G.R. No.105774, 25 April 2002


Great Asian is engaged in the business of buying and selling household appliances. In March 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and GM, Arsenio Lim Piat, Jr. to secure a loan from Bancasia in an amount not to exceed P1M and also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. In Feb. 1982, the board of directors of Great Asian approved a 2nd resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2M and also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line.

In March 1981 and 1982, Tan Chong Lin signed 2 Surety Agreements in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Great Asian, through Arsenio, signed 4 Deeds of Assignment of Receivables, assigning to Bancasia 15 postdated checks issued by various customers in payment for appliances and other merchandise. Arsenio endorsed all the 15 checks by signing his name at the back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of “Great Asian Sales Center”, while the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: “account closed”, “payment stopped”, “account under garnishment”, and “insufficiency of funds”. After the drawee bank dishonored the checks, Bancasia sent letters to Tan Chong Lin, notifying him of the dishonor and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.

In June 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Great Asian raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.


WON Great Asian is liable to Bancasia under the Deeds of Assignment for breach of contract pursuant to the civil code, independent of the negotiable instruments law.


YES. Bancasia’s complaint against Great Asian is founded on the latter’s breach of contract under the Deeds of Assignment. The Deeds of Assignment uniformly provided for one 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 penalty and attorney’s fees. The failure of the drawers to pay the checks is a suspensive condition, the happening of which gives rise to Bancasia’s right to demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment.

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia, as provided in Art 1159 of the Civil Code. Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law.

The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act, that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned. Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks.

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, 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. In the instant case, all the checks were dishonored for any of the following reasons: “account closed”, “account under garnishment”, insufficiency of funds”, or “payment stopped”. In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.

*Case digest by Benjie L. Sumalpong, JD-IV, Andres Bonifacio College, SY: 2019-2020