Metropol (Bacolod) Financing & Investment Corporation v. Sambok Motors Company
REITERATIONFacts
The Antecedents: Dr. Javier Villaruel executed a promissory note for P15,939.00 in favor of Ng Sambok Sons Motors Co., Ltd., payable in twelve monthly installments with interest, and a penalty for non-payment. Sambok Motors Company, a sister company, negotiated and indorsed the note to plaintiff Metropol Financing & Investment Corporation 'with recourse,' waiving notice of demand, dishonor, protest, and presentment. Dr. Villaruel defaulted on his installments. Procedural History: The plaintiff presented the note to the maker, who failed to pay. The plaintiff then notified Sambok of the dishonor and demanded payment. Sambok failed to pay, prompting the plaintiff to file a collection case. Sambok admitted liability but contended it should not be compelled to pay until Dr. Villaruel was declared insolvent. During the pendency of the case, Dr. Villaruel died, and the case against him was dismissed. The trial court granted the plaintiff's motion for summary judgment. The Petition: The defendant Sambok Motors Company appealed the trial court's decision, arguing that its indorsement 'with recourse' made it a qualified indorser, thus only secondarily liable, and that the complaint should have been dismissed against it.
Issue(s)
Whether the indorsement 'with recourse' by Sambok Motors Company constitutes a qualified indorsement, making it only secondarily liable. Whether the trial court erred in not dismissing the complaint against Sambok Motors Company on the ground that it was only secondarily liable, considering the dishonor of the promissory note.
Ruling
The decision of the lower court is hereby affirmed.
Ratio Decidendi
On the issue of whether the indorsement 'with recourse' constitutes a qualified indorsement: The Supreme Court held that an indorsement 'with recourse' does not make the indorser a qualified indorser but rather a general indorser who is secondarily liable. A qualified indorsement is made by adding the words 'without recourse' or similar import, which relieves the indorser of the general obligation to pay if the instrument is dishonored, but not of liabilities arising from warranties under Section 65 of the Negotiable Instruments Law. By indorsing 'with recourse' and waiving notices, Sambok confirmed its obligation as a general indorser, agreeing that if Dr. Villaruel failed to pay, the plaintiff could proceed against Sambok. The Court clarified that 'recourse' means resort to a person secondarily liable after the default of the primary obligor. The effect of indorsing 'with recourse' is equivalent to an indorsement without qualification, where the indorser engages that on due presentment, the note shall be paid, and if dishonored, the indorser will pay the amount to the holder. The waiver of notices further underscored Sambok's intention to be bound as a general indorser. On the issue of whether the trial court erred in not holding Sambok Motors Company as only secondarily liable: The Supreme Court ruled that after an instrument is dishonored by non-payment, the person secondarily liable ceases to be such and becomes a principal debtor. Their liability becomes the same as that of the original obligor. Consequently, the holder is not required to proceed against the maker first before suing the indorser. Therefore, the trial court did not err in holding Sambok Motors Company liable as a principal debtor, not merely secondarily liable, after the dishonor of the promissory note by the maker.
Main Doctrine
An indorsement 'with recourse' makes the indorser a general indorser, secondarily liable, and not a qualified indorser. Upon dishonor by the maker, the indorser becomes a principal debtor whose liability is the same as that of the original obligor, and the holder need not proceed against the maker first.