Rafael Branch.

Pedro did not pay any monthly amortization to BA Finance since VMSC failed to
deliver the car.

March 1, 1984, BA Finance filed with the RTC a complaint for Replevin with
Damages against the spouses.

The RTC rendered a decision in favor of BA Finance. However, RTC declared that
they are entitled to be indemnified by Avelino.
The decision of the Court a quo is affirmed. The promissory note was a negotiable
instrument and BA Finance is a holder in due course.

II. Issue

Whether or not the holder of an invalid promissory note may be considered a holder
in due course.

Whether or not the veil of Corporate Entity may be invoked and sustained despite the
fraud and deception of Avelino.

III. Ruling

The CAs August 20, 2002 Decision and May 15, 2003 Resolution in CA-G.R. CV
No. 48489 are set-aside insofar as they dismissed without prejudice the third party
complaint of petitioners-spouses Pedro and Florencia Violago against respondent
Avelino Violago. The March 5, 1994 Decision of the RTC is reinstated and affirmed,
favoring BA Finance but against the Violago spouses. Costs against Avelino Violago.

IV. Basis of the Ruling

Section 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;
b. Must contain an unconditional promise or order to pay in sum certain in money;
c. Must be payable on demand or at a fixed determinable future time;
d. Must be payable to order or to bearer;
e. Wherein the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty

Section 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:
a. It is complete and regular upon its face
b. That he became the holder of it before it was due, and without notice that it had
been previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. 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.

The Promissory Note in Exhibit A is complete and regular; the Promissory Note
in Exhibit B was endorsed by the VMSC in favor of the Appellee; the Appellee, when
it accepted the note, acted in good faith and for value; the Appellee was never
informed, before and at the time the promissory note was endorse to the Appellee,
that the vehicle sold to the Defendants-Appellants was not delivered to the latter and
that VMSC had previously sold the vehicle to Esmeraldo Violago. Although Jose
Olvido mortgaged the vehicle to Generoso Lopez, who assigned its rights to the BA
Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much
later than August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage
by the Defendants-Appellants to the Appellee. Hence, the Appellee was a holder in
due course.

Since BA Finance is a holder in due course, the petitioners cannot raise the
defense of non-delivery of the object and nullity of the sale against the corporation.
VMSC is a family-owned corporation of which Avelino was president, Avelino
committed fraud in selling the vehicle to petitioners, a vehicle that was previously
sold to Avelinos other cousin, Esmeraldo.

Avelino clearly defrauded petitioners. His actions were the proximate cause of
petitioners loss. He cannot now hide behind the separate corporate personality of
VMSC to escape from liability for the amount adjudged by the trial court in favor of
the petitioners.

Obligation was incurred in the name of the corporation, the petitioner would still
be personally liable therefor because for all legal intents and purposes, he and the
corporation are one and the same.