NYCO SALES CORPORATION v BA FINANCE CORPORATION, JUDGE DE LEON,

IMMEDIATE APPELLAE COURT

FACTS:
1. Nyco Sales whose president and general manager Rufino Yao is engaged in
the business of selling construction materials.
2. Fernandezes acting on behalf of Sanshell Corporation approached Yao for
credit accommodation.
o They requested Nyco thru Yao to garant Sanshell discounting priveleges
which Nyco had with BA Finance.
3. Fernandezed went to Yao for the purpose of discounting Sanshells BPI PDCs
on the aount of Php 60,000 payable to Nyco.
4. Nyco then thru Yao endorsed the check in favor of BA Finance.
5. BA Finance then issued a check payable Nyco which endorsed it in favor of
Sanshell which made use of the negotiation.
6. Nyco executed a Deed of Assignment in favor of BA Finance with the
conformity of Sanshell
o Under the deed, the subject of Assignment was the BPI PDC
Check.
o Agreed that there will be a Continuing Suretyship Agreement
whereby Fernandezes unconditionally guaranteed to BA Finance
the compliance of all indebtness of Nyco.
7. The check was subsequently dishonored by the drawee bank upon
presentment for payment
8. BA Finance reported the matter to the Fernandezes and issued a substitute
(Security Bank) check with the same amount to BA Finance which was again
subsequently dishonored.
9. Despite repeated demands, Nyco and the Fernandezes failed to pay the
obligation.
10. BA Finance then instituted an action to the court.
11. Nyco and Fernandezes were considered in default.
12. TC ruled in favor of BA Finance ordering the Fernandezes and Nycho
solidarily to pay the former.
13. Nycho moved to set aside the order and impleaded Sanshell.
14. TC ruled in favor of BA Finance.
o With regards to the Fernandezes, the TC denied the cross claim of
Nycho because it seems that Fernadezes never received the cross
claim of Nycho and have not been declared in default.
15. Upon appeal, affirmed TC decision with modification with respect to the
running time of interest.
o Run from February 19, 1979 instead of February 1 1979.
16. Hence this appeal.
o NYCHOS CONTENTION:
o Discharged of liability when BA Finance failed to gave a notice
of dishonor.
o No novation when BA Finance accepted SBTC check.
o Yao as President is not authorized to enter into credit
assignment with BA Finance since there is no Board Resolution
authorizing the same.
ISSUE: WON THE ASSIGNOR
DISHONORED CHECK

IS

LIABLE

TO

ITS

ASSIGNEE

FOR

ITS

HELD: YES. 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.
NOTES:
o An assignment of credit is the process of transferring the right of the
assignor to the assignee, who would then be allowed to proceed against the
debtor. It may be done either gratuitously or onerously, in which case, the
assignment has an effect similar to that of a sale.
o According to Article 1628 of the Civil Code, the assignorvendor 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 assigneevendee.
1. In the case at bar, it is only what is represented by the checks (SBTC and
BPI), which is merely an evidence of the credit (between Nycho and Sanshell
(debtor)). Nowhere in the decision stated that BA Finance can recover from
both checks.
2. NO NOTICE OF DISHONOR DEFENSE:
o The contention of Nycho that no notice was given is devoid of merit.
The notice was belied on the formal demand letter given by BA
Finance and that Nycho and Sanshell has continued formal
transaction before and after the dishonor.
o As long as the credit remains, Nyco is liable as an assignor to BA
Finance.
3. NO NOVATION DEFENSE
o Untenable. Novation has two categories. (1) Novation by express
agreement and (2) When the 2 obligations are incompatible.
o In the case at bar, there was no express agreement that BA Finance
acceptance of SBTC checks would extinguish Nyco from liability.
Neither there is incompatible obligations because both terminate the
same obligation which arise from Nycos assignment of Credit to BA
Finance.
4. NOT LIABLE FROM ITS PRESIDENTs ACT DEFENSE:
o Untenable. The by-laws of Nyco expressly authorized its President to
enter into contracts, borrowing money , signing, indorsing checks in
behalf of the compant. Also, it appears that the same kind of
transaction already happened between Nyco and BA Finance.
o Hence, Nyco is placed from estopped from denying Yaos authority
because of its silence just to escape liability.