NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 89 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
1. A person negotiating by mere delivery
2. A person negotiating by qualified indorsement
LIABILITY OF PERSON NEGOTIATING BY DELIVERY
I promise to pay P1000 to bearer.

Sgd. A

*A delivers the note to B.
*B negotiates the note to C by mere delivery.
A person negotiating by mere delivery becomes liable to the holder
only when the holder cannot obtain payment by reason of the fact that
any of the warranties of the person negotiating by delivery is or
becomes false

I promise to pay B or bearer P1000.

Sgd. A

Sgd. B
To D Sgd. C
To E Sgd. D
(blank) Sgd. E
*E negotiated the note to F.
F negotiated to G.
E is not liable to G. Gs right didnt derive from the indorsement of F
F is liable to G.

CASE DIGESTS: SECTION 65

120 METROPOL V. SAMBOK MOTORS CO.
120 SCRA 864

FACTS:
Dr. Villareal issued a promissory note in favor of Sambok, which was
payable in monthly installments. The promissory note was then indorsed
to Metropol. Villareal defaulted payment and this prompted Metropol to
run after Sampol. Sampol alleged that it is not liable since it was a
qualified indorser through the wordings it inserted in its indorsementwith
recourse.

HELD:
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 as provided in Section 65 of the Negotiable Instruments
Law already mentioned herein. 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. 3 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. 4 Appellant Sambok's intention of indorsing the note without
qualification is made even more apparent by the fact that the notice of
demand, dishonor, protest and presentment were an waived. The words
added by said appellant do not limit his liability, but rather confirm his
obligation as a general indorser.

Sec. 66. Liability of general indorser. - Every indorser who indorses
without qualification, warrants to all subsequent holders in due
course: (holders in good faith)

(a) The matters and things mentioned in subdivisions (a), (b),
and (c) of the next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid
and subsisting;

And, in addition, he engages that, on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it.

APPLICATION OF SECTION 66