3/12/2015 SUPREME COURT REPORTS ANNOTATED VOLUME 120

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864 SUPREME COURT REPORTS ANNOTATEDMetropol (Bacolod) Financing & Investment Corp. vs.

Sambok Motors Co.

No. L­39641. February 28, 1983.*

METROPOL (BACOLOD) FINANCING & INVESTMENTCORPORATION, plaintiff­appellee, vs. SAMBOKMOTORS COMPANY and NG SAMBOK SONS MOTORSCO., LTD., defendants­appellants.

Mercantile Law; Negotiable Instruments; Indorsements;Qualified indorsement constitutes indorser a mere assignor of titleto the instrument and relieves indorser of general obligation to payinstrument if instrument is dishonored.—A qualified indorsementconstitutes the indorser a mere assignor of the title to theinstrument. It may be made by adding to the indorser’s signaturethe words “without recourse” or any words of similar import. Suchan indorsement relieves the indorser of the general obligation topay if the instrument is dishonored but not of the liability arisingfrom warranties on the instrument as provided in Section 65 ofthe Negotiable Instruments Law already mentioned herein.

Same; Same; Same; Interpretation; “Recourse,” meaning of;Words “with recourse” in indorsement of promissory note means ageneral indorsement or an indorsement without a qualification asto liability of indorser on the note; Words added in the note “noticeof demand, dishonor, protest and presentment are hereby waived”confirm a party’s obligation as a general indorser.—“Recourse”means resort to a person who is secondarily liable after thedefault of the person who is primarily liable. Appellant, byindorsing the note “with recourse” does not make itself a qualifiedindorser but a general indorser who is secondarily liable, becauseby such indorsement, it agreed that if Dr. Villaruel fails to pay thenote, plaintiff­appellee can go after said appellant. The effect ofsuch indorsement is that the note was indorsed withoutqualification. A person who indorses without qualificationengages that on due presentment, the note shall be accepted or

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paid, or both as the case may be, and that if it be dishonored, hewill pay the amount thereof to the holder. Appellant Sambok’sintention of indorsing the note without qualification is made evenmore apparent by the fact that the notice of demand, dishonor,protest and presentment were all waived. The words added bysaid appellant do not limit his liability, but rather confirm hisobligation as a general indorser.

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* SECOND DIVISION.

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VOL. 120, FEBRUARY 28, 1983 865

Metropol (Bacolod) Financing & Investment Corp. vs. SambokMotors Co.

Same; Same; Same; Same; Same; After dishonor of the note, aperson secondarily liable becomes a principal debtor.—Lastly, thelower court did not err in not declaring appellants as onlysecondarily liable because after an instrument is dishonored bynon­payment, the person secondarily liable thereon ceases to besuch and becomes a principal debtor. His liability becomes thesame as that of the original obligor. Consequently, the holderneed not even proceed against the maker before suing theindorser.

APPEAL from the decision of the Court of First Instance ofIloilo, Br. I.

The facts are stated in the opinion of the Court. Rizal Quimpo & Cornelio P. Revena for plaintiff­

appellee. Diosdado Garingalao for defendants­appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution datedOctober 16, 1974 certified this case to this Court the issueraised therein being one purely of law.

On April 15, 1969 Dr. Javier Villaruel executed apromissory note in favor of Ng Sambok Sons Motors Co.,Ltd., in the amount of P15,939.00 payable in twelve (12)

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equal monthly installments, beginning May 18, 1969, withinterest at the rate of one percent per month. It is furtherprovided that in case on non­payment of any of theinstallments, the total principal sum then remainingunpaid shall become due and payable with an additionalinterest equal to twenty­five percent of the total amountdue.

On the same date, Sambok Motors Company(hereinafter referred to as Sambok), a sister company of NgSambok Sons Motors Co., Ltd., and under the samemanagement as the former, negotiated and indorsed thenote in favor of plaintiff Metropol Financing & InvestmentCorporation with the following indorsement:

“Pay to the order of Metropol Bacolod Financing & InvestmentCorporation with recourse. Notice of Demand; Dishonor; Protest;and Presentment are hereby waived.

866

866 SUPREME COURT REPORTS ANNOTATEDMetropol (Bacolod) Financing & Investment Corp. vs. Sambok

Motors Co.

SAMBOK MOTORS CO. (BACOLOD) By:

RODOLFO G. NONILLO Asst. General Manager”

The maker, Dr. Villaruel defaulted in the payment of hisinstallments when they became due, so on October 30, 1969plaintiff formally presented the promissory note forpayment to the maker. Dr. Villaruel failed to pay thepromissory note as demanded, hence plaintiff notifiedSambok as indorsee of said note of the fact that the samehas been dishonored and demanded payment.

Sambok failed to pay, so on November 26, 1969 plaintifffiled a complaint for collection of a sum of money before theCourt of First Instance of Iloilo, Branch I. Sambok did notdeny its liability but contended that it could not be obligedto pay until after its co­defendant Dr. Villaruel, has beendeclared insolvent.

During the pendency of the case in the trial court,defendant Dr. Villaruel died, hence, on October 24, 1972the lower court, on motion, dismissed the case against Dr.Villaruel pursuant to Section 21, Rule 3 of the Rules of

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“(a)

“(b)

“(c)

Court.1

On plaintiff’s motion for summary judgment, the trialcourt rendered its decision dated September 12, 1973, thedispositive portion of which reads as follows:

“WHEREFORE, judgment is rendered:

Ordering Sambok Motors Company to pay to the plaintiffthe sum of P15,939.00 plus the legal rate of interest fromOctober 30, 1969;Ordering same defendant to pay to plaintiff the sumequivalent to 25% of P15,939.00 plus interest thereonuntil fully paid; and

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1 Sec. 21. Where claim does not survive.—When the action is for recovery ofmoney, debt or interest thereon, and the defendant dies before final judgment inthe Court of First Instance, it shall be dismissed to be prosecuted in the mannerespecially provided in these rules.

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VOL. 120, FEBRUARY 28, 1983 867Metropol (Bacolod) Financing & Investment Corp. vs. Sambok

Motors Co.

To pay the cost of suit.”

Not satisfied with the decision, the present appeal wasinstituted, appellant Sambok raising a lone assignment oferror as follows:

“The trial court erred in not dismissing the complaint by findingdefendant­appellant Sambok Motors Company as assignor and aqualified indorsee of the subject promissory note and in notholding it as only secondarily liable thereof.”

Appellant Sambok argues that by adding the words “withrecourse” in the indorsement of the note, it becomes aqualified indorser; that being a qualified indorser, it doesnot warrant that if said note is dishonored by the maker onpresentment, it will pay the amount to the holder; that itonly warrants the following pursuant to Section 65 of theNegotiable Instruments Law: (a) that the instrument isgenuine and in all respects what it purports to be; (b) that

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he has a good title to it; (c) that all prior parties hadcapacity to contract; (d) that he has no knowledge of anyfact which would impair the validity of the instrument orrender it valueless.

The appeal is without merit.A qualified indorsement constitutes the indorser a mere

assignor of the title to the instrument. It may be made byadding to the indorser’s signature the words “withoutrecourse” or any words of similar import.

2 Such an

indorsement relieves the indorser of the general obligationto pay if the instrument is dishonored but not of theliability arising from warranties on the instrument asprovided in Section 65 of the Negotiable Instruments Lawalready mentioned herein. However, appellant Sambokindorsed the note “with recourse” and even waived thenotice of demand, dishonor, protest and presentment.

“Recourse” means resort to a person who is secondarilyliable after the default of the person who is primarilyliable.

3 Appellant, by indorsing the note “with recourse”

does not

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2 Section 38, The Negotiable Instruments Law.3 Ogden, The Law of Negotiable Instruments, p. 200 citing Industrial

Bank and Trust Company vs. Hesselberg, 195 S.W. (2d) 470.

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868 SUPREME COURT REPORTS ANNOTATEDMetropol (Bacolod) Financing & Investment Corp. vs.

Sambok Motors Co.

make itself a qualified indorser but a general indorser whois secondarily liable, because by such indorsement, itagreed that if Dr. Villaruel fails to pay the note, plaintiff­appellee can go after said appellant. The effect of suchindorsement is that the note was indorsed withoutqualification. A person who indorses without qualificationengages that on due presentment, the note shall beaccepted or paid, or both as the case may be, and that if itbe dishonored, he will pay the amount thereof to theholder.

4 Appellant Sambok’s intention of indorsing the note

without qualification is made even more apparent by thefact that the notice of demand, dishonor, protest and

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presentment were all waived. The words added by saidappellant do not limit his liability, but rather confirm hisobligation as a general indorser.

Lastly, the lower court did not err in not declaringappellant as only secondarily liable because after aninstrument is dishonored by non­payment, the personsecondarily liable thereon ceases to be such and becomes aprincipal debtor.

5 His liability becomes the same as that of

the original obligor.6 Consequently, the holder need not

even proceed against the maker before suing the indorser.WHEREFORE, the decision of the lower court is hereby

affirmed. No costs.SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerreroand Escolin, JJ., concur.

Aquino, J., is on leave. Abad Santos, J., I concur and wish to add the

observation that the appeal could have been treated as apetition for review under R. A. 5440 and dismissed byminute resolution.

Decision affirmed.

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4 Ang Tiong vs. Ting, 22 SCRA 715.5 Pittsburg Westmoreland Coal, Co. vs. Kerr, 115 N.E.6 American Bank vs. Macondray & Co., 4 Phil. 695.

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