5. Janita Salas vs CA and First Finance & Leasing Corporation

G.R. No. 76788; January 22, 1990

Doctrine: A holder in due course shall have a clean title over the negotiable instrument.

FACTS:

Petitioner bought a car from Viologo Motor Sales Company, which was secured by a promissory note, which was later on indorsed to Filinvest Finance, which financed the transaction. Petitioner later on defaulted in her installment payments, allegedly due to the fraud imputed by VMS in

selling her a different vehicle from what was agreed upon. This default in payment prompted Filinvest Finance to initiate a case against petitioner.

The trial court decided in favor of Filinvest, to which the appellate court upheld by increasing the amount to be paid.

It is the contention of petitioner that since the agreement between her and the motor company was inexistent, none had been assigned in favor of private respondent.

ISSUE: Whether or not the promissory note is negotiable which will bar completely all defenses of Salas against VMS.

HELD: YES! VALID!

Petitioners liability on the promissory note, the due execution and genuineness of which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor.

The instrument to be negotiable must contain the so-called words of negotiability. There are only 2 ways for an instrument to be payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words or order or to the order of, the instrument is payable only to the person designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a

holder in due course but will merely step into the shoes of the person designated in the instrument and will thus be open to the defenses available against the latter.

In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a holder in due course.

Section 1. Form of negotiable instruments. An instrument to be negotiable must confirm to the following requirements:

a. It must be in writing and signed by the maker of drawer;

b. Must contain an unconditional promise or order to pay a sum certain in money;

c. Must be payable on demand or at a fixed or determinable future time;

d. Must be payable to order or to bearer; and

e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

31. Metropol Financing and Investment Corporation vs Sambok Motors Company and Ng Sambok Sons Motors Co., Ltd.

G.R. No. L-39641; February 28, 1983

Doctrine: After an instrument is dishonored by non-payment in an indorsed instrument, the person secondarily liable thereon ceases to be such and becomes a principal debtor.

FACTS: Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly installments with interest. 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 an additional interest. Sambok Motors co., a sister company of Ng Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the promissory note has been dishonored and demanded payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money. During the pendency of the case Villaruel died. Sambok argues that by adding the words with recourse in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant that in case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of payment of the maker.

Held: NO.

A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse or any words of similar import. Such 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 as provided by section 65 of NIL. However, 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. Sambok 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 Villaruel fails to pay the not the holder can go after it. 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 maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

Sec. 38. Qualified indorsement. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse or any words of similar import. Such as indorsement does not impair the negotiable character of the instrument.