[NEGOTIABLE INSTRUMENTS] Atty.
Ceniza
SALAZAR v J.Y BROTHERS MARKETING CORPORATION
GR No. 171998; October 20, 2010
TOPIC: Liabilities of Holder in Due Course
DOCTRINE:
An accommodation indorser is liable to on the instrument to a holder for value,
notwithstanding that such holder at the time of the taking of the instrument
knew her only to be an accommodation party.
RECIT- READY/ SUMMARY:
Calleja and Kallos purchased a rice from J.Y Brothers through Salazar, the
freelance agent. To pay such rice, Salazar negotiated and indorsed the
Prudential Bank check issued by Timarao. However, such check was dishonored
so Salazar replaced it with Solid Bank case of Timarao, which was also
dishonored. Now, Salazar, being an accommodation party is liable to the
instrument to a holder for value, despite the fact that at the time of the taking,
J.Y Brothers knew her to be an accommodation party only.
FACTS:
PARTIES INVOLVED:
 J.Y Brothers Marketing (J.Y. Bros.): corporation engaged in the business
of selling sugar, rice, and other commodities
 ANAMER SALAZAR: freelance sales agent
 ISAGANI CALLEJA and JESS KALLOS: Buyers of rice whom Salazar
referred to J.Y Bros.
 NENA JAUCIAN TIMARIO: Drawer of the check that was used to pay J.Y.
Bros. for the rice bought by Calleja and Kallos
 PRUDENTIAL BANK: Drawee bank of the first dishonored check
 SOLID BANK: Drawee Bank of the second dishonored check
HOW THE DISPUTE STARTED:
ILLUSTRATION:
TIMARAO Salazar (indorser of 2 checks of Timarao) J.Y. Brothers
 Salazar, a freelance sales agent referred Calleja and Kallos to J.Y
Brothers since the former (Calleja and Kallos) are looking for a supplier
of rice.
 With this, Salazar with Calleja and Kallos procured from J.Y. Bros. 300
cavans of rice worth 214,000.
 As way of payment, Salazar negotiated and indorsed to J.Y Bros., a
Prudential Bank Check (first check) issued by Timario in the amount of
214,000 with the assurance that the check is good as cash.
 With such assurance, J.Y Bros delivered 300 cavans of rice to
Salazar. However, when the check was presented for payment, it
was dishonored due to “CLOSED ACCOUNT”
 Salazar, Calleja, and Kallos informed J.Y Bros. of the check being
dishonored; then subsequently, they replaced the dishonored check
with another check, this time, Timario issued a check drawn against
Solid Bank (second check)
 Like what happened in the first check, the second check (Solid Bank
check) also bounced.
 With this, J.Y Bros filed a case against Salazar and Timario with the
crime of estafa before the RTC Legazpi
 ARGUMENTS OF SALAZAR:
- The issuance of Solid Bank check and the acceptance thereof by J.Y
Brothers as replacement of the dishonored Prudential Bank check
amounted to NOVATION which had the effect of discharging the
Solid Bank check
- J.Y. Brother’s acceptance of the Solid Bank check, notwithstanding
its eventual dishonor by the drawee bank, had the effect of erasing
whatever criminal responsibility,under Article 315 of the Revised
Penal Code
 RULING OF RTC: Salazar is ACQUITTED; however:
a. he is liable for the value of 300 bags of rice
b. ordered to pay J.Y. Brothers the sum of 214,000
 RULING OF SC ON THE PETITION FOR REVIEW FILED BY SALAZAR:
- Ordered RTC to proceed with the trial on the CIVIL ASPECT of the
criminal case being appealed by Salazar
 RULING OF RTC ON CIVIL ASPECT OF CRIMINAL CASE APPEALED
BY SALAZAR: Dismissed the civil aspect of the criminal case
- The payee on the dishonored check was not Salazar but Timario
- The Solid Bank check (2nd case) was non- negotiable since it was a
crossed check. With this, the substitution of a non- negotiable Solid
Bank check for a negotiable Prudential Bank check was an essential
change which had the effect of discharging from the obligation
whoever may be the endorse of the negotiable check
- RTC also concluded that the absence of negotiability rendered
nugatory the obligation arising from the technical act of indorsing a
check; thus, had the effect of novation
- Now, the ultimate effect of substitution was to extinguish the
obligation arising from the issuance of Prudential Bank check
 RULING OF CA: Applied Sections 29, 63, and 66 of NIL to determine the
liability of Salazar. It ruled that:
- Salazar is considered an indorser of the checks paid to J.V. Brothers
- Being considered as an accommodation indorser, he was liable on
the instrument to a holder for value, notwithstanding that such
 [NEGOTIABLE INSTRUMENTS] Atty. Ceniza

holder at the time of the taking of the instrument knew her only to
be an accommodation party
ISSUES:
 WON there was novation
 WON Salazar is liable as an accommodation indorser for the payment of
the dishonored Prudential Bank check
HELD:
ON NOVATION: There was NO NOVATION
 J.Y’s Brothers acceptance of the Solid Bank as replacement did not
result to novation as there was no express agreement to establish that
Salazar was already discharged from his liability to pay his outstanding
obligation of 214,000 with J.Y Brothers
 Also, J.Y Brother’s acceptance of the Solid Bank check DID NOT RESULT
to any incompatibility, since the two checks were precisely the purpose
of paying the amount of 214,000
 Indeed, there was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of the check to
pay the amount of P214,000.00.
 It would appear that J.Y. Brothers accepted the Solid Bank check to give
Salazar the chance to pay her obligation.
Bank check WAS NOT DISCHARGED and the Prudential Bank check was
not discharged.
 Thus, CA is correct when it ruled that Salazar is liable as an
accommodation indorser for the payment of the dishonored Prudential
Bank check
SIDE NOTE:
 How Salazar became an accommodation indorser?
- Although not explicitly stated in the case, it can be implied by the
facts that it was Calleja and Kallos who actually purchased rice
from J.Y Brothers however, it was Salazar who paid for those rice
by indorsing the check of Timarao to J.Y. Bros
- Simply put, Salazar is the holder of a check issued by Timarao then
Salazar indorsed such check to J.Y. Brothers to pay the rice
purchased by Calleja and Kallos even though he did not obtain
proceeds from it; thus, he is an accommodation indorser

ON LIABILITY OF SALAZAR: YES, Salazar is liable

 Considering that the Solid Bank check, as replacement check, was also
dishonored when it was presented for payment, the obligation which
secured by the Prudential Bank check was not extinguished and the
Prudential Bank check was not discharged
 Thus, SC affirmed CA decision that Salazar is liable as an
accommodation indorser for the payment of the dishonored Prudential
Bank check.

ON PRESENTMENT FOR PAYMENT: No. The obligation is not discharged

 Since the check issued was a CROSSED CHECK, it means that it could
only be deposited and could not be converted into cash
 Thus, the effect of crossing a check relates to the mode of payment,
meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein.
 The change in the mode of paying the obligation was not a change in
any of the objects or principal condition of the contract for novation to
take place
 In this case, considering that when Solid Bank check, which replaced
the Prudential Bank check, was presented for payment, the same was
again dishonored; thus, the obligation which secured by the Prudential