STELCO MARKETING CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS AND STEELWELD CORPORATION OF THE PHILIP­PINES, INC., RESPONDENTS.

Stelco Marketing Corporation is engaged in the distribution and
sale to the public of structural steel bars.^[1] On
seven (7) different occasions in September and October, 1980, it sold to RYL
Construction, Inc. quantities of steel bars of various sizes and rolls of G.I.
wire. These bars and wire were
delivered at different places at the indication of RYL Construction, Inc. The aggregate price for the purchases was
P126,859.61.

Although the corresponding invoices issued by STELCO stipulated
that RYL would pay “COD” (cash on delivery), the latter made no
payments for the construction materials thus ordered and delivered despite
insistent demands for payment by the former.

On April 4, 1981, RYL gave to Armstrong Industries — described
by STELCO as its “sister corporation” and “manufacturing
arm”^[2]
— a check drawn against Metrobank in the amount of P126,129.86, numbered
765380 and dated April 4, 1981. That
check was a company check of another corporation, Steelweld Corporation of the
Philippines, signed by its President, Peter Rafael Limson, and its
Vice-President, Artemio Torres.

The check was issued by Limson at the behest of his friend, Romeo
Y. Lim, President of RYL. Romeo Lim had
asked Limson for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, “only as guaranty but not to pay for
anything.”^[3]
Why the check was made out in the amount of P126,129.86 is not explained. Anyway, the check was actually issued in
said amount of P126,129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries,^[4] in
payment of an obligation. When the
latter deposited the check at its bank, it was dishonored because “drawn
against insufficient funds.”^[5] When
so deposited, the check bore two (2) indorsements,
that of “RYL Construction,” followed by that of “Armstrong
Industries.”^[6]

On account of the dishonor of Metrobank Check No. 765380, and on
complaint of Armstrong Industries (through a Mr. Young), Rafael Limson and
Artemio Torres were charged in the Regional Trial Court of Manila with a
violation of Batas Pambansa Bilang 22.^[7] They
were acquitted in a decision rendered on June 28, 1984 “on the ground that
the check in question was not issued by the drawer ‘to apply on account for
value,’ it being merely for accommodation purposes.”^[8] That
judgment however conditioned the acquittal with the following pronouncement:

“This is not however to release Steelweld Corporation from its
liability under Sec. 29 of the Negotiable Instruments Law for having issued it
for the accommodation of Romeo Lim.”

Eleven months or so later — and some four (4) years after
issuance of the check in question — in May, 1985, STELCO filed with the
Regional Trial Court at Caloocan City a civil complaint^[9]
against both RYL and STEELWELD for the recovery of the value of the steel bars
and wire sold to and delivered to RYL (as already narrated) in the amount of
P126,129.86, “plus 18% interest from August 20, 1980 ** (and) 25% of the
total amount sought to be recovered as and by way of attorney’s fees**.”^[10]
Among the allegations of its complaint was that Metrobank Check No. 765380
above mentioned had been given to it in payment of RYL’s indebtedness, duly
indorsed by R.Y. Lim.^[11] A
preliminary attachment was issued by the trial court on the basis of the
averments of the complaint but was shortly dissolved upon the filing of a
counter-bond by STEELWELD.

RYL could no longer be located and could not be served with
summons.^[12]
It never appeared. Only STEELWELD filed
an answer, under date of July 16, 1985.^[13] In
said pleading, it specifically denied the facts alleged in the complaint, the
truth, according to Steelweld, being basically that-

1)            
STELCO “is a complete stranger to it;” it had
“not entered into any transaction or business dealing of any kind”
with STELCO, the transactions described in the complaint having been solely and
exclusively between the plaintiff and RYL Construction;

2)            
the check in
question was “only given to a certain R. Lim to be used as collateral for
another obligation ** (but) in breach of his agreement (Lim) utilized and
negotiated the check for another purpose **;”

3)            
nevertheless,
the check “is wholly inoperative since ** Steelweld ** did not issue it
for any valuable consideration either to R. Lim or to the plaintiff not to
mention also the fact that the said
plaintiff failed to comply with the requirements of the law to hold the said
defendant (STEELWELD) liable **.”

Trial ensued upon these issues, after which judgment was rendered
on June 26, 1986.^[14] The judgment sentenced “the
defendant Steelweld Corporation to pay to ** (Stelco Marketing Corporation) the
amount of P126,129.86 with legal rate of interest from May 9, 1985, when this
case was instituted until fully paid, plus another sum equivalent to 25% of the
total amount due as and for attorney’s fees**“^[15] That disposition was justified in the judgment
as follows;^[16]

“There is no question, then, that as far as any commercial
transaction is concerned between plaintiff and defendant Steelwed no such
transaction ever occurred. Ordinarily,
under civil law rules, there having been no transaction between them involving
the purchase of certain merchandise there would be no privity of contract
between them, and plaintiff will have no right to sue the defendant for payment
of said merchandise for the simple reason that the defendant did not order
them, much less receive them.

But we have here a case where the defendant Steelweld thru its
President Peter Rafael Limson admitted to have issued a check payable to cash
in favor of his friend Romeo Lim who was the President of RYL Construction by
way of accommodation. Under the
Negotiable Instruments Law an accommodation party is liable.

‘SEC. 29. Liability of an
accommodation party. – An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to
a holder for value notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.’”

From this adverse judgment STEELWELD appealed to the Court of
Appeals^[17]
and there succeeded in reversing the judgment. By Decision promulgated on May 29, 1990,^[18] the
Court of Appeals^[19]
ordered “the complaint against appellant (STEELWELD) DISMISSED; (and the
appellee, STELCO) to pay appellant the sum
of P15,000.00 as attorney’s fees
and cost of litigation, the suit ** (being) a baseless one that dragged appellant in court and caused it to incur attorney’s fees and expense of litigation.”

STELCO’s motion for reconsideration was denied by the Appellate
Tribunal’s resolution dated November 13, 1990.^[20] The
Court stressed that –

” ** as far as Steelweld is concerned, there was no commercial
transaction between said appellant and appellee. Moreover, there is no evidence that appellee Stelco Marketing
became a holder for value. Nowhere in
the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof. Finally, appellee’s
complaint is for the collection of the unpaid accounts for delivery of steel
bars and construction materials. It
having been established that appellee had no commercial transaction with
appellant Stelco, appellee had no cause of action against said appellant.”

STELCO appealed to this Court in accordance with Rule 45 of the
Rules of Court. In this Court it seeks
to make the following points in connection with its plea for the overthrow of
the Appellate Tribunal’s aforesaid decision, viz.:

1) said decision is “not in accord with law and
jurisprudence;”

2) “STELCO is a
‘holder’ within the meaning of the Negotiable Instruments Law;”

3) “STELCO is a
holder in due course of Metrobank Check No. 765380** (and hence) holds the same
free from personal or equitable defense;” and

4) “Negotiation
in breach of faith is a personal defense ** (and hence) not effective as
against a holder in due course.”

The points are not well taken.

The crucial question is whether or not STELCO ever became a holder
in due course of Check No. 765380, a bearer instrument, within the
contemplation of the Negotiable Instruments Law. It never did.

STELCO evidently places much reliance on the pronouncement of the
Regional Trial Court in Criminal Case No. 66571,^[21] that
the acquittal of the two (2) accused (Limson and Torres) did not operate
“to release Steelweld Corporation from its liability under Sec. 29 of the
Negotiable Instruments Law for having issued** (the check) for the
accommodation of Romeo Lim.” The cited provision reads as follows:

“SECTION 29. Liability
of accommodation party. — An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to
a hoder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.”

It is noteworthy that the Trial Court’s
pronouncement containing reference to said Section 29 did not specify to
whom STEELWELD, as accommodation party, is supposed to be liable; and
certain it is that neither said pronouncement nor any other part of the judgment
of acquittal declared it liable to STELCO.

“A holder in due course,” says the law,^[22]
“is a holder who has taken the instrument under the following conditions:

(a)       
That it is complete and regular upon its face;

(b)       
That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored, if such was the
fact;

(c)       
That he took it
in good faith and for value;

(d)    That
at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the persons negotiating it.”

To be sure, as regards an accommodation party (such as
STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the
instrument or defect in title of the persons negotiating it, has no
application. This is because Section 29
of the law above quoted preserves the right of recourse of a “holder for
value” against the accommodation party notwithstanding that “such
holder, at the time of taking the instrument, knew him to be only an
accommodation party.”^[23]

Now, STELCO theorizes that it should be deemed a “holder for
value” of STEELWELD’s Check No. 765380 because the record shows it to have
been in “actual possession” thereof; otherwise, it “could not
have presented, marked and introduced (said check) in evidence ** before the
court a quo.” “Besides,” it adds, the check in question
was presented by STELCO to the drawee bank for payment through Armstrong
Industries, the manufacturing arm of STELCO and its sister company.”^[24]

The trouble is, there is no evidence whatever that STELCO’s
possession of Check No. 765380 ever dated back to any time before the
instrument’s presentment and dishonor. There is no evidence whatsoever that the check was ever given to it, or
indorsed to it in any manner or form in payment of an obligation or as security
for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual
finding of the Court of Appeals, which by traditional precept is normally
conclusive on this Court, is that STELCO never became a holder for value and
that “(n)owhere in the check itself does the name of Stelco Marketing
appear as payee, indorsee or depositor thereof.”^[25]

What the record shows is that: (1) the STEELWELD company check in question was given by its president
to R. Y. Lim; (2) it was given only by way of accommodation, to be “used
as collateral for another obligation;” (3) in breach of the agreement,
however, R.Y. Lim indorsed the check to Armstrong in payment of an obligation;
(4) Armstrong deposited the check to its account, after indorsing it; (5) the
check was dishonored. The record does
not show any intervention or participation by STELCO in any manner or form
whatsoever in these transactions, or any communication of any sort between
STEELWELD and STELCO, or between either of them and Armstrong Industries, at
any time before the dishonor of the check.

The record does show that after the check had been
deposited and dishonored, STELCO came into possession of it in some way, and
was able, several years after the dishonor of the check, to give it in evidence
at the trial of the civil case it had instituted against the drawers of the
check (Limson and Torres) and RLY. But,
as already pointed out, possession of a negotiable instrument after presentment
and dishonor, or payment, is utterly inconsequential; it does not make the
possessor a holder for value within the meaning of the law; it gives rise to no
liability on the part of the maker or drawer and indorsers.

It is clear from the relevant circumstances that STELCO cannot be
deemed a holder of the check for value. It does not meet two of the essential requisites prescribed by the
statute. It did not become “the
holder of it before it was overdue, and without notice that it had been
previously dishonored,” and it did not take the check “in good faith
and for value.”^[26]

Neither is there any evidence whatever that Armstrong Industries,
to whom R.Y. Lim negotiated the check, accepted the instrument and attempted to
encash it in behalf, and as agent of STELCO. On the contrary, the indications are that Armstrong was really the
intended payee of the check and was the party actually injured by its dishonor;
it was after all its representative (a Mr. Young) who instituted the criminal
prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

The petitioner has failed to show any sufficient cause for
modification or reversal of the challenged judgment of the Court of Appeals
which, on the contrary, appears to be entirely in accord with the facts and the
applicable law.

WHEREFORE, the petition is DENIED and the Decision of the
Court of Appeals in CA-G.R. CV No. 13418 is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Paras, Padilla, and
Regalado, JJ., concur.

Nocon, J., on leave.

^[1]
Rollo, p. 33

^[2]
Rollo, pp. 12, 17, 112

^[3]
Rollo, p. 48: Trial Court
Decision, p. 3.

^[4]
Id., p. 55.

^[5]
Idem.

^[6]
Id., p. 63

^[7]
Criminal Case No. 66571, raffled and assigned to Branch 30.

^[8]
Rollo, pp. 48, 63.

^[9]
With prayer for the issuance of a writ of preliminary attachment.

^[10]
Rollo, pp. 32, 38.

^[11]
Id., p. 36.

^[12]
Id., p. 60

^[13]
“with application for damages against the attachment bond.”

^[14]
By Judge Segundino D. Chua, later Associate Justice, Court of Appeals.

^[15]
Rollo, pp. 46, 50.

^[16]
Id., p. 49.

^[17]
The appeal was docketed as CA-G.R. CV No. 13418.

^[18]
By Lapeña, Jr., J., with the concurrence of Melo (Chairman) and
Martinez, JJ.: Rollo, pp.
59-65.

^[19]
Second Division.

^[20]
Rollo, p. 66.

^[21]
SEE footnote 7 and related text.

^[22]
SEC. 52, Negotiable Instruments Law, Act No. 2031.

^[23]
SEE Agbayani, Commercial Laws of the Philippines, 1975 ed., Vol. I, citing
Prudential Bank and Trust Co. v.
Ramesh Trading Co. C.A. 32908-R, Sept. 10, 1964

^[24]
Rollo, p. 119

^[25]
SEE footnote 19, supra

^[26]
SEE footnote 21 and relevant text, supra