Nyco Sales Corporation vs BA Finance Corporation

G.R. No. 71694 – 200 SCRA 637 – Mercantile Law – Negotiable Instruments Law – Notice of Dishonor – Assignment of Credit

Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978, brothers Renato Fernandez and Santiago Renato (officers of Sanshell Corporation) approached Nyco Sales Corporation for a credit accommodation in order for the brothers make use of Nyco’s discounting privileges. Nyco Sales agreed and so, on November 15, 1978, Sanshell issued a post-dated (November 17, 1978) BPI check to Nyco Sales in the amount of P60,. Following the discounting process agreed upon, Nyco Sales, thru its president Rufino Yao, endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco Sales which endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco Sales (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell. Under the said Deed, the subject of the discounting was P60k BPI check.

The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a Security Bank and Trust Company check for P60k. This check again bounced. BA Finance made repeated demands to Nyco Sales and Sanshell but neither of the two settled the obligation. Hence, BA Finance sued Nyco Sales. Nyco Sales averred that it received no notice of dishonor when the second check was dishonored.

ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.

HELD: Yes. The relationship between Nyco Sales and BA Finance is one of assignor-assignee. The assignor-vendor warrants both the credit itself (its existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach of the above warranties, the assignor-vendor should be held answerable therefor. There is no question then that the assignor-vendor is indeed liable for the invalidity of whatever he assigned to the assignee-vendee. Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the check covered thereby is merely an incidental or collateral matter. This particular check merely evidenced the credit which was actually assigned to BA Finance. Thus, the designation is immaterial as it could be any other check. It is only what is represented by the said checks that Nyco is being asked to pay.

Nyco Sales’ pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter issued by BA Finance but also by the fact that Nyco Sales and Sanshell had frequent contacts before, during and after the dishonor. More importantly, as long as the credit remains outstanding, Nyco Sales shall continue to be liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not from the dishonoring of the check alone.

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