FACTS:

The case involves a Petition for Review on Certiorari filed under Rule 45 of the Revised Rules on Civil Procedure. It challenges the Decision of the Court of Appeals in which it affirmed the Decision of the Regional Trial Court of Manila, ordering Great Asian Sales Center Corporation and Tan Chong Lin to jointly pay Bancasia Finance and Investment Corporation the amount of P1,042,005.00. The relevant facts are as follows: Great Asian's board of directors authorized its Treasurer and General Manager, Arsenio Lim Piat Jr., to secure a loan from Bancasia not exceeding P1.0 million. Arsenio was also authorized to sign all necessary papers and promissory notes for the loan. Tan Chong Lin signed a Surety Agreement in favor of Bancasia, obligating him to guarantee the debts of Great Asian. Great Asian assigned fifteen postdated checks to Bancasia, but all checks were dishonored by the drawee banks on their maturity dates. Arsenio endorsed all the dishonored checks. After the dishonor of the first check, Bancasia's lawyer sent a notification letter to Tan Chong Lin demanding payment. Great Asian filed a petition for insolvency, listing Bancasia as one of its creditors. Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin.

ISSUES:

1. Whether the Deeds of Assignment are transactions authorized by the board of directors of Great Asian.

2. Whether Arsenio acted within the limits of his authority under the two board resolutions.

3. Whether Arsenio had the necessary authority to sign the Deeds of Assignment and endorse the postdated checks on behalf of Great Asian.

4. Whether Great Asian breached the contract under the Deeds of Assignment.

5. Whether the finance company can be considered a holder in due course if the appliances purchased on installment turned out to be defective.

6. Whether the finance company can choose to sue for breach of contract under the Civil Code instead of proceeding under the Negotiable Instruments Law.

7. Whether the drawers of the checks need to receive timely notice of dishonor if the checks were dishonored for certain reasons.

8. Whether delay in giving notice of dishonor discharges the drawer to the extent of the loss caused by the delay.

9. Whether there was sufficient consideration for the Deeds of Assignment.

10. Whether the assignment of the checks is a sale or a loan accommodation.

11. Whether Great Asian is obligated to pay Bancasia the full value of the postdated checks, including the stipulated penalty and attorney's fees.

12. Whether Tan Chong Lin, as surety, is liable for the entire obligation to the same extent as Great Asian.

13. Whether the warranties in the Deeds of Assignment released Tan Chong Lin from any liability to Bancasia.

14. Whether or not Tan Chong Lin, as surety, is solidarily liable with Great Asian for the nonpayment of the dishonored checks.

RULING:

1. Yes, the Deeds of Assignment are transactions authorized by the board of directors of Great Asian. The board resolutions clearly authorize Great Asian to secure a loan or discounting line and empower Arsenio to sign and deliver all the implementing documents, including checks, for Great Asian. The Deeds of Assignment were signed by Arsenio as the Treasurer of Great Asian, representing the company.

2. Yes, Arsenio acted within the limits of his authority under the two board resolutions. He did exactly what the board of directors of Great Asian directed and authorized him to do in securing a discounting line with Bancasia.

3. Arsenio had the proper authority to sign the Deeds of Assignment and endorse the postdated checks on behalf of Great Asian. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Therefore, Great Asian cannot disown the Deeds of Assignment signed by its Treasurer.

4. Great Asian breached the contract under the Deeds of Assignment. The Deeds of Assignment stipulate that if the receivables cannot be paid by the obligors, Great Asian unconditionally agrees to pay the same, assuming the liability to pay, including penalties and attorney's fees. The failure of the drawers to pay the checks is a suspensive condition, which gives rise to the obligation of Great Asian to pay Bancasia. This obligation has the force of law between the contracting parties and should be complied with in good faith.

5. The finance company will have no defense against the finance company if the appliances later turned out to be defective. The endorsement does not make the finance company a holder in due course.

6. The finance company can choose to sue for breach of contract under the Civil Code instead of proceeding under the Negotiable Instruments Law.

7. Timely notice of dishonor is not required if the drawers had no right to expect or require the bank to honor the checks, or if the drawers had countermanded payment.

8. Delay in giving notice of dishonor only discharges the drawer to the extent of the loss caused by the delay.

9. There was sufficient consideration for the Deeds of Assignment as they explicitly state that the checks were assigned for valuable consideration.

10. The assignment of the checks is a sale or discounting of the checks, and therefore, the provisions of the Civil Code are applicable instead of the Negotiable Instruments Law.

11. Yes, Great Asian is obligated to pay Bancasia the full value of the postdated checks, including the stipulated penalty and attorney's fees. The contracts expressly stipulated that if the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the condition had transpired, an obligation on the part of Great Asian arose from the contracts.

12. Yes, Tan Chong Lin, as surety, is liable for the entire obligation to the same extent as Great Asian. Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on the due date. The condition on which Tan Chong Lin's obligation hinged had happened, making him automatically liable for the entire obligation.

13. No, the warranties in the Deeds of Assignment did not release Tan Chong Lin from any liability to Bancasia. The warranties are the usual warranties made by one who discounts receivables with a financing company or bank. Tan Chong Lin, as President of Great Asian, was clearly aware of the business activities and discounting transactions with Bancasia. The warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. Furthermore, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties.

14. Yes, Tan Chong Lin is solidarily liable with Great Asian for the nonpayment of the dishonored checks. The stipulations in the Surety Agreements expressly mandate the solidary liability of Tan Chong Lin with Great Asian. The Agreements encompass "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor." Therefore, Tan Chong Lin must be held solidarily liable with Great Asian for the unpaid obligations.

PRINCIPLES:

• The term "discounting line" refers to a credit facility with a financing company or bank that allows a business entity to sell its accounts receivable at a discount before their maturity dates.

• Financing companies are corporations organized primarily for the purpose of extending credit facilities to consumers and enterprises by discounting or factoring commercial papers or accounts receivable.

• Discounting is a type of receivables financing wherein evidences of indebtedness are purchased or assigned to a financing company for an amount less than their face value.

• Directors' resolutions authorize corporate actions and should be strictly followed by the authorized representatives of the corporation.

• Obligations arise from contracts and have the force of law between the contracting parties. (Article 1157 Civil Code)

• Obligations arising from contracts should be complied with in good faith. (Article 1159 Civil Code)

• The contracting parties may establish stipulations, clauses, terms, and conditions in their contracts provided they are not contrary to law, morals, good customs, public order, or public policy. (Article 1306 Civil Code)

• Assignments of negotiable instruments are the principal mode of conveying accounts receivable. (Financing Company Act)

• Endorsement of negotiable instruments is necessary for the assignee to collect from the drawer. The purpose of endorsement is to facilitate collection of the proceeds of the checks, not to make the assignee a holder in due course. (Negotiable Instruments Law)

• The finance company will have no defense against the finance company if the appliances purchased on installment turned out to be defective.

• The endorsement does not make the finance company a holder in due course.

• The finance company has the option to sue for breach of contract under the Civil Code instead of proceeding under the Negotiable Instruments Law.

• Timely notice of dishonor is not required if the drawers had no right to expect or require the bank to honor the checks, or if the drawers had countermanded payment.

• Delay in giving notice of dishonor only discharges the drawer to the extent of the loss caused by the delay.

• The Deeds of Assignment should contain a full and true statement of all debts and liabilities.

• The assignment of checks can be considered a sale or discounting of the checks depending on the transaction, and the applicable law will depend on whether it is a sale or a loan accommodation.

• An obligation arises when a suspensive condition specified in the contract happens.

• A surety is liable for the entire obligation to the same extent as the principal debtor.

• Warranties in a contract do not release a solidary debtor from liability unless there is novation, compensation, confusion, or remission of the debt made by the creditor with any of the solidary debtors.

• Article 1207 of the Civil Code provides that there is solidary liability only when the obligation expressly states so or when the law or nature of the obligation requires it.

• Stipulations in a surety agreement that are sufficiently broad can establish the solidary liability of the surety.

• An award of attorney's fees is justified when there is stipulation for such fees and when the party acted in bad faith.

• A penalty in a contract can be considered as a one-time penalty unless the contract expressly provides otherwise.

• In the absence of an express provision on the payment of interest, legal interest at the rate of 12% per annum may be awarded from the time of filing the complaint unless a written demand was made prior to the filing of the complaint.