G.R. No. L-39641 - Metropol Ficing and Investment Corp. vs. Sambok Motors Co., Ltd.

Case Summary (G.R. No. L-39641)

Indorsement and its language

On the same date the note was negotiated and indorsed in favor of Metropol Financing & Investment Corporation by Sambok Motors Company. The indorsement read: “Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.” The indorsement language and the waiver clauses are central to the dispute over Sambok’s liability.

Default, presentment and demand

The maker, Dr. Villaruel, defaulted on installment payments. Plaintiff presented the promissory note for payment to the maker on October 30, 1969; payment was not made. Plaintiff then notified Sambok, as indorsee, of the dishonor and demanded payment. Sambok failed to pay, prompting plaintiff to file a complaint for collection on November 26, 1969.

Procedural history in the trial court

Sambok did not deny liability but argued it could not be obliged to pay until after Dr. Villaruel had been declared insolvent. During the trial court proceedings, Dr. Villaruel died, and the lower court dismissed the case against him on October 24, 1972 pursuant to Section 21, Rule 3 of the Rules of Court (action for recovery of money where defendant dies before final judgment). On plaintiff’s motion for summary judgment, the trial court on September 12, 1973 ordered Sambok to pay the principal P15,939.00 with legal interest from October 30, 1969; additionally ordered payment of 25% of P15,939.00 plus interest; and taxed costs against Sambok.

Assignment of error on appeal

Sambok appealed, asserting a single assignment of error: the trial court erred in treating Sambok as an assignor and a qualified indorsee and in not holding it only secondarily liable. Sambok’s contention relied on the argument that by adding the words “with recourse” it meant to be a qualified indorser (which the indorser characterized as limited to warranties under Section 65 of the Negotiable Instruments Law), and therefore not subject to primary payment obligation absent prior proceedings against the maker.

Legal analysis: qualified vs. general indorsement

The Court analyzed the nature of indorsements under the Negotiable Instruments Law. A qualified indorsement is typically effected by adding “without recourse” or equivalent language, which relieves the indorser of the obligation to pay upon dishonor while leaving the warranty obligations enumerated in Section 65. The Court emphasized that “recourse” denotes resort to a person who is secondarily liable after default by the primary obligor.

Effect of Sambok’s indorsement language and waivers

Because Sambok expressly indorsed the note “with recourse” and additionally waived notice of demand, dishonor, protest and presentment, the Court concluded Sambok did not render itself a qualified indorser. Instead, those words and the waivers demonstrated an intention to assume the ordinary liabilities of a general indorser. A general indorser warrants that on due presentment the instrument shall be accepted or p

Case Syllabus (G.R. No. L-39641)

Citation and Court

Reported at 205 Phil. 758, Second Division.
G.R. No. L-39641.
Decision date: February 28, 1983.
Opinion authored by De Castro, J.
The former Court of Appeals, by resolution dated October 16, 1974, certified the case to the Supreme Court because the issue raised was purely one of law.

Panel and Concurrences

Decision: De Castro, J.
Concurrence: Makasiar (Chairman), Concepcion Jr., Guerrero and Escolin, JJ., concur.
Additional concurrence: Abad Santos, J., concurs and adds the observation that the appeal could have been treated as a petition for review under R.A. 5440 and dismissed by minute resolution.
Note: Aquino, J., is on leave.

Parties

Plaintiff-Appellee: Metropol (Bacolod) Financing & Investment Corporation (referred to in the opinion as plaintiff-appellee or plaintiff).
Defendants-Appellants: Sambok Motors Company (hereinafter referred to as Sambok) and Ng Sambok Sons Motors Co., Ltd. (co-defendant and payee of the note).
Maker of the promissory note: Dr. Javier Villaruel (later deceased during pendency of trial court proceedings).

Facts — Execution and Terms of the Promissory Note

On April 15, 1969, Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd.
Principal amount: P15,939.00.
Payment terms: payable in twelve (12) equal monthly installments, beginning May 18, 1969.
Interest clause: interest at the rate of one percent per month.
Acceleration/penalty clause: provision that in case of non-payment of any of the installments, "the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount due."

Indorsement and Negotiation of the Note

On the same date (April 15, 1969), Sambok Motors Company negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation.
The indorsement on the note reads in full as quoted in the source:
- "Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager"

Default, Presentment, and Notification

The maker, Dr. Villaruel, defaulted in the payment of his installments when they became due.
Plaintiff formally presented the promissory note for payment to the maker on October 30, 1969.
The maker failed to pay the promissory note as demanded.
Plaintiff notified Sambok, as indorsee, of the dishonor and demanded payment.
Sambok failed to pay upon such demand.

Trial Court Proceedings and Disposition Below

Plaintiff filed a complaint for collection of a sum of money on November 26, 1969 before the Court of First Instance of Iloilo, Branch I.
Sambok did not deny liability but contended it could not be obliged to pay until after its co-defendant Dr. Villaruel had been declared insolvent.
During pendency of the case in the trial court, Dr. Villaruel died.
On October 24, 1972, the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court (quoted in the source).
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive portion of which reads as follows (quoted):
- "WHEREFORE, judgment is rendered:
  (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of interest from October 30, 1969;
  (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest thereon until fully paid; and
  (c) To pay the cost of suit."

Procedural Posture on Appeal and Question Presented

Sambok appealed the trial court decision to the higher court (eventually certified to the Supreme Court).
Appellant Sambok raised a lone assignment of error, stated in the source as:
- "The trial court erred in not dismissing the complaint by finding defendant-appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof."
The central legal question certified as one purely of law: the effect of the indorsement language ("with recourse