GR L 39641; (February, 1983) (Digest)
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee, vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.
FACTS
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. On the same date, the defendant-appellant Sambok Motors Company, a sister company under the same management, negotiated and indorsed this note to the plaintiff-appellee, Metropol Financing & Investment Corporation. The indorsement was inscribed with the phrases “with recourse” and a waiver of “Notice of Demand; Dishonor; Protest; and Presentment.” The maker, Dr. Villaruel, defaulted on the installment payments. After formal demand and dishonor, the plaintiff demanded payment from Sambok as the indorser. Upon Sambok’s failure to pay, the plaintiff filed a collection suit.
During the trial, the case against the deceased Dr. Villaruel was dismissed. The trial court granted the plaintiff’s motion for summary judgment against Sambok Motors Company. The appellant appealed, contending that by adding the words “with recourse” to its indorsement, it became merely a qualified indorser whose liability is limited to the warranties under Section 65 of the Negotiable Instruments Law and, being only secondarily liable, could not be compelled to pay until after the primary obligor (Villaruel) was declared insolvent.
ISSUE
Whether the defendant-appellant Sambok Motors Company, by indorsing the promissory note “with recourse,” is a qualified indorser with limited liability or a general indorser with secondary liability that became primary upon the instrument’s dishonor.
RULING
The Supreme Court affirmed the lower court’s decision, ruling that Sambok Motors Company is a general indorser, not a qualified indorser, and is liable to pay the plaintiff. The legal logic is clear under the Negotiable Instruments Law. A qualified indorsement, which relieves the indorser of the general obligation to pay upon dishonor, is created by adding words such as “without recourse” to the signature. Here, the appellant indorsed the note explicitly “with recourse.” The term “recourse” means the holder’s right to resort to a secondarily liable party after the primary obligor’s default. Therefore, by using “with recourse,” the appellant confirmed its role as a general indorser, agreeing that the plaintiff could seek payment from it if the maker defaulted.
This interpretation is reinforced by the appellant’s simultaneous waiver of notice of demand, dishonor, protest, and presentment, which further demonstrates an intention to assume an unqualified obligation. As a general indorser, the appellant warranted that it would pay the instrument if dishonored. Moreover, upon the instrument’s dishonor by non-payment, the secondary liability of an indorser is converted into that of a principal debtor. Consequently, the holder-plaintiff was not required to first exhaust remedies against the maker and could directly sue the indorser. The appellant’s liability became direct and primary upon dishonor.