STELCO MARKETING CORPORATION V.

COURT OF APPEALS
DESIGNATION OF PARTIES INVOLVED
STEELWELD (LIMSON) – Accommodating Drawer
RYL CONSTRUCTION (LIM) – Accommodated Payee and Indorser
METROBANK – Drawee
ARMSTRONG INDUSTRIES – Indorsee (Holder in due course before check was dishonored)
STELCO – Third party unknown to the original contracting parties (Di ko alam kung ano dapat tawag
xd)

FACTS
Petitioner STELCO Marketing Corporation is engaged in the distribution and sale of structural steel
bars. On 7 different occasions, STELCO sold to RYL Construction Inc. quantities of steel bars of
various sizes and rolls of G.I. wire which amounted to P126,859.61. These bars and wires were
delivered at different places at the indication of RYL. The agreed upon mode of payment was COD,
however, RYL did not make payments despite persistent demands of STELCO.

Sometime later, RYL gave to Armstrong Industries (STELCO’s sister corporation and manufacturing
arm) a CHECK drawn against Metrobank in the amount of P126,129.86. The check was a COMPANY
CHECK of STEELWELD CORPORATION. Apparently, the check was issued by Limson (President
of STEELWELD) at the behest of his friend, Romeo Y. Lim (President of RYL). Lim had asked
Limson for financial assistance and the latter issued Lim a CHECK ONLY BY WAY OF
ACCOMODATION, “only as a guaranty but not to pay for anything.”

TO ILLUSTRATE:

STEELWELD drew a check against METROBANK payable to RYL by way of ACCOMODATION. RYL
then indorsed the check to ARMSTRONG INDUSTRIES in payment of an obligation.

When ARMSTRONG deposited the check, it was dishonored due to “drawn against insufficient funds.”
The check bore two endorsements, that of “RYL CONSTRUCTION” followed by “ARMSTRONG
INDUSTRIES.”

STEELWELD was then sued by Armstrong for violation of BP22, but STEELWELD was ultimately
acquitted. However, the ruling court stipulated that STEELWELD was still liable to Armstrong.

11 months after the proceedings and a little over 4 years from the issuance of the check in question,
STELCO filed a civil complaint against both RYL and STEELWELD for the recovery of the value of the
steel bars and wire sold RYL. RYL could no longer be located so STEELWELD filed an answer.

STEELWELD contended that STELCO was a complete stranger to the transaction between them and
ARMSTRONG INDUSTRIES; that the check in question was only used as collateral for another
obligation; and that the check was inoperative since STEELWELD did not issue it for any valuable
consideration.

RTC RULING
RTC ruled in favor of STEELWELD. RTC explained that no such transaction had ever occurred
between STELCO and STEELWELD. Having no such transaction, there would be ni privity of contract;
STELCO had no right to sue STEELWELD. However, due to STEELWELD being an accommodating
party, which is a party liable, STEELWELD is liable to STELCO.

CA RULING
CA ruled in favor of STEELWELD and reversed the RTC decision. The CA explained that as far as
STEELWELD is concerned, there was no transaction between appellant and appellee. There is no
evidence that appellee STELCO became a holder in value. Nowhere in the check does it indicate the
name of STELCO Marketing as a payee, indorsee, or depositor. It having been established that
appellee had no commercial transaction with appellant STELCO, appellee had no cause of action
against said appellant.

ISSUES
1.) WHETHER OR NOT STELCO IS A HOLDER WITHIN THE MEANING OF THE NIL.
2.) WHETHER OR NOT STELCO IS A HOLDER IN DUE COURSE.
3.) WHETHER OR NOT NEGOTIATION IN BREACH OF FAITH IS A PERSONAL DEFENSE.

RULING
1.) WHETHER OR NOT STELCO IS A HOLDER WITHIN THE MEANING OF THE NIL.
NO. STEELWELD is an accommodation party. The fourth condition of the NIL pertaining to
“HOLDERS” is not manifest. This is because Section 29 of the law quoted below 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.”

"A holder in due course," says the law, “is a holder who has taken the instrument under the following
conditions:

(a) That 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.

2.) WHETHER OR NOT STELCO IS A HOLDER IN DUE COURSE.

NO. There is no evidence whatsoever that STELCO too possession of the questioned check before the
instrument’s presentment and dishonor. There is no evidence whatsoever that the check was ever
given to STELCO or indorsed to STELCO 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. STELCO never
became a holder for value and that nowhere in the check itself does the name STELCO Marketing
appear as payee, indorsee, or depositor thereof.

Furthermore, the record does not show any intervention or participation by STELCO in any manner or
form whatsoever in the mentioned 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 present it
as evidence at the trial of the civil case. However, as 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.