FACTS:

Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., payable in installments. It is further provided that in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with additional interest.

Sambok Motors Company, a sister company of Ng Sambok, negotiated and indorsed the note in favor of plaintiff Metropol with the following indorsement:

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

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, and failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of the note of the fact dishonor.

Sambok failed to pay, hence plaintiff filed a complaint for collection of a sum of money. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent.

During the pendency of the case, Dr. Villaruel died.

The trial court rendered its decision ordering Sambok to pay to the plaintiff.

Not satisfied with the decision, the present appeal was instituted.

ISSUE:

Whether or not Sambok is a qualified indorser.

RULING:

The appeal is without merit.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import.  Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument.

However, appellant Sambok indorsed the note “with recourse” and even waived the notice of demand, dishonor, protest and presentment.

“Recourse” means resort to a person who is secondarily liable after the default of the person who is primarily liable.  

Appellant, by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification.

A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder.  

The words added by said appellant do not limit his liability, but rather confirm his obligation as a general indorser.

Ultimately, after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor.  His liabiliy becomes the same as that of the original obligor.