NYCO SALES CORPORATION, PETITIONER, VS. BA FINANCE CORPORATION, JUDDGE ROSALIO A. DE LEON – REGIONAL TRIAL COURT, BR. II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL CASES DIVISIO…

In this petition for review on certiorari, petitioner
challenges the April 22, 1985 decision* and the July
16, 1985 resolution* of the then Intermediate
Appellate Court in AC-G.R. CV No. 02553 entitled “BA Finance Corporation
v. Nyco Sales Corporation, et al.” which
affirmed with modification the July 20, 1983 decision** of the
Regional Trial Court, National
Capital Region, Manila, Branch II in the same case docketed as Civil Case No.
125909 ordering petitioner to pay respondent the amount of P60,000.00 as
principal obligation plus corresponding interest, the sum of P10,000.00 as and
for, attorney’s fees and 1/3 of the costs of suit.

It appears on record that petitioner Nyco
Sales Corporation (hereinafter referred to as Nyco)
whose president and general manager is Rufino Yao, is engaged in the business of selling construction
materials with principal office in Davao City.  Sometime in 1978, the brothers Santiago
and Renato Fernandez (hereinafter referred to as the Fernandezes), both acting in behalf of Sanshell
Corporation, approached Rufino Yao
for credit accommodation.  They requested
Nyco, thru Yao,
to grant Sanshell discounting privileges which Nyco had with BA Finance Corporation (hereinafter referred
to as BA Finance).  Yao apparently acquiesced, hence
on or about November 15, 1978,
the Fernandezes went to Yao for the purpose of discounting
Sanshell’s post-dated check which was a BPI-Davao Branch Check No. 499648 dated February 17, 1979 for the amount of
P60,000.00.  The said check was payable
to Nyco. 
Following the discounting process agreed upon, Nyco,
thru Yao,
endorsed the check in favor of BA Finance. 
Thereafter, BA Finance issued a check payable to Nyco
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 in favor of BA Finance with the conformity of Sanshell.  Nyco was represented by Rufino Yao, while Sanshell was
represented by the Fernandez brothers. 
Under the said Deed, the subject of the discounting was the aforecited check (Rollo, pp.
26-28).  At the back thereof and of every
deed of assignment was the Continuing Suretyship
Agreement whereby the Fernandezes unconditionally
guaranteed to BA Finance the full, faithful and prompt payment and discharge of
any and all indebtedness of Nyco (Ibid., pp.
36,46).  The BPI check, however, was
dishonored by the drawee bank upon presentment for
payment.  BA Finance immediately reported
the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,
1979 for the same amount in favor of BA Finance.  It was a Security Bank and Trust Company
check bearing the number 183157, which was again dishonored when it was presented for payment.  Despite repeated demands, Nyco
and the Fernandezes, failed to settle the obligation
with BA Finance, thus prompting the latter to institute an action in court (Ibid.,
p. 28).  Nyco and the Fernandezes, despite having been served with summons and
copies of the complaint, failed to file their answer and were consequently
declared in default.  On May 16, 1980, the lower court ruled
in favor of BA Finance ordering them to pay the former jointly and severally,
the sum of P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney’s fees in the amount of
P3,000.00 as well as the costs of suit (Rollo, pp.
51-52).  Nyco,
however, moved to set aside the order of default, to have its answer admitted
and to be able to implead Sanshell.  The prayer was granted through an order dated
June 23, 1980, wherein the
decision of the court was set aside only as regards Nyco.  Trial ensued once more until the court
reached a second decision which states:

“WHEREFORE, judgment is hereby
rendered in favor of the
plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the following:

1)     
P60,000.00 as principal obligation, plus
interest thereon at the rate of 14% per
annum from February 1, 1979 until
fully paid;

2)     
The amount of P10,000.00 as and for attorney’s
fees; and

3)     
One-third (1/3) of the costs of this suit.

With respect to defendants Santiago
and Renato Fernandez, the decision of May 16, 1980 stands.

The cross-claim of defendant Nyco Sales
Corporation against co-defendants Santiago B. Fernandez and Renato
B. Fernandez is hereby denied, as there is no showing that Nyco’s
Answer with cross-claim dated May 29, 1980 was ever received by said Fernandez
brothers, even as it is noted that the latter have not been declared in default
with respect to said cross-claim, nor were evidence adduced in connection
therewith.

As to the would-be litigant Sanshell
Construction and Development Corporation, defendant Nyco
Sales Corporation did not properly implead said
corporation which should have been by way of a third-party complaint instead of
a mere cross-claim.  The same
observations are noted as regard this cross-claim against Sanshell
as those made with respect to the Fernandez brothers.

SO ORDERED.”

On appeal, the
appellate court also upheld BA Finance but modified the lower court’s decision
by ordering that the interest should run from February 19, 1979 until paid and not from February 1, 1979.  Nyco’s subsequent
motion for reconsideration was denied (Ibid., pp. 33, 62).  Hence, the present recourse.

The crux of the controversy is whether or not the assignor is
liable to its assignee for its dishonored checks.

For its defense, Nyco anchors its
arguments on the following premises:  a)
that the appellate court erred in affirming its liability for the BPI check
despite a similar finding of liability for the SBTC check rendered by the same
lower court; b) that it was actually discharged of its liability over the SBTC
check when BA Finance failed to give it a notice of dishonor; c) that there was
novation when BA Finance accepted the SBTC check in
replacement of the BPI check; and d) that it cannot be held liable for its
President’s unauthorized acts.

The petition is
devoid of merit.

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.

According to Article 1628 of the Civil Code, 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.  Both the lower and the appellate courts
recognized this and so it is utterly misplaced to say that Nyco
is being held liable for both the BPI and the SBTC checks.  It is only what is represented by the said
checks that Nyco is being asked to pay.  Indeed, nowhere in the dispositive
parts of the decisions of the courts can it be gleaned that BA Finance may
recover from the two checks.

Nyco’s pretension that it had not been
notified of the fact of dishonor is belied not only by the formal demand letter
but also by the findings of the trial court that Rufino
Yao of Nyco and the
Fernandez Brothers of Sanshell had frequent contacts
before, during and after the dishonor (Rollo, p.
40).  More importantly, it fails to
realize that for as long as the credit remains outstanding, it 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 (See Art. 1628,
Civil Code).

Novation is the third defense set up by
petitioner Nyco. 
It insists that novation took place when BA
Finance accepted the SBTC check in replacement of the BPI check.  Such is manifestly untenable.

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same.  First, novation
must be explicitly stated and declared in unequivocal terms as novation is never presumed (Mondragon
v. Intermediate Appellate Court, G.R. No. 71889, April 17, 1990; Caneda, Jr. v. Court of Appeals, G.R. No. 81322, February
5, 1990).  Secondly, the old and the new
obligations must be incompatible on every point.  The test of incompatibility is whether or not
the two obligations can stand together, each one having its independent
existence.  If they cannot, they are
incompatible and the latter obligation novates the
first (Mondragon v. Intermediate Appellate Court, supra;
Caneda, Jr. v. Court of Appeals, supra).  In the instant case, there was no express
agreement that BA Finance’s acceptance of the SBTC check will discharge Nyco from liability. 
Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco’s
sale of credit to BA Finance.  As novation speaks of two distinct obligations, such is
inapplicable to this case.

Finally, Nyco disowns its President’s
acts claiming that it never authorized Rufino Yao (Nyco’s President) to even
apply to BA Finance for credit accommodation. 
It supports its argument with the fact that it did not issue a Board
resolution giving Yao
such authority.  However, the very
evidence on record readily belies Nyco’s
contention.  Its corporate By-Laws
clearly provide for the powers of its President, which include, inter alia, executing contracts and agreements, borrowing
money, signing, indorsing and delivering checks, all in behalf of the
corporation.  Furthermore, the appellate
court correctly adopted the lower court’s observation that there was already a
previous transaction of discounting of checks involving the same personalities
wherein any enabling resolution from Nyco was dispensed
with and yet BA Finance was able to collect from Nyco
and Sanshell was able to discharge its own
undertakings.  Such effectively places Nyco under estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such
belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts (Panay Electric Co., Inc. v.
Court of Appeals, G.R. No. 81939, June 29, 1989).  Nyco remained silent
in the course of the transaction and spoke out only later to escape
liability.  This cannot be
countenanced.  Nyco
is estopped from denying Rufino
Yao’s authority as far as the latter’s transactions
with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is
AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairman),
Padilla, Sarmiento,
and Regalado, JJ., concur.

* Penned by Associate Justice
Eduardo P. Caguioa and concurred in by Associate
Justices Ma. Rosario Quetulio-Losa and Leonor Ines-Luciano and Presiding
Justice Ramon G. Gaviola, Jr.

** Penned by Judge Rosalio A. de Leon