GARCIA vs LLAMAS

417 SCRA 292

Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month. The loan has long been overdue and,
despite repeated demands, both have failed and refused to pay it. Hence, a complaint was
filed against both.
Resisting the complaint, Garcia averred that he assumed no liability because he signed
merely as an accommodation party for De Jesus; and that he is relieved from any liability
arising from the note inasmuch as the loan had been paid by De Jesus by means of a check
dated 17 April 1997; and that, in any event, the issuance of the check and respondents
acceptance thereof novated or superseded the note.
ISSUE: Whether or not petitioner is free from liability on the promissory note as an
accommodation party.
HELD:
No. The note was made payable to a specific person rather than to bearer or to order
a requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner
cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for
the promissory note. Under Article 29 of the NIL, an accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the latter knew the former to
be only an accommodation party. The relation between an accommodation party and the
party accommodated is, in effect, one of principal and surety the accommodation party
being the surety. It is a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promissor and debtor from the beginning.
Philippine Bank of Commerce vs. Aruego
GR L-25836-37, 31 January 1981, 102 scra 530
FACTS:
To facilitate payment of the printing of a periodical called World Current Events., Aruego, its
publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every
printing of the periodical, the printer collected the cost of printing by drawing a draft against
the bank, said draft being sent later to Aruego for acceptance. As an added security for the
payment of the amounts advanced to the printer, the bank also required Aruego to execute a
trust receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the
periodicals and to sell the same with the promise to turn over to the bank the proceeds of the
sale to answer for the payment of all obligations arising from the draft. The bank instituted an
action against Aruego to recover the cost of printing of the latters periodical. Aruego
however argues that he signed the supposed bills of exchange only as an agent of the
Philippine Education Foundation Company where he is president.
ISSUES:
Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company.
RULING:
Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the
NIL which provides that when a person adds to his signature words indicating that he signs for
or on behalf of a principal or in a representative capacity, he is not liable on the instrument if
he was duly authorized; but the mere addition of words describing him as an agent or as filing

a representative character, without disclosing his principal, does not exempt him from
personal liability.