G.R. No. L-31831 April 28, 1983
The
JESUS PINEDA, petitioner,
vs.
JOSE V. DELA RAMA and COURT OF APPEALS, respondents.
Rosauro Alvarez for petitioner.
Arturo Zialcita for respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals
which declared petitioner Jesus Pineda liable on his promissory note for
P9,300.00 and directed him to pay attorney's fees of P400.00 to private
respondent, Jose V. dela Rama.
Dela Rama is a practising lawyer whose services were retained by Pineda for
the purpose of making representations with the chairman and general
manager of the National Rice and Corn Administration (NARIC) to stop or
delay the institution of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay deposited at his ricemill in
Concepcion, Tarlac. The NARIC general manager was allegedly an intimate
friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a
big hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of
his complaint for collection. In addition to filling the suit to collect the loan
evidenced by the matured promissory note, Dela Rama also sued to collect
P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in
the case being investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor
of petitioner Pineda. The court believed the evidence of Pineda that he
signed the promissory note for P9,300.00 only because Dela Rama had told
him that this amount had already been advanced to grease the palms of the
'Chairman and General Manager of NARIC in order to save Pineda from
criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness
and examining the exhibits in question, finds that Exhibit A
proves that the defendant himself did not receive the amount
stated therein, because according to said exhibit that amount
was advanced by the plaintiff in connection with the
defendant's case, entirely contradicting the testimony of the
plaintiff himself, who stated in open Court that he gave the
amount in cash in two installments to the defendant.
Court is more inclined to believe the contents of Exhibit A,
than the testimony of the plaintiff. On this particular matter,
the defendant has established that the plaintiff made him
believe that he was giving money to the authorities of the
NARIC to grease their palms to suspend the prosecution of
the defendant, but the defendant, upon inquiry, found out
that none of the authorities has received that amount, and
there was no case that was ever contemplated to be filed
against him. It clearly follows, therefore, that the amount
involved in this Exhibit A was imaginary. It was given to the
defendant, not to somebody else. The purpose for which the
amount was intended was illegal.
However, the Court believes that plaintiff was able to get
from the defendant the amount of P3,000.00 on October 7,
as shown by the check issued by the defendant, Exhibit 2,
and the letter, Exhibit 7, was antedated October 6, as per
plaintiff's wishes to show that defendant was indebted for
P3,000.00 when, as a matter of fact, such amount was
produced in order to grease the palms of the NARIC officials
for withholding an imaginary criminal case. Such amount
was never given to such officials nor was there any
contemplated case against the defendant. The purpose for
which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of
evidence that the amount of P9,300.00 evidenced by Exhibit
A was not received by the defendant, nor given to any party
for the defendant's benefit.Consequently, the plaintiff has no
right to recover said amount. The amount of P3,000.00 was
given by the defendant to grease the palms of the NARIC
officials. The purpose was illegal, null and void. Besides, it
was not given at all, nor was it true that there was a
contemplated case against the defendant. Such amount
should be returned to the defendant. The services rendered
by the plaintiff to the defendant is worth only P400.00, taking
into consideration that the plaintiff received an air-conditioner
and six sacks of rice. The court orders that the plaintiff
should return to the defendant the amount of P3,000.00,
minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that
Pineda, being a person of more than average intelligence, astute in business,
and wise in the ways of men would not "sign any document or paper with his
name unless he was fully aware of the contents and important thereof,
knowing as he must have known that the language and practices of business
and of trade and commerce call to account every careless or thoughtless
word or deed."
The appellate court stated:
No rule is more fundamental and by men of honor and
goodwill more dearly cherished, than that which declares
that obligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith. Corollary to and in furtherance of this principle,
Section 24 of the Negotiable instruments Law (Act No. 2031)
explicitly provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears
thereon to have become a party thereto for value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its
decision, citing Section 24 of the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.Every
negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto
for value.
The Court of Appeals' reliance on the above provision is misplaced. The
presumption that a negotiable instrument is issued for a valuable
consideration is only puma facie. It can be rebutted by proof to the contrary.
(Bank of the Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two
installments on two occasions five days apart - first loan for P5,000.00 and
second loan for P4,300.00, both given in cash. He also alleged that
previously he loaned P3,000.00 but Pineda paid this other loan two days
afterward.
These allegations of Dela Rama are belied by the promissory note itself. The
second sentence of the note reads - "This represents the cash advances
made by him in connection with my case for which he is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the
P9,300.00 promissory note because he believed Dela Rama's story that
these amounts had already been advanced by Dela Rama and given as gifts
for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one
month the filing of the NARIC case against Pineda while the latter was trying
to work out an amicable settlement. There is no question that Dela Rama
was indeed a close friend of then NARIC Administrator Jose Rodriquez
having worked with him in the Philippine consulate at Hongkong and that
Dela Rama made what he calls "proper representations" with Rodriguez and
with other NARIC officials in connection with the investigation of the criminal
charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a
lawyer to lend money to his client whom he had known for only three months,
with no security for the loan and on interest. Dela Rama testified that he did
not even know what Pineda was going to do with the money he borrowed
from him. The petitioner had just purchased a hacienda in Mindoro for
P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares,
and had P60,000.00 deposits in three banks when he executed the note. It is
more logical to believe that Pineda would not borrow P5,000.00 and
P4,300.00 five days apart from a man whom he calls a "fixer" and whom he
had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was
purchased by Pineda's son and given to Dela Rama although the latter
claims he paid P1,250.00 for the unit when he received it. Pineda, however,
alleged that he gave the air-conditioning unit because Dela Rama told him
that Dr. Rodriguez was asking for one air-conditioning machine of 1.5
horsepower for the latter's NARIC office. Pineda further testified that six
cavans of first class rice also intended for the NARIC Chairman and General
Manager, together with the airconditioning unit, never reached Dr. Rodriguez
but were kept by the lawyer.
Considering the foregoing, we agree with the trial court that the promissory
note was executed for an illegal consideration. Articles 1409 and 1412 of the
Civil Code in part, provide:
Art. 1409. The following contracts are inexistent and void
from the beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order and public policy;
 xxx xxx xxx
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following
rules shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of
no moment. The consideration for the promissory note - to influence public
officers in the performance of their duties - is contrary to law and public
policy. The promissory note is void ab initio and no cause of action for the
collection cases can arise from it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The
complaint and the counterclaim in Civil Case No. 45762 are both
DISMISSED.
SO ORDERED.
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the
order of the Court of First Instance of Manila, Branch XIII, in Civil Case No.
42066 denying his motion to set aside the order declaring him in
default, 1 and from the order of said court in the same case denying his
motion to set aside the judgment rendered after he was declared in
default. 2 These two appeals of the defendant were docketed as CA-G.R.
NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the
Court of Appeals to file one consolidated record on appeal of CA-G.R. NO.
27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First
Division, certified the consolidated appeal to the Supreme Court on the
ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
about P35,000.00 with daily interest thereon from November 17, 1959 until
fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorney's fees equivalent to 10% of the total amount
due and costs. 6 The complaint filed by the Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates
covering the period from August 28, 1950 to March 14, 1951. 7 The sum
sought to be recovered represents the cost of the printing of "World Current
Events," a periodical published by the defendant. To facilitate the payment of
the printing the defendant obtained a credit accommodation from the plaintiff.
Thus, for every printing of the "World Current Events," the printer, Encal
Press and Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for
acceptance. As an added security for the payment of the amounts advanced
to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein
said defendant undertook to hold in trust for plaintiff the periodicals and to
sell the same with the promise to turn over to the plaintiff the proceeds of the
sale of said publication to answer for the payment of all obligations arising
from the draft. 8
Aruego received a copy of the complaint together with the summons on
December 2, 1959. 9 On December 14, 1959 defendant filed an urgent
motion for extension of time to plead, and set the hearing on December 16,
1959. 10At the hearing, the court denied defendant's motion for extension.
Whereupon, the defendant filed a motion to dismiss the complaint on
December 17, 1959 on the ground that the complaint states no cause of
action because:
a) When the various bills of exchange were presented to the defendant as
drawee for acceptance, the amounts thereof had already been paid by the
plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge
or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the
defendant drawee is an accommodating party only for the drawer (Encal
Press and Photo-Engraving) and win be liable in the event that the
accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of
which was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On
March 7, 1960, acting upon the motion for reconsideration filed by the
plaintiff, the trial court set aside its order dismissing the complaint and set the
case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the
order setting aside the order of dismissal was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of
the deputy sheriff of Manila, Mamerto de la Cruz. On the following day,
March 12, 1960, the defendant filed a motion to postpone the trial of the case
on the ground that there having been no answer as yet, the issues had not
yet been joined. 15 On the same date, the defendant filed his answer to the
complaint interposing the following defenses: That he signed the document
upon which the plaintiff sues in his capacity as President of the Philippine
Education Foundation; that his liability is only secondary; and that he
believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the
defendant in default on the ground that the defendant should have filed his
answer on March 11, 1960. He contends that by filing his answer on March
12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court
declared the defendant in default. 18 The defendant learned of the order
declaring him in default on March 21, 1960. On March 22, 1960 the
defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March
11, 1960 at 5:00 in the afternoon, it could not have been reasonably
expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially because
the order of the court dated March 7, 1960 was brought to the attention of
counsel only in the early hours of March 12, 1960. The defendant also
alleged that he has a good and substantial defense. Attached to the motion
are the affidavits of deputy sheriff Mamerto de la Cruz that he served the
order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in
the afternoon and the affidavit of the defendant Aruego that he has a good
and substantial defense. 19 The trial court denied the defendant's motion on
March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment
sentencing the defendant to pay to the plaintiff the sum of P35,444.35
representing the total amount of his obligation to the said plaintiff under the
twenty-two (22) causes of action alleged in the complaint as of November 15,
1957 and the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated
March 25, 1961 denying his motion to set aside the order declaring him in
default, an appeal bond in the amount of P60.00, and his record on appeal.
The plaintiff filed his opposition to the approval of defendant's record on
appeal on May 13, 1960. The following day, May 14, 1960, the lower court
dismissed defendant's appeal from the order dated March 25, 1960 denying
his motion to set aside the order of default. 22 On May 19, 1960, the
defendant filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order dismissing appeal. 24 On
May 21, 1960, the trial court reconsidered its previous order dismissing the
appeal and approved the defendant's record on appeal. 25 On May 30, 1960,
the defendant received a copy of a notice from the Clerk of Court dated May
26, 1960, informing the defendant that the record on appeal filed ed by the
defendant was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered
after he was declared in default reiterating the same ground previously
advanced by him in his motion for relief from the order of default. 27 Upon
opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June
11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal from
the order of the court denying his motion to set aside the judgment by
default, his appeal bond, and his record on appeal. The defendant's record
on appeal was approved by the trial court on June 25, 1960. 30 Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal from the
order of the lower court denying his motion to set aside the order of default
docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his
motion to set aside the judgment by default docketed as CA-G.R. NO.
27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE
DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE
MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
 THE LOWER COURT ERRED IN DENYING DEFENDANT'S
PETITION FOR RELIEF OF ORDER OF DEFAULT AND
FROM JUDGMENT BY DEFAULT AGAINST
DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against
him through his mistake, inadvertence, surprise or excusable neglect, he
must show to the court that he has a meritorious defense. 32 In other words,
in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together
with the summons on December 2, 1960; that on December 17, 1960, the
last day for filing his answer, Aruego filed a motion to dismiss; that on
December 22, 1960 the lower court dismissed the complaint; that on January
23, 1960, the plaintiff filed a motion for reconsideration and on March 7,
1960, acting upon the motion for reconsideration, the trial court issued an
order setting aside the order of dismissal; that a copy of the order was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon
as shown in the affidavit of the deputy sheriff; and that on the following day,
March 12, 1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for
pleading is excusable. The order setting aside the dismissal of the complaint
was received at 5:00 o'clock in the afternoon. It was therefore impossible for
him to have filed his answer on that same day because the courts then held
office only up to 5:00 o'clock in the afternoon. Moreover, the defendant
immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer
was due to excusable negligence, he has failed to show that he has a
meritorious defense. The defendant does not have a good and substantial
defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's
complaint in a representative capacity, as the then President of the Philippine
Education Foundation Company, publisher of "World Current Events and
Decision Law Journal," printed by Encal Press and Photo-Engraving, drawer
of the said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but
as accommodation or additional party obligor, to add to the security of said
plaintiff bank. The reason for this statement is that unlike real bills of
exchange, where payment of the face value is advanced to the drawer only
upon acceptance of the same by the drawee, in the case in question,
payment for the supposed bills of exchange were made before acceptance;
so that in effect, although these documents are labelled bills of exchange,
legally they are not bills of exchange but mere instruments evidencing
indebtedness of the drawee who received the face value thereof, with the
defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company
where he is president. Section 20 of the Negotiable Instruments Law
provides that "Where the instrument contains or 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."
An inspection of the drafts accepted by the defendant shows that nowhere
has he disclosed that he was signing as a representative of the Philippine
Education Foundation Company. 34 He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also
without merit.
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of
the taking of the instrument knew him to be only an accommodation
party.35 In lending his name to the accommodated party, the accommodation
party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part
of the consideration for the instrument but assumes liability to the other
parties thereto because he wants to accommodate another. In the instant
case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a
lawyer, he should not have signed as an acceptor/drawee. In doing so, he
became primarily and personally liable for the drafts.
The defendant also contends that the drafts signed by him were not really 12 Ibid., pp. 248-249.
bills of exchange but mere pieces of evidence of indebtedness because 13 Ibid., pp. 249-269.
payments were made before acceptance. This is also without merit. Under 14 Ibid., pp. 274-275.
the Negotiable Instruments Law, a bill of exchange is an unconditional order 15 Ibid., pp. 275-277.
in writting addressed by one person to another, signed by the person giving 16 Ibid., pp. 302-303.
it, requiring the person to whom it is addressed to pay on demand or at a 17 Ibid., pp. 304-307.
fixed or determinable future time a sum certain in money to order or to 18 Ibid., p. 307.
bearer. 36 As long as a commercial paper conforms with the definition of a bill 19 Ibid., pp. 308- 314.
of exchange, that paper is considered a bill of exchange. The nature of 20 Ibid., p. 323.
acceptance is important only in the determination of the kind of liabilities of 21 Ibid., pp. 327-339.
the parties involved, but not in the determination of whether a commercial 22 Ibid., pp. 346-347.
paper is a bill of exchange or not. 23 Ibid., pp. 347-351.
24 Ibid., pp. 352-356.
It is evident then that the defendant's appeal can not prosper. To grant the 25 Ibid., p. 357.
defendant's prayer will result in a new trial which will serve no purpose and 26 Ibid., pp. 357-358.
will just waste the time of the courts as well as of the parties because the 27 Ibid., pp. 358-370,
defense is nil or ineffective. 37 28 Ibid., pp. 370-377.
29 Ibid., p. 377.
30 Ibid., p. 381.
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court
of First Instance of Manila denying the petition for relief from the judgment 31 Rollo, p. 19, Brief for the defendant-appellant, pp. 1-2.
rendered in said case is hereby affirmed, without pronouncement as to costs. 32 Bank of Philippine Islands v. de Coster, 47 Phil. 594; The
ruling in this case is substantially the same as Section 3,
Rule 18 of the New Rules of Court.
SO ORDERED. 33 Record on Appeal, pp. 316-318, Rollo, p. 14.
34 Ibid., pp. 177-240.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., 35 Section 29, Negotiable Instruments Law.
concur. 36 Section 126, Negotiable Instruments Law.
37 Ferrer vs. Yang Sepeng, 60 SCRA 149.

Footnotes
1 Record on Appeal, p. 323, Rollo, p. 14 for CA-G.R. NO.
27940 docketed as L-25837.
2 Ibid., p. 377.
3 Rollo, p. 5 for CA-G.R. NO. 27940 docketed here as L-
25837.
4 Ibid., p. 12.
5 Rollo, pp. 31-36 for CA-G.R. NO. 27754 docketed here as
L-25836. The resolution was written by then Presiding
Justice Fred Ruiz Castro and concurred in by Justice
Carmelino Alvendia and Justice Jesus Y. Peres G.R. No. L-16477 November 22, 1921
6 Record on Appeal p. 1.
7 Ibid., pp. 1-56. R. N. CLARK, plaintiff-appellant,
8 Ibid. vs.
9 Ibid., p. 241. GEORGE C. SELLNER, defendant-appellee.
10 Ibid., p. 242.
11 Ibid., pp, 243-245.
Wolfson, Wolfson & Schwarzkopf for appellant.
Williams & Ferrier for appellee.
ROMUALDEZ, J.:
The defendant, in conjunction with two other persons, signed the following
note in favor of the plaintiff:
P12,000.00 MANILA, July 1, 1914.
Six months after date, for value received, we jointly and
severally promise to pay to the order of R. N. Clark at his
office in the city of Manila, the sum of twelve thousand
pesos, Philippine currency, with interest thereon in like
currency from date until paid at the rate of ten per cent per
annum, payable quarterly.
If suit is necessary to collect this note, we hereby agree to
pay as attorney's fees ten per centum of the amount found
due.
(Sgd.) W. H. CLARKE,
[INTERNAL REVENUE JOHN MAYE. STAMP.] By W. H.
CLARKE, his attorney.
GEO. C. SELLNER."
The note matured, but its amount was not paid.
Counsel for the defendant allege that the latter did not receive in that
transaction either the whole or any part of the amount of the debt; that the
instrument was not presented to the defendant for payment; and that the
defendant, being an accommodation party, is not liable unless the note is
negotiated, which was not done, as shown by the evidence.
With regard to the first point, the liability of the defendant, as one of the
signers of the note, is not dependent on whether he has, or has not, received
any part of the amount of the debt. The defendant is really and expressly one
of the joint and several debtors on the note, and as such he is liable under
the provisions of section 60 of Act No. 2031, entitled The Negotiable
Instruments Law, which provisions should be applied in this case in view of
the character of the instrument.
As to presentment for payment, such action is not necessary in order to
charge the person primarily liable, as is the defendant. (Sec. 70, Act No.
2031.)
And as to whether or not the defendant is an accommodation party, it should
be taken into account that by putting his signature to the note, he lent his
name, not to the creditor, but to those who signed with him placing himself
with respect to the creditor in the same position and with the same liability as
the said signers. It should be noted that the phrase "without receiving value
therefor," as used in section 29 of the aforesaid Act, means "without
receiving value by virtue of the instrument" and not, as it apparently is
supposed to mean, "without receiving payment for lending his name." If, as in
the instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the singers
has, or has not, received anything in payment of the use of his name. In
reality the legal situation of the defendant in this case may properly be
regarded as that of a joint surety rather than that of an accommodation party.
The defendant, as a joint surety, may, upon the maturity of the note, pay the
debt, demand the collateral security and dispose of it to his benefit; but there
is no proof whatever that this was done. As to the plaintiff, he is the "holder
for value," under the phrase of said section 29, for he had paid the money to
the signers at the time the note was executed and delivered to him. Who is
the "holder" is defined in section 191 of the said law thus:
"Holder" means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.
And as such holder, he has the right to demand payment of the debt from the
signer of the note, even though he knows that said person is merely an
accommodation party (section 29 above cited), assuming the defendant to be
such, which, as has been stated, is not the case.
The trial judge took into account the fact that at the time of the maturity of the
note, the collateral security given to guarantee the payment was worth more
than what was due on the note, but it depreciated to such an extent that, at
the time of the institution of this action, it was entirely valueless. And taking
this circumstance, together with the fact that this case was not commenced
until after the lapse of four years from the date on which the payment fell
due, and with the further fact that the defendant had not received any part of
the amount mentioned in the note, he was of the opinion, and so decided,
that the defendant could not be held liable. The theory of the judge a quo
was that the plaintiff's failure to enforce the guaranty for the payment of the
debt, and his delay in instituting this action constitute laches, which had the
effect of extinguishing his right of action.
We see no sufficient ground for applying such a theory to the case before us. Araullo, C.J., Street, Malcolm, Avancea and Villamor, JJ., concur.
As stated, the defendant's position being, as it is, that of a joint surety, he Johnson, J., took no part.
may, at any time after the maturity of the note, make payment, thus
subrogating himself in the place of the creditor with the right to enforce the
guaranty against the other signers of the note for the reimbursement of what
he is entitled to recover from them. The mere delay of the creditor in
enforcing the guaranty has not by any means impaired his action against the
defendant. It should not be lost sight of that the defendant's signature on the
note is an assurance to the creditor that the collateral guaranty will remain
good, and that otherwise, he, the defendant, will be personally responsible
for the payment.

True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly or
partially released the surety; but it must be born in mind that it is a
recognized doctrine in the matter of suretyship that with respect to the surety,
the creditor is under no obligation to display any diligence in the enforcement
of his rights as a creditor. His mere inaction, indulgence, passiveness, or
delay in proceeding against the principal debtor, or the fact that he did not
enforce the guaranty or apply on the payment of such funds as were
available, constitute no defense at all for the surety, unless the contract
expressly requires diligence and promptness on the part of the creditor,
which is not the case in the present action. There is in some decisions a
tendency toward holding that the creditor's laches may discharge the surety,
meaning by laches a negligent forbearance. This theory, however, is not
generally accepted and the courts almost universally consider it essentially
inconsistent with the relation of the parties to the note. (21 R. C. L., 1032-
1034.)

We find that in the judgment appealed from there were committed the errors
assigned, and that the defendant is under obligation to pay the plaintiff the
amount of the debt, as prayed for in the complaint.lawphil.net

The judgment appealed from must, therefore, be, as is hereby, reversed. Let
an order be issued to the effect that the plaintiff have and recover from the
defendant the sum of twelve thousand pesos (P12,000), as principal debt,
plus one thousand two hundred pesos (P1,200), the sum agreed upon as
attorney's fees, and 10 per cent interest on the principal debt from July 1,
1914, until it is fully paid, deducting therefrom the sum of three hundred
pesos (P300) already paid on account, as stated in the complaint.

This decision is rendered without special pronouncement as to costs. So

ordered.
G.R. No. L-24224 November 3, 1925
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
RAMON MAZA and FRANCISCO MECENAS, defendants-appellants.
Lutero, Lutero and Maza for appellants.
Roman J. Lacson for appellee.
MALCOLM, J.:
The Philippine National Bank is suing Ramon Maza and Francisco Mecenas
on five promissory notes of ten thousand pesos (P10,000) each.
Maza and Mecenas executed two of the promissory notes on January 20,
1921, due three months after date. The three other notes due four months
after date. The three other notes due four months after date were executed
by the same parties on January 21, 1921. One of the above-mentioned
notes, typical of the rest reads as follows:
P10,000 ILOILO, I.F. Jan. 20, 1921.
A los tres meses de la fecha, pagaremos mancomunada y
solidariamente a la orden del Philippine National Bank, Iloilo,
Iloilo, I. F., la cantidad de diez mil (P10,000) pesos en
el Philippine National Bank.
Iloilo, I. F.
Valor Recibido.
No. 340 Pagadero el 4/20/21
(Fdos.) RAMOS MAZA
FRANCISCO MECENAS
The notes were not taken up by Maza and Mecenas at maturity. The
obligations with accumulated interest totaled P65,207.73 on September 22,
1924.
To recover the amounts stated on the face of the notes with back interest,
action was begun by the Philippine National Bank in the court of first instance
of Iloilo against Ramon Maza and Francisco Mecenas. The special defense
interposed by the defendants was that the promissory notes were sent in
blank to them by Enrique Echaus with the request that they sign them so that
he, Echaus, might negotiate them with the Philippine National Bank in case
of need; that the defendants have not negotiated the promissory notes with
the bank, nor have they received the value thereof, or delivered them to the
bank in payment of any preexisting debt; and that it was Enrique Echaus who
negotiated the noted with the bank and who is accordingly the real party in
interest and the party liable for the payment of the notes. Defendants also
moved that Echaus be ordered included as one of the defendants. The trial
judge denied the motion. Judgment was rendered in favor of the plaintiff and
against the defendants jointly and severally for a total of P65,207.73, with
interest at 9 per cent on twenty thousand pesos (P5) a day, and with interest
at 9 per cent on thirty thousand pesos (P30,000) from September 23, 1924,
or at the rate of P7.5 a day, and with costs.
Four errors are assigned by the defendants on appeal. The first error relates
to the order of the trial judge refusing to require Enrique Echaus to become a
party to the action. As the defendants failed to duly except to the order, they
are not now entitled to ask this court to review the ruling. Moreover, it is not
evident that Echaus was an indispensable party. The other three error go to
the merits and rest on the same foundation as the special defense.
From the pleadings and the stipulation of facts, it is deduced that the
defendants admit the genuineness and due execution of the instruments
sued on . Neither do the appellants point out any mistake in regard to the
amount and interest that the lower court sentenced them to pay to the
plaintiff bank. Predicated on these premises, from whatever point of view we
look at the case, we arrive at the same conclusion that the defendants are
liable.
On the first assumption that Maza and Mecenas were the principals and
Echaus the agent, as argued by counsel for the appellee, the principals must
fulfill their obligations. On another assumption, which is a fact, that the
defendants are exactly what they appear to be, the makers of the negotiable
instruments, then they must keep their engagement and must pay as
promised. Their liability on the instruments is primary and unconditional.
The most plausible and reasonable stand for the defendants is that they are
accommodation parties. but as accommodation parties, the defendants
having signed the instruments without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the
instruments. The law now is that the accommodation party can claim no
benefit as such, but he is liable according to the face of his undertaking, the
same as if he were himself financially interested in the
transaction.lawph!1.net
The defense is made to the action that the defendants never received the
value of the promissory notes. it is, of course, fundamental that an instrument
given without consideration does not create any obligation at law or in equity
in favor of the payee. However, to fasten liability upon an accommodation
maker, it is not necessary that any consideration should move to him. The
consideration which supports the promise of the accommodation maker is
that parted with by the person taking the note and received by the person
accommodated.
While perhaps unnecessary to this decision, it may properly be remarked that
when the accommodation parties make payment to the holder of the notes,
they have the right to sue the accommodated party for reimbursement, since
the relation between them is in effect that of principal and sureties, the
accommodation parties being the sureties.
Judgment affirmed with costs.
G.R. No. L-17845 April 27, 1967
INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON
SADAYA, petitioner,
vs.
FRANCISCO SEVILLA, respondent.
Belen Law Offices for petitioner.
Poblador, Cruz & Nazareno for respondent.
SANCHEZ, J.:
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya
executed, jointly and severally, in favor of the Bank of the Philippine Islands,
or its order, a promissory note for P15,000.00 with interest at 8% per annum,
payable on demand. The entire, amount of P15,000.00, proceeds of the
promissory note, was received from the bank by Oscar Varona alone. Victor
Sevilla and Simeon Sadaya signed the promissory note as co-makers only
as a favor to Oscar Varona. Payments were made on account. As of June
15, 1950, the outstanding balance stood P4,850.00. No payment thereafter
made.
On October 6, 1952, the bank collected from Sadaya the foregoing balance
which, together with interest, totalled P5,416.12. Varona failed to reimburse
Sadaya despite repeated demands.
Victor Sevilla died. Intestate estate proceedings were started in the Court of
First Instance of Rizal, Special Proceeding No. 1518. Francisco Sevilla was
named administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above
sum of P5,746.12, plus attorneys fees in the sum of P1,500.00. The
administrator resisted the claim upon the averment that the deceased Victor
Sevilla "did not receive any amount as consideration for the promissory
note," but signed it only "as surety for Oscar Varona".
On June 5, 1957, the trial court issued an order admitting the claim of
Simeon Sadaya in the amount of P5,746.12, and directing the administrator
to pay the same from any available funds belonging to the estate of the
deceased Victor Sevilla.
The motion to reconsider having been overruled, the administrator
appealed.1 The Court of Appeals, in a decision promulgated on July, 15,
1960, voted to set aside the order appealed from and to disapprove and
disallow "appellee's claim of P5,746.12 against the intestate estate."
The case is now before this Court on certiorari to review the judgment of the
Court of Appeals.
Sadaya's brief here seeks reversal of the appellate court's decision and
prays that his claim "in the amount of 50% of P5,746.12, or P2,873.06,
against the intestate estate of the deceased Victor Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several
accommodation makers of the 15,000.00-peso promissory note in favor of
the Bank of the Philippine Islands, need not be essayed. As such
accommodation the makers, the individual obligation of each of them to the
bank is no different from, and no greater and no less than, that contract by
Oscar Varona. For, while these two did not receive value on the promissory
note, they executed the same with, and for the purpose of lending their
names to, Oscar Varona. Their liability to the bank upon the explicit terms of
the promissory note is joint and several.2 Better yet, the bank could have
pursued its right to collect the unpaid balance against either Sevilla or
Sadaya. And the fact is that one of the last two, Simeon Sadaya, paid that
balance.
2. It is beyond debate that Simeon Sadaya could have sought reimbursement
of the total amount paid from Oscar Varona. This is but right and just. Varona
received full value of the promissory note.3 Sadaya received nothing
therefrom. He paid the bank because he was a joint and several obligor. The
least that can be said is that, as between Varona and Sadaya, there is an
implied contract of indemnity. And Varona is bound by the obligation to
reimburse Sadaya.4
3. The common creditor, the Bank of the Philippine Islands, now out of the
way, we first look into the relations inter se amongst the three consigners of
the promissory note. Their relations vis-a-vis the Bank, we repeat, is that of
joint and several obligors. But can the same thing be said about the relations
of the three consigners, in respect to each other?
Surely enough, as amongst the three, the obligation of Varona and Sevilla to
Sadaya who paid can not be joint and several. For, indeed, had payment
been made by Oscar Varona, instead of Simeon Sadaya, Varona could not
have had reason to seek reimbursement from either Sevilla or Sadaya, or
both. After all, the proceeds of the loan went to Varona and the other two
received nothing therefrom.
4. On principle, a solidary accommodation maker who made payment
has the right to contribution, from his co-accommodation maker, in the
absence of agreement to the contrary between them, and subject to
conditions imposed by law. This right springs from an implied promise
between the accommodation makers to share equally the burdens that may
ensue from their having consented to stamp their signatures on the
promissory note.5 For having lent their signatures to the principal debtor, they
clearly placed themselves in so far as payment made by one may create
liability on the other in the category of mere joint grantors of the
former.6 This is as it should be. Not one of them benefited by the promissory
note. They stand on the same footing. In misfortune, their burdens should be
equally spread.
Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is
substantially reproduced in Article 20738of our Civil Code, on this point
stated:
Otros, como Pothier, entienden que, si bien el principio es evidente
enestricto concepto juridico, se han extremado sus consecuencias
hasta el punto de que estas son contrarias, no solo a la logica, sino
tambien a la equidad, que debe ser el alma del Derecho, como ha
dicho Laurent.
Esa accion sostienen no nace de la fianza, pues, en efecto, el
hecho de afianzar una misma deuda no crea ningun vinculo juridico,
ni ninguna razon de obligar entre los fiadores, sino que trae, por el
contrario, su origen de una acto posterior, cual es el pago de toda la
deuda realizado por uno de ellos, y la equdad, no permite que los
denias fiadores, que igualmente estaban estaban obligos a dicho
pago, se aprovenchen de ese acto en perjuico del que lo realozo.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho
del pago, pero es consecuencia del beneficio o del derecho de
division, como tenemos ya dicho. En efecto, por virtud de esta todos
los cofiadores vienen obligados a contribuir al pago de parte que a
cada uno corresponde. De ese obligacion, contraida por todos ellos,
se libran los que no han pagado por consecuencia del acto realizado
por el que pago, y si bien este no hizo mas que cumplir el deber que
el contracto de fianza le imponia de responder de todo el debito
cuando no limito su obligacion a parte alguna del mismo, dicho acto
redunda en beneficio de los otros cofiadores los cuales se
aprovechan de el para quedar desligados de todo compromiso con
el acreedor.9
5. And now, to the requisites before one accommodation maker can seek
reimbursement from a co-accommodation maker.
By Article 18 of the Civil Code in matters not covered by the special laws,
"their deficiency shall be supplied by the provisions of this Code". Nothing
extant in the Negotiable Instruments Law would define the right of one
accommodation maker to seek reimbursement from another. Perforce, we
must go to the Civil Code.1wph1.t
Because Sevilla and Sadaya, in themselves, are but co-guarantors of
Varona, their case comes within the ambit of Article 2073 of the Civil Code
which reads:
ART. 2073. When there are two or more guarantors of the same
debtor and for the same debt, the one among them who has paid
may demand of each of the others the share which is proportionally
owing from him.
If any of the guarantors should be insolvent, his share shall be borne
by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the
payment has been made in virtue of a judicial demand or unless the
principal debtor is insolvent.10
As Mr. Justice Street puts it: "[T]hat article deals with the situation which
arises when one surety has paid the debt to the creditor and is seeking
contribution from his cosureties."11
Not that the requirements in paragraph 3, Article 2073, just quoted, are 6. All of the foregoing postulate the following rules: (1) A joint and several
devoid of cogent reason. Says Manresa:12 accommodation maker of a negotiable promissory note may demand from
the principal debtor reimbursement for the amount that he paid to the payee;
c) Requisitos para el ejercicio del derecho de reintegro o de and (2) a joint and several accommodation maker who pays on the said
reembolso derivado de la corresponsabilidad de los cofiadores. promissory note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the principal
debtor provided that (a) he made the payment by virtue of a judicial demand,
La tercera de las prescripciones que comprende el articulo se
refiere a los requisitos que deben concurrir para que pueda tener or (b) a principal debtor is insolvent.
lugar lo dispuesto en el mismo. Ese derecho que concede al fiador
para reintegrarse directamente de los fiadores de lo que pago por The Court of Appeals found that Sadaya's payment to the bank "was made
ellos en vez de dirigir su reclamacion contra el deudor, es un voluntarily and without any judicial demand," and that "there is an absolute
beneficio otorgado por la ley solo ell dos casos determinados, cuya absence of evidence showing that Varona is insolvent". This combination of
justificacion resulta evidenciada desde luego; y esa limitacion este fact and lack of fact epitomizes the fatal distance between payment by
debidamente aconsejada por una razon de prudencia que no puede Sadaya and Sadaya's right to demand of Sevilla "the share which is
desconocerse, cual es la de evitar que por la mera voluntad de uno proportionately owing from him."
de los cofiadores pueda hacerse surgir la accion de reintegro contra
los demas en prejuicio de los mismos. For the reasons given, the judgment of the Court of Appeals under review is
hereby affirmed. No costs. So ordered.
El perjuicio que con tal motivo puede inferirse a los cofiadores es
bien notorio, pues teniendo en primer termino el fiador que paga por
el deudor el derecho de indemnizacion contra este, sancionado por
el art. 1,838, es de todo punto indudable que ejercitando esta
accion pueden quedar libres de toda responsabilidad los demas
cofiadores si, a consecuencia de ella, indemniza el fiado a aquel en
los terminos establecidos en el expresado articulo. Por el contrario
de prescindir de dicho derecho el fiador, reclamando de los
confiadores en primer lugar el oportuno reintegro, estos en tendrian
mas remedio que satisfacer sus ductares respectivas, repitiendo
despues por ellas contra el deudor con la imposicion de las
molestias y gastos consiguientes.

No es aventurado asegurar que si el fiador que paga pudiera

libremente utilizar uno u otro de dichos derechos, el de
indemnizacion por el deudor y el del reintegro por los cofiadores,
indudablemente optaria siempre y en todo caso por el segundo,
puesto que mucha mas garantias de solvencia y mucha mas
seguridad del cobro ha de encontrar en los fiadores que en el
deudor; y en la practica quedaria reducido el primero a la
indemnizacion por el deudor a los confiadores que hubieran hecho el
reintegro, obligando a estos, sin excepcion alguna, a soportar
siempre los gastos y las molestias que anteriormente homos
indicado. Y para evitar estos perjuicios, la ley no ha podido menos
de reducir el ejercicio de ese derecho a los casos en que
absolutamente sea indispensable.13
G.R. No. L-30205 March 15, 1982
UNITED GENERAL INDUSTRIES, INC., plaintiff-appellee,
vs.
JOSE PALER and JOSE DE LA RAMA, defendants-appellants
ABAD SANTOS, J.:
This is an appeal from a decision of the Court of First Instance of Manila,
Branch IX, in Civil Case No. 60418, United General Industries, Inc. vs. Jose
Paler and Jose de la Rama. Since the appeal death with a question of law
only, We reproduce the decision which reads as follows:
When this case was called for pre-trial today, neither the
defendants, nor their counsel appeared, notwithstanding the
fact that said defendants were notified of the pre-trial. Upon
motion of the plaintiff, said defendants were declared in
default. Likewise, upon motion of counsel for the plaintiff, this
case was submitted for judgment on the pleadings.
Plaintiff's complaint alleges that on January 20, 1962, the
defendant, Jose Paler and his wife Purificacion Paler,
purchased from the plaintiff (1) Zenith 23" TV set with serial
No. 3493594 on installment basis; that to secure the
payment of the purchase price, the defendant, Jose Paler
and his wife executed in favor of the plaintiff a promissory
note in the amount of P2,690.00; that, to consider the
guarantee the payment of the aforementioned promissory on
defendant Jose Paler and his wife constituted a chattel
mortgage over the above- described television set in favor of
the plaintiff which mortgage was duly registered in the
chattel mortgage registry; that by virtue of the violation by
defendant Jose Paler and his wife of the terms and
conditions of the chattel mortgage, the plaintiff filed a
criminal action against the above-named persons for estafa
under Art. 319 of the Revised Penal Code with the City
Fiscal's Office of Pasay City; that to settle extra-judicially the
criminal case aforementioned against the defendant, Jose
Paler and his wife, the said defendant Jose Paler and his co-
defendant, Jose de la Rama, executed in favor of plaintiff a
promissory note dated April 11, 1964 in the amount of
P3,083.58 (exhibit A); and that; notwithstanding repeated
demands, said defendants have failed to pay plaintiff the
sum of P3,083.58 with 1% interest per month from April 11,
1964 until full payment is made, pursuant to the terms of the
promissory note marked Exhibit A.
In their answer, the defendants admit the fact that they
executed a promissory note dated April 11, 1964 in favor of
plaintiff in the amount of P3,083.58, with 12% interest per
annum. They further admit the fact that said obligation has
not been paid the plaintiff notwithstanding repeated
demands made.
Considering the admissions of the defendants in their
answer, judgment on the pleadings, as prayed for may,
therefore, be rendered.
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants, sentencing said
defendants to pay to the plaintiff the sum of P3,083.58, with
12% interest thereon per annum from the date the complaint
was filed on October 14, 1965 until full payment is made and
attorney's fees in the sum of P250.00. With costs against the
defendants. (Record on Appeal, pp. 20-22.)
The appellants, Paler and de la Rama, claim in their appeal that the
complaint should have been dismissed because "the obligation sought to be
enforced by plaintiff-appellee against defendants-appellants arose or was
incurred in consideration for the compounding of a crime." Obviously, the
appellants are referring to the portion of the decision which states: " ... the
plaintiff filed a criminal action against the above-named persons (Jose Paler
and his wife) for estafa under Art. 319 of the Revised Penal Code with the
City Fiscal's Office of Pasay City; that to settle extra-judicially the criminal
case aforementioned against the defendant, Jose Paler and his wife, the said
defendant Jose Paler and his co-defendant, Jose de la Rama, executed in
favor of plaintiff a promissory note dated April 11, 1964 in the amount of
P3,083.58 (Exhibit A)."
There is some merit in this contention. In Arroyo vs. Berwin, 36 Phil. 386
(1917), it was held that an agreement to stifle the prosecution of a crime is
manifestly contrary to public policy and due administration of justice and will
not be enforced in a court of law. See also Monterey vs. Gomez, et al., 104
Phil. 1059 (1958).
Under the law and jurisprudence, there can be no recovery against Jose de
la Rama who incidentally appears to have been an accommodation signer
only of the promissory note which is vitiated by the illegality of the cause.
But it is different with Jose Paler who bought a television set from the
appellee, did not pay for it and even sold the set without the written consent
of the mortgagee which accordingly brought about the filing of the estafa
case. He has an obligation to the appellee independently of the promissory
note which was co-signed by Jose de la Rama. For Paler to escape payment
of a just obligation will result in an untrust enrichment at the expense of
another. This we cannot in conscience allow.
Article 19 of the Civil Code mandates "Every person must, in the exercise of
his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith." And Article 2208 of the same
Code states that attorney's fees and expenses of litigation, other than judicial
costs, can be recovered "Where the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim." (Par. 5.) Here Paler wilfully refused to pay a debt which he clearly
ought to have paid. He has even imposed a burden on this Court by filing an
unnecessary and frivolous appeal. The award of P250.00 in favor of the
appellee who had to file a printed brief is manifestly inadequate.
WHEREFORE, the judgment of the court a quo is modified to excluding Jose
de la Rama therefrom and increasing the award for attorney's fees to
P1,000.00; it is affirmed in all other respects. Triple costs.
SO ORDERED.
G.R. No. L-34539 July 14, 1986
EULALIO PRUDENCIO and ELISA T. PRUDENCIO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL
BANK, RAMON C. CONCEPCION and MANUEL M. TAMAYO, partners of
the defunct partnership Concepcion & Tamayo Construction Company,
JOSE TORIBIO, Atty-in-Fact of Concepcion & Tamayo Construction
Company, and THE DISTRICT ENGINEER, Puerto Princesa,
Palawan, respondents.
Fernando R. Mangubat, Jr. for respondent PNB.
GUTIERREZ, JR., J.:
This is a petition for review seeking to annul and set aside the decision of the
Court of Appeals, now the Intermediate Appellate Court, affirming the order
of the trial court which dismissed the petitioners' complaint for cancellation of
their real estate mortgage and held them jointly and severally liable with the
principal debtors on a promissory note which they signed as accommodation
makers.
The factual background of this case is stated in the decision of the appellate
court:
Appellants are the registered owners of a parcel of land
located in Sampaloc, Manila, and covered by T.C.T. 35161
of the Register of Deeds of Manila. On October 7, 1954, this
property was mortgaged by the appellants to the Philippine
National Bank, hereinafter called PNB, to guarantee a loan
of P1,000.00 extended to one Domingo Prudencio.
Sometime in 1955, the Concepcion & Tamayo Construction
Company, hereinafter called Company, had a pending
contract with the Bureau of Public Works, hereinafter called
the Bureau, for the construction of the municipal building in
Puerto Princess, Palawan, in the amount of P36,800.00 and,
as said Company needed funds for said construction, Jose
Toribio, appellants' relative, and attorney-in-fact of the
Company, approached the appellants asking them to
mortgage their property to secure the loan of P10,000.00
which the Company was negotiating with the PNB.
After some persuasion appellants signed on December 23,
1955 the 'Amendment of Real Estate Mortgage', mortgaging
their said property to the PNB to guaranty the loan of
P10,000.00 extended to the Company. The terms and
conditions of the original mortgage for Pl,000.00 were made
integral part of the new mortgage for P10,000.00 and both
documents were registered with the Register of Deeds of
Manila. The promissory note covering the loan of
P10,000.00 dated December 29, 1955, maturing on April 27,
1956, was signed by Jose Toribio, as attorney-in-fact of the
Company, and by the appellants. Appellants also signed the
portion of the promissory note indicating that they are
requesting the PNB to issue the Check covering the loan to
the Company. On the same date (December 23, 1955) that
the 'Amendment of Real Estate' was executed, Jose Toribio,
in the same capacity as attorney-in- fact of the Company,
executed also the 'Deed of Assignment' assigning all
payments to be made by the Bureau to the Company on
account of the contract for the construction of the Puerto
Princesa building in favor of the PNB.
 This assignment of credit to the contrary notwithstanding, the
Bureau; with approval, of the PNB, conditioned, however
that they should be for labor and materials, made three
payments to the Company on account of the contract price
totalling P11,234.40. The Bureau's last request for
P5,000.00 on June 20, 1956, however, was denied by the
PNB for the reason that since the loan was already overdue
as of April 28, 1956, the remaining balance of the contract
price should be applied to the loan.
The Company abandoned the work, as a consequence of
which on June 30, 1956, the Bureau rescinded the
construction contract and assumed the work of completing
the building. On November 14, 1958, appellants wrote the
PNB contending that since the PNB authorized payments to
the Company instead of on account of the loan guaranteed
by the mortgage there was a change in the conditions of the
contract without the knowledge of appellants, which entitled
the latter to a cancellation of their mortgage contract.
Failing in their bid to have the real estate mortgage
cancelled, appellants filed on June 27, 1959 this action
against the PNB, the Company, the latter's attorney-in-fact
Jose Toribio, and the District Engineer of Puerto Princesa,
Palawan, seeking the cancellation of their real estate
mortgage. The complaint was amended to exclude the
Company as defendant, it having been shown that its life as
a partnership had already expired and, in lieu thereof,
Ramon Concepcion and Manuel M. Tamayo, partners of the
defunct Company, were impleaded in their private capacity
as defendants.
After hearing, the trial court rendered judgment, denying the prayer in the
complaint that the petitioners be absolved from their obligation under the
mortgage contract and that the said mortgage be released or cancelled. The
petitioners were ordered to pay jointly and severally with their co-makers
Ramon C. Concepcion and Manuel M. Tamayo the sum of P11,900.19 with
interest at the rate of 6% per annum from the date of the filing of the
complaint on June 27, 1959 until fully paid and Pl,000.00 attorney's fees.
The decision also provided that if the judgment was not satisfied within 90
days from its receipt, the mortgaged properties together with all the
improvements thereon belonging to the petitioners would be sold at public
auction and applied to the judgment debt.
The Court of Appeals affirmed the trial court's decision in toto stating that, as
accommodation makers, the petitioners' liability is that of solidary co-makers
and that since "the amounts released to the construction company were used
therein and, therefore, were spent for the successful accomplishment of the
work constructed for, the authorization made by the Philippine National Bank
of partial payments to the construction company which was also one of the
solidary debtors cannot constitute a valid defense on the part of the other
solidary debtors. Moreover, those who rendered services and furnished
materials in the construction are preferred creditors and have a lien on the
price of the contract." The appellate court further held that PNB had no
obligation whatsoever to notify the petitioners of its authorizing the three
payments in the total amount of Pll,234.00 in favor of the Company because
aside from the fact that the petitioners were not parties to the deed of
assignment, there was no stipulation in said deed making it obligatory on the
part of the PNB to notify the petitioners everytime it authorizes payment to
the Company. It ruled that the petitioners cannot ask to be released from the
real estate mortgage.
In this petition, the petitioners raise the following issues which they present in
the form of errors:
I. First Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT HEREIN PETITIONERS WERE
SOLIDARY CO-DEBTORS INSTEAD OF SURETIES:
II. Second Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONERS WERE NOT RELEASED
FROM THEIR OBLIGATION TO THE RESPONDENT PNB,
WHEN THE PNB, WITHOUT THE KNOWLEDGE AND
CONSENT OF PETITIONERS, CHANGED THE TENOR
AND CONDITION OF THE ASSIGNMENT OF PAYMENTS
MADE BY THE PRINCIPAL DEBTOR; CONCEPCION &
TAMAYO CONSTRUCTION COMPANY; AND RELEASED
TO SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE
BUREAU OF PUBLIC WORKS WHICH WERE MORE
THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO
THE PNB.
The petitioners contend that as accommodation makers, the nature of their
liability is only that of mere sureties instead of solidary co-debtors such that
"a material alteration in the principal contract, effected by the creditor without
the knowledge and consent of the sureties, completely discharges the
sureties from all liability on the contract of suretyship. " They state that when
respondent PNB did not apply the initial and subsequent payments to the
petitioners' debt as provided for in the deed of assignment, they were
released from their obligation as sureties and, therefore, the real estate
mortgage executed by them should have been cancelled.
Section 29 of the Negotiable Instrument Law provides:
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 holder for
value, notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.
In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539),
we held that "... in lending his name to the accommodated party, the
accommodation party is in effect a surety. ... . " However, unlike in a contract
of suretyship, the liability of the accommodation party remains not only
primary but also unconditional to a holder for value such that even if the
accommodated party receives an extension of the period for payment without
the consent of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a
holder for value is concerned, he is a solidary co- debtor.
Expounding on the nature of the liability of an accommodation petition party
under the aforequoted section, we ruled in Ang Tiong v. Ting (22 SCRA 713,
716):
3. That the appellant, again assuming him to be an
accommodation indorser, may obtain security from the
maker to protect himself against the danger of insolvency of
the latter, cannot in any manner affect his liability to the
appellee, as the said remedy is a matter of concern
exclusively between accommodation indorser and
accommodated party. So that the appellant stands only as a
surety in relation to the maker, granting this to be true for the
sake of argument, is immaterial to the claim of the appellee,
and does not a whit diminish nor defeat the rights of the
latter who is a holder for value. The liability of the appellant
remains primary and unconditional. To sanction the
appellant's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when
sued on an instrument by a holder in due course and for
value, can escape liability on his indorsement by the
convenient expedient of interposing the defense that he is a
mere accommodation indorser.
There is, therefore, no question that as accommodation makers, petitioners
would be primarily and unconditionally liable on the promissory note to a
holder for value, regardless of whether they stand as sureties or solidary co-
debtors since such distinction would be entirely immaterial and
inconsequential as far as a holder for value is concerned. Consequently, the
petitioners cannot claim to have been released from their obligation simply
because the time of payment of such obligation was temporarily deferred by
PNB without their knowledge and consent. There has to be another basis for
their claim of having been freed from their obligation. The question which
should be resolved in this instant petition, therefore, is whether or not PNB
can be considered a holder for value under Section 29 of the Negotiable
Instruments Law such that the petitioners must be necessarily barred from
setting up the defense of want of consideration or some other personal
defenses which may be set up against a party who is not a holder in due
course.
A holder for value under Section 29 of the Negotiable Instruments Law is one
who must meet all the requirements of a holder in due course under Section
52 of the same law except notice of want of consideration. (Agbayani,
Commercial Laws of the Philippines, 1964, p. 208). If he does not qualify as
a holder in due course then he holds the instrument subject to the same
defenses as if it were non-negotiable (Section 58, Negotiable Instruments
Law).
In the case at bar, can PNB, the payee of the promissory note be considered
a holder in due course?
Petitioners contend that the payee PNB is an immediate party and, therefore,
is not a holder in due course and stands on no better footing than a mere
assignee.
In those cases where a payee was considered a holder in due course, such
payee either acquired the note from another holder or has not directly dealt
with the maker thereof. As was held in the case of Bank of Commerce and
Savings v. Randell (186 NorthWestern Reporter 71):
We conclude, therefore, that a payee who receives a
negotiable promissory note, in good faith, for value, before
maturity, and without any notice of any infirmity, from a
holder, not the maker. to whom it was negotiated as a
 completed instrument, is a holder in due course within the
purview of a Negotiable Instruments law, so as to preclude
the defense of fraud and failure of consideration between the
maker and the holder to whom the instrument, was
delivered.
Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern Reporter
748) on rehearing and quoting Daniel on Negotiable Instruments, it was held:
It is a general principle of the law merchant that, as between
the immediate parties to a negotiable instrument-the parties
between whom there is a privity-the consideration may be
inquired into; and as to them the only superiority of a bill or
note over other unsealed evidence of debt is that it prima
facie imports a consideration.
Although as a general rule, a payee may be considered a holder in due
course we think that such a rule cannot apply with respect to the respondent
PNB. Not only was PNB an immediate party or in privy to the promissory
note, that is, it had dealt directly with the petitioners knowing fully well that
the latter only signed as accommodation makers but more important, it was
the Deed of Assignment executed by the Construction Company in favor of
PNB which principally moved the petitioners to sign the promissory note also
in favor of PNB. Petitioners were made to believe and on that belief entered
into the agreement that no other conditions would alter the terms thereof and
yet, PNB altered the same. The Deed of Assignment specifically provided
that Jose F. Toribio, on behalf of the Company, "have assigned, transferred
and conveyed and by these presents, do assign, transfer and convey unto
the said Philippine National Bank, its successors and assigns all payments to
be received from the Bureau of Public Works on account of contract for the
construction of the Puerto Princesa Municipal Building in Palawan, involving
the total amount of P 36,000.00" and that "This assignment shall be
irrevocable and subject to the terms and conditions of the promissory note
and or any other kind of documents which the Philippine National Bank have
required or may require the assignor to execute to evidence the above-
mentioned obligation."
Under the terms of the above Deed, it is clear that there are no further
conditions which could possibly alter the agreement without the consent of
the petitioners such as the grant of greater priority to obligations other than
the payment of the loan due to the PNB and part of which loan was
guaranteed by the petitioners in the amount of P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three payments
directly to the Company instead of paying the same to the Bank. This
approval was in violation of the Deed of Assignment and without any notice
to the petitioners who stood to lose their property once the promissory note
falls due without the same having been paid because the PNB, in effect,
waived payments of the first three releases. From the foregoing
circumstances, PNB can not be regarded as having acted in good faith which
is also one of the requisites of a holder in due course under Section 52 of the
Negotiable Instruments Law. The PNB knew that the promissory note which
it took from the accommodation makers was signed by the latter because of
full reliance on the Deed of Assignment, which, PNB had no intention to
comply with strictly. Worse, the third payment to the Company in the amount
of P4,293.60 was approved by PNB although the promissory note was
almost a month overdue, an act which is clearly detrimental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course. Thus,
the petitioners can validly set up their personal defense of release from the
real estate mortgage against PNB. The latter, in authorizing the third
payment to the Company after the promissory note became due, in effect,
extended the term of the payment of the note without the consent of the
accommodation makers who stand as sureties to the accommodated party
and to all other parties who are not holders in due course or who do not
derive their right from the same, including PNB.
It may be argued that the Prudencios could have mortgaged their property
even without the promissory note. The records show, however, that they
would not have mortgaged the lot were it not for the sake of the Company
whose attorney-in-fact was their relative. The spouses did not need the
money for themselves.
The attorney-in-fact tried twice to convince the Prudencios to mortgage their
property in order to secure a loan in favor of the Company but the
Prudencios refused. It was only when the deed of assignment was shown to
the spouses that they consented to the mortgage and signed the promissory
note in the Bank's favor.
Article 2085 of the Civil Code enumerates the requisites of a valid mortgage
contract. Petitioners do not dispute the validity of the mortgage. They only
want to have it cancelled because the Bank violated the deed of assignment
and extended the period of time of payment of the promissory note without
the petitioners' consent and to the latter's detriment.
The mortgage cannot be separated from the promissory note for it is the
latter which is the basis of determining whether the mortgage should be
foreclosed or cancelled. Without the promissory note which determines the
amount of indebtedness there would have been no basis for the mortgage.
True, if the Bank had not been the assignee, then the petition petitioners
would be obliged to pay the Bank as their creditor on the promissory note,
irrespective of whether or not the deed of assignment had been violated.
However, the assignee and the creditor in this case are one and the same
the Bank itself. When the Bank violated the deed of assignment, it prejudiced
itself because its very violation was the reason why it was not paid on time in
its capacity as creditor in the promissory note. It would be unfair to make the
petitioners now answer for the debt or to foreclose on their property.
Neither can PNB justify its acts on the ground that the Bureau of Public
Works approved the deed of assignment with the condition that the wages of
laborers and materials needed in the construction work must take
precedence over the payment of the promissory note. In the first place, PNB
did not need the approval of the Bureau. But even if it did, it should have
informed the petitioners about the amendment of the deed of assignment.
Secondly, the wages and materials have already been paid. That issue is
academic. What is in dispute is who should bear the loss in this case. As
between the petitioners and the Bank, the law and the equities of the case
favor the petitioners, And thirdly, the wages and materials constitute a lien
only on the constructed building but do not enjoy preference over the loan
unless there is a liquidation proceeding such as in insolvency or settlement of
estate. (See Philippine Savings Bank v. Lantin, 124 SCRA 476). There were
remedies available at the time if the laborers and the creditors had not been
paid. The fact is, they have been paid. Hence, when the PNB accepted the
condition imposed by the Bureau without the knowledge or consent of the
petitioners, it amended the deed of assignment which, as stated earlier, was
the principal reason why the petitioners consented to become
accommodation makers.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals affirming the decision of the trial court is hereby REVERSED and
SET ASIDE and a new one entered absolving the petitioners from liability on
the promissory note and under the mortgage contract. The Philippine
National Bank is ordered to release the real estate mortgage constituted on
the property of the petitioners and to pay the amount of THREE THOUSAND
PESOS (P3,000.00) as attorney's fees.
SO ORDERED.
G.R. No. 80599 September 15, 1989
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf
and as Vice-President for Sales of Mover Enterprises, Inc., respondents.
Melquiades P. de Leon for petitioner.
Rogelio A. Ajes for private respondent.
REGALADO, J.:
Petitioner seeks the annulment of the decision 1 of respondent Court of
Appeals, promulgated on September 8, 1987, which reversed the decision of
the trial Court 2 dismissing the complaint for consignation filed by therein
plaintiff Ricardo S. Santos, Jr.
The parties are substantially agreed on the following facts as found by both
lower courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-
president of Mover Enterprises, Inc. in-charge of marketing
and sales; and the president of the said corporation was
Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita
Ong, issued Check No. 093553 drawn against Traders Royal
Bank, dated June 14, 1980, in the amount of P45,000.00
(Exh- 'I') payable to defendant Ernestina Crisologo-Jose.
Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said
corporation. However, since at that time, the treasurer of
Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid chEck as an alternate story. Plaintiff Ricardo S.
Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant
Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which the
Government Service Insurance System (GSIS) agreed to
sell to the clients of Atty. Oscar Benares, the spouses Jaime
 and Clarita Ong, with the understanding that upon approval
by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly. However,
since the compromise agreement was not approved within
the expected period of time, the aforesaid check for
P45,000.00 (Exh. '1') was replaced by Atty. Benares with
another Traders Royal Bank cheek bearing No. 379299
dated August 10, 1980, in the same amount of P45,000.00
(Exhs. 'A' and '2'), also payable to the defendant Jose. This
replacement check was also signed by Atty. Oscar Z.
Benares and by the plaintiff Ricardo S. Santos, Jr. When
defendant deposited this replacement check (Exhs. 'A' and
'2') with her account at Family Savings Bank, Mayon Branch,
it was dishonored for insufficiency of funds. A subsequent
redepositing of the said check was likewise dishonored by
the bank for the same reason. Hence, defendant through
counsel was constrained to file a criminal complaint for
violation of Batas Pambansa Blg. 22 with the Quezon City
Fiscal's Office against Atty. Oscar Z. Benares and plaintiff
Ricardo S. Santos, Jr. The investigating Assistant City
Fiscal, Alfonso Llamas, accordingly filed an amended
information with the court charging both Oscar Benares and
Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg.
22 docketed as Criminal Case No. Q-14867 of then Court of
First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the
criminal charge against Benares and the plaintiff herein,
before Assistant City Fiscal Alfonso T. Llamas, plaintiff
Ricardo S. Santos, Jr. tendered cashier's check No. CC
160152 for P45,000.00 dated April 10, 1981 to the defendant
Ernestina Crisologo-Jose, the complainant in that criminal
case. The defendant refused to receive the cashier's check
in payment of the dishonored check in the amount of
P45,000.00. Hence, plaintiff encashed the aforesaid
cashier's check and subsequently deposited said amount of
P45,000.00 with the Clerk of Court on August 14, 1981
(Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted
to above was purchased by Atty. Oscar Z. Benares and
given to the plaintiff herein to be applied in payment of the
dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that
consignation referred to in Article 1256 of the Civil Code is applicable to this
case," rendered judgment dismissing plaintiff s complaint and defendant's
counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of
dismissal and revived the complaint for consignation, directing the trial court
to give due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily
stated and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals
erred in holding that private respondent, one of the
signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the
Negotiable Instruments Law and a debtor of petitioner to the
extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover
Enterprises, Inc. and not private respondent who merely signed the check in
question in a representative capacity, that is, as vice-president of said
corporation, hence he is not liable thereon under the Negotiable Instruments
Law.
The pertinent provision of said law referred to provides:
Sec. 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
holder for value, notwithstanding such holder, at the time of
taking the instrument, knew him to be only an
accommodation party.
Consequently, to be considered an accommodation party, a person must (1)
be a party to the instrument, signing as maker, drawer, acceptor, or indorser,
(2) not receive value therefor, and (3) sign for the purpose of lending his
name for the credit of some other person.
Based on the foregoing requisites, it is not a valid defense that the
accommodation party did not receive any valuable consideration when he
executed the instrument. From the standpoint of contract law, he differs from
the ordinary concept of a debtor therein in the sense that he has not received
any valuable consideration for the instrument he signs. Nevertheless, he is
liable to a holder for value as if the contract was not for accommodation 5 in
whatever capacity such accommodation party signed the instrument, whether
primarily or secondarily. Thus, it has been held that in lending his name to
the accommodated party, the accommodation party is in effect a surety for
the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party
in this case, as petitioner suggests, the inevitable question is whether or not
it may be held liable on the accommodation instrument, that is, the check
issued in favor of herein petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, although
such holder at the time of taking the instrument knew him to be only an
accommodation party, does not include nor apply to corporations which are
accommodation parties. 7 This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. 8 Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to charge
the indorsee with knowledge that the issue or indorsement of the instrument
by the corporation is for the accommodation of another, he cannot recover
against the corporation thereon. 9
By way of exception, an officer or agent of a corporation shall have the power
to execute or indorse a negotiable paper in the name of the corporation for
the accommodation of a third person only if specifically authorized to do
so. 10 Corollarily, corporate officers, such as the president and vice-president,
have no power to execute for mere accommodation a negotiable instrument
of the corporation for their individual debts or transactions arising from or in
relation to matters in which the corporation has no legitimate concern. Since
such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or
operations, the inescapable conclusion in law and in logic is that the
signatories thereof shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional
rules. If we indulge petitioner in her aforesaid postulation, then she is
effectively barred from recovering from Mover Enterprises, Inc. the value of
the check. Be that as it may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an
accommodation paper does not thereby absolve, but should render
personally liable, the signatories of said instrument where the facts show that
the accommodation involved was for their personal account, undertaking or
purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the
knowledge that the cheek was issued at the instance and for the personal
account of Atty. Benares who merely prevailed upon respondent Santos to
act as co-signatory in accordance with the arrangement of the corporation
with its depository bank. That it was a personal undertaking of said corporate
officers was apparent to petitioner by reason of her personal involvement in
the financial arrangement and the fact that, while it was the corporation's
check which was issued to her for the amount involved, she actually had no
transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being
directed personally against Atty. Oscar Z. Benares and respondent Ricardo
S. Santos, Jr., president and vice-president, respectively, of Mover
Enterprises, Inc.
2. On her second assignment of error, petitioner argues that
the Court of Appeals erred in holding that the consignation of
the sum of P45,000.00, made by private respondent after his
tender of payment was refused by petitioner, was proper
under Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between
the parties, hence consignation is not proper. Concomitantly, this argument
was premised on the assumption that private respondent Santos is not an
accommodation party.
As previously discussed, however, respondent Santos is an accommodation
party and is, therefore, liable for the value of the check. The fact that he was
only a co-signatory does not detract from his personal liability. A co-maker or
co-drawer under the circumstances in this case is as much an
accommodation party as the other co-signatory or, for that matter, as a lone
signatory in an accommodation instrument. Under the doctrine in Philippine
Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the
accommodated party with whom he and his co-signatory, as the other co-
surety, assume solidary liability ex lege for the debt involved. With the
dishonor of the check, there was created a debtor-creditor relationship, as
between Atty. Benares and respondent Santos, on the one hand, and
petitioner, on the other. This circumstance enables respondent Santos to
resort to an action of consignation where his tender of payment had been
refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of
consignation is proper under the given circumstances, we do not thereby rule
that all the operative facts for consignation which would produce the effect of
payment are present in this case. Those are factual issues that are not clear
in the records before us and which are for the Regional Trial Court of Quezon
City to ascertain in Civil Case No. Q-33160, for which reason it has advisedly
been directed by respondent court to give due course to the complaint for
consignation, and which would be subject to such issues or claims as may be
raised by defendant and the counterclaim filed therein which is hereby
ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case
No. Q-14687 of the Regional Trial Court of Quezon City filed
against private respondent for violation of Batas Pambansa
Blg. 22, by holding that no criminal liability had yet attached
to private respondent when he deposited with the court the
amount of P45,000.00 is the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the
appeal to it in CA-G.R. CV. No. 05464. In its own decision therein, it declared
that "(t)he lone issue dwells in the question of whether an accommodation
party can validly consign the amount of the debt due with the court after his
tender of payment was refused by the creditor." Yet, from the commercial
and civil law aspects determinative of said issue, it digressed into the merits
of the aforesaid Criminal Case No. Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of
knowledge of such insufficiency of funds or credit. Thus, the
making, drawing and issuance of a check, payment of which
is refused by the drawee because of insufficient funds in or
credit with such bank is prima facie evidence of knowledge
of insufficiency of funds or credit, when the check is
presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22
provides that the element of knowledge of insufficiency of
funds or credit is not present and, therefore, the crime does
not exist, when the drawer pays the holder the amount due
or makes arrangements for payment in full by the drawee of
such check within five (5) banking days after receiving notice
that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that
the plaintiff-appellant acted within Ms legal rights when he
consigned the amount of P45,000.00 on August 14, 1981,
between August 7, 1981, the date when plaintiff-appellant
receive (sic) the notice of non-payment, and August 14,
1981, the date when the debt due was deposited with the
Clerk of Court (a Saturday and a Sunday which are not
banking days) intervened. The fifth banking day fell on
August 14, 1981. Hence, no criminal liability has yet
attached to plaintiff-appellant when he deposited the amount
of P45,000.00 with the Court a quo on August 14, 1981. 11
That said observations made in the civil case at bar and the intrusion into the
merits of the criminal case pending in another court are improper do not have
to be belabored. In the latter case, the criminal trial court has to grapple with
such factual issues as, for instance, whether or not the period of five banking
days had expired, in the process determining whether notice of dishonor
should be reckoned from any prior notice if any has been given or from
receipt by private respondents of the subpoena therein with supporting
affidavits, if any, or from the first day of actual preliminary investigation; and
whether there was a justification for not making the requisite arrangements
for payment in full of such check by the drawee bank within the said period.
These are matters alien to the present controversy on tender and
consignation of payment, where no such period and its legal effects are
involved.
These are aside from the considerations that the disputed period involved in
the criminal case is only a presumptive rule, juris tantum at that, to determine
whether or not there was knowledge of insufficiency of funds in or credit with
the drawee bank; that payment of civil liability is not a mode for
extinguishment of criminal liability; and that the requisite quantum of
evidence in the two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial court in
Criminal Case No. Q-14867, the resolution of which should not be interfered
with by respondent Court of Appeals at the present posture of said case,
much less preempted by the inappropriate and unnecessary holdings in the
aforequoted portion of the decision of said respondent court. Consequently,
we modify the decision of respondent court in CA-G.R. CV No. 05464 by
setting aside and declaring without force and effect its pronouncements and
findings insofar as the merits of Criminal Case No. Q-14867 and the liability
of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of
respondent Court of Appeals is AFFIRMED. SO ORDERED.
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner,
vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
RESOLUTION
FELICIANO, J.:
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline
tickets on commission basis for and in behalf of different airline companies.
Private respondent Arturo S. Miranda had a revolving credit line with
petitioner. He procured tickets from petitioner on behalf of airline passengers
and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance
("CFI") of Manila to collect on six (6) checks issued by private respondent
with a total face amount of P115,000.00. The complaint, with a prayer for the
issuance of a writ of preliminary attachment and attorney's fees, averred that
from 5 August 1969 to 16 January 1970, petitioner sold and delivered various
airline tickets to respondent at a total price of P278,201.57; that to settle said
account, private respondent paid various amounts in cash and in kind, and
thereafter issued six (6) postdated checks amounting to P115,000.00 which
were all dishonored by the drawee banks. Travel-On further alleged that in
March 1972, private respondent made another payment of P10,000.00
reducing his indebtedness to P105,000.00. The writ of attachment was
granted by the court a quo.
In his answer, private respondent admitted having had transactions with
Travel-On during the period stipulated in the complaint. Private respondent,
however, claimed that he had already fully paid and even overpaid his
obligations and that refunds were in fact due to him. He argued that he had
issued the postdated checks for purposes of accommodation, as he had in
the past accorded similar favors to petitioner. During the proceedings, private
respondent contested several tickets alleged to have been erroneously
debited to his account. He claimed reimbursement of his alleged over
payments, plus litigation expenses, and exemplary and moral damages by
reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation,
private respondent testified that he bad issued the checks in the name of
Travel-On in order that its General Manager, Elita Montilla, could show to
Travel-On's Board of Directors that the accounts receivable of the company
were still good. He further stated that Elita Montilla tried to encash the same,
but that these were dishonored and were subsequently returned to him after
the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the
"accommodation" extended to Travel-On by private respondent related to
situations where one or more of its passengers needed money in Hongkong,
and upon request of Travel-On respondent would contact his friends in
Hongkong to advance Hongkong money to the passenger. The passenger
then paid Travel-On upon his return to Manila and which payment would be
credited by Travel-On to respondent's running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to
pay private respondent the amount of P8,894.91 representing net
overpayments by private respondent, moral damages of P10,000.00 for the
wrongful issuance of the writ of attachment and for the filing of this case,
P5,000.00 for attorney's fees and the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was
not satisfactorily established and that the postdated checks were issued not
for the purpose of encashment to pay his indebtedness but to accommodate
the General Manager of Travel-On to enable her to show to the Board of
Directors that Travel-On was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the
trial court, which in fact then increased the award of moral damages to
P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but
reduced the award of moral damages to P20,000.00, with interest at the legal
rate from the date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision,
without success.
In the instant Petition for Review, it is urged that the postdated checks
are per se evidence of liability on the part of private respondent. Petitioner
further argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a
holder for value.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account prepared
by petitioner did not show that Private respondent had an outstanding
balance of P115,000.00 which is the total amount of the checks he issued. It
was pointed out that while the various exhibits of petitioner showed various
accountabilities of private respondent, they did not satisfactorily establish the
amount of the outstanding indebtedness of private respondent. The appellate
court made much of the fact that the figures representing private
respondent's unpaid accounts found in the "Schedule of Outstanding
Account" dated 31 January 1970 did not tally with the figures found in the
statement which showed private respondent's transactions with petitioner for
the years 1969 and 1970; that there was no satisfactory explanation as to
why the total outstanding amount of P278,432.74 was still used as basis in
the accounting of 7 April 1972 considering that according to the table of
transactions for the year 1969 and 1970, the total unpaid account of private
respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972
Statement of Account had simply not been updated; that if we use as basis
the figure as of 31 January 1970 which is P278,432.74 and from it deduct
P38,638.17 which represents some of the payments subsequently made by
private respondent, the figure P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in
figures, simply did not mean that private respondent had no more financial
obligations to petitioner. It must be stressed that private respondent's
account with petitioner was a running or open one, which explains the
varying figures in each of the statements rendered as of a given date.
The appellate court erred in considering only the statements of account in
determining whether private respondent was indebted to petitioner under the
checks. By doing so, it failed to give due importance to the most telling piece
of evidence of private respondent's indebtedness the checks themselves
which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the
checks are the all important evidence of petitioner's case; that these checks
clearly established private respondent's indebtedness to petitioner; that
private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration and
every person whose signature appears thereon is deemed to have become a
party thereto for value. 1 Thus, the mere introduction of the instrument sued
on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is
quite settled that a negotiable instrument is presumed to have been given or
indorsed for a sufficient consideration unless otherwise contradicted and
overcome by other competent evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules,
placed the burden of proving the existence of valuable consideration upon
petitioner. This cannot be countenanced; it was up to private respondent to
show that he had indeed issued the checks without sufficient consideration.
The Court considers that Private respondent was unable to rebut
satisfactorily this legal presumption. It must also be noted that those checks
were issued immediately after a letter demanding payment had been sent to
private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were
presented for payment by the latter would lead to no other conclusion than
that these checks were intended for encashment. There is nothing in the
checks themselves (or in any other document for that matter) that states
otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks
here involved were issued for "accommodation" and that accordingly private
respondent maker of those checks was not liable thereon to petitioner payee
of those checks.
In the first place, while the Negotiable Instruments Law does refer to
accommodation transactions, no such transaction was here shown. Section
29 of the Negotiable Instruments Law provides as follows:
Sec. 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 holder for value, notwithstanding such holder, at the
time of taking the instrument, knew him to be only an
accommodation party.
In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held
by a payee or indorsee as a holder in due course, who gave full
value therefor to the accommodated party. The latter, in other words,
receives or realizes full value which the accommodated party then
must repay to the accommodating party, unless of course the
accommodating party intended to make a donation to the
accommodated party. But the accommodating party is bound on the
check to the holder in due course who is necessarily a third party
and is not the accommodated party. Having issued or indorsed the
 check, the accommodating party has warranted to the holder in due
course that he will pay the same according to its tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks, it presented
these checks for payment at the drawee bank but the checks
bounced. Travel-On obviously was not an accommodated party; it realized
no value on the checks which bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was
a holder in due course, 4 that the checks were supported by valuable
consideration. 5 Private respondent maker of the checks did not successfully
rebut these presumptions. The only evidence aliunde that private respondent
offered was his own self-serving uncorroborated testimony. He claimed that
he had issued the checks to Travel-On as payee to "accommodate" its
General Manager who allegedly wished to show those checks to the Board of
Directors of Travel-On to "prove" that Travel-On's account receivables were
somehow "still good." It will be seen that this claim was in fact a claim that
the checks were merely simulated, that private respondent did not intend to
bind himself thereon. Only evidence of the clearest and most convincing kind
will suffice for that purpose; 6 no such evidence was submitted by private
respondent. The latter's explanation was denied by Travel-On's General
Manager; that explanation, in any case, appears merely contrived and quite
hollow to us. Upon the other hand, the "accommodation" or assistance
extended to Travel-On's passengers abroad as testified by petitioner's
General Manager involved, not the accommodation transactions recognized
by the NIL, but rather the circumvention of then existing foreign exchange
regulations by passengers booked by Travel-On, which incidentally involved
receipt of full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable on
the six (6) checks here involved. Those checks in themselves constituted
evidence of indebtedness of private respondent, evidence not successfully
overturned or rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability
to petitioner Travel-On, the amount of such liability is the face amount of the
checks, reduced only by the P10,000.00 which Travel-On admitted in its
complaint to have been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for
the reason that Petitioner's application for the writ of attachment rested on
sufficient basis and no bad faith was shown on the part of Travel-On. If
anyone was in bad faith, it was private respondent who issued bad checks
and then pretended to have "accommodated" petitioner's General Manager
by assisting her in a supposed scheme to deceive petitioner's Board of
Directors and to misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition
for Review on Certiorari and to REVERSE and SET ASIDE the Decision
dated 22 October 1980 and the Resolution of 23 January 1981 of the Court
of Appeals, as well as the Decision dated 31 January 1975 of the trial court,
and to enter a new decision requiring private respondent Arturo S. Miranda to
pay to petitioner Travel-On the amount of P105,000.00 with legal interest
thereon from 14 June 1972, plus ten percent (10%) of the total amount due
as attorney's fees. Costs against Private respondent.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
G.R. No. 106011 June 17, 1993
TOWN SAVINGS AND LOAN BANK, INC., petitioner,
vs.
THE COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND
ALICIA N. HIPOLITO, respondents.
Maximo H. Simbulan for petitioner.
Ma. Soledad Deriquito-Mawis for private respondents.
GRIO-AQUINO, J.:
This is a petition for review on certiorari to set aside the decision dated
March 12, 1992, of the Court of Appeals in CA-G.R. CV No. 29475 entitled,
"Town Savings and Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia
N. Hipolito" reversing the decision dated September 14, 1990 of the Regional
Trial Court of Bulacan which declared that the Hipolitos were accommodation
parties on the promissory note and holding them liable to pay Town Savings
And Loan Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan
in the amount of P700,000.00 with interest of 24% per annum for which they
executed and delivered to Town Savings and Loan Bank (or TSLB) a
promissory note with a maturity period of three (3) years and an acceleration
clause upon default in the payment of any amortization, plus a penalty of
36% and 10% attorney's fees, if the note were referred to an attorney for
collection. For failure to keep current their monthly payments on the account,
the obligors were deemed to have defaulted on May 24, 1984. Notices of
past due account and demands for payment were sent but ignored. At the
time of the institution of the action on March 12, 1986, the unpaid obligation
amounted to P1,114,983.40.
The Hipolitos denied being personally liable on the P700,000.00 promissory
note which they executed. The loan was allegedly for the account of Pilarita
H. Reyes, the sister of Miguel Hipolito. She was the real party-in-interest. The
Hipolitos, not having received any part of the loan, were mere guarantors for
Pilarita. They allegedly signed the promissory note because they were
persuaded to do so by Joey Santos, President of TSLB. When they received
the demand letters, they confronted him but they were told that the Bank had
to observe the formality of sending notices and demand letters. The real
purpose was only to pressure Pilarita to comply with her undertaking.
Insisting that they were mere guarantors, the Hipolitos vehemently protested
against being dragged into the litigation as principal parties. As a result of the
unfounded suit, they allegedly incurred actual damages estimated at
P200,000.00 and attorney's fees of P30,000.00.
In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC
of Malolos, Branch 18, held the respondents (then defendants) spouses
Miguel and Alicia Hipolito, liable as accommodation parties on the
promissory note.
The spouses appealed to the Court of Appeals. In a decision dated March
12, 1992, the Court of Appeals found that the Hipolitos did not accommodate
Pilarita but the TSLB, whose lending authority was restricted by the size of its
loan portfolio. The Hipolitos were relieved from any liability to TSLB.
Hence, this petition for review by TSLB.
The lone issue in this case is whether the Hipolitos are liable on the
promissory note which they executed in favor of the petitioner.
We hold for the petitioner.
An accommodation party is one who has signed the
instrument as marker, drawer, indorser, without receiving
value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument
to a holder for value, notwithstanding such holder, at the
time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but
assumes liability to the other parties thereto because he
wants to accommodate another. (The Phil. Bank of
Commerce vs. Aruego, 102 SCRA 530, 539, 540.)
In this case, there is no question that the private respondents signed the
promissory note in order to enable Pilarita H. Reyes, who is Miguel Hipolito's
sister, to borrow the total sum of P1.4 million from TSLB. As observed by
both the trial court and the appellate court, the actual beneficiary of the loan
was Pilarita H. Reyes and no other. The Hipolitos accommodated her by
signing a promissory note for half of the loan that she applied for because
TSLB may not lend any single borrower more than the authorized limit of its
loan portfilio. Under Section 29 of the Negotiable Instruments Law, the
Hipolitos are liable to the bank on the promissory note that they signed to
accommodate Pilarita.
Respondent appellate court erred in giving credence to Hipolito's allegation
that it was the bank's president who induced him to sign the promissory note
so that the bank would not violate the Central Bank's regulation limiting the
amount that TSLB could lend out. Besides being self-serving, Hipolito's
testimony was uncorroborated by any other evidence on record, therefore, it
should have been received with extreme caution. The Court is convinced that
the intention of respondents Hipolitos in signing the promissory note was not
so much to enable the Bank to grant a loan to Pilarita but for the latter to be
able to obtain the full amount of the loan that she needed at the time.
It is not credible that a Bank would want so much to lend money to a
borrower that it would go out of its way to convince another person
(respondent Miguel Hipolito) to accommodate the borrower (Pilarita H.
Reyes). In the ordinary course of things, the borrower, Pilarita, not the Bank,
would have requested her brother Miguel to accommodate her so she could
have the P1.4 million that she wanted to borrow from the Bank.
The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the appellate
court in reversing the decision of the trial court, is not applicable to this case.
In that case, the evidence showed that the indorser (the loan broker Serrano)
in making the indorsement to the lender, Maulini, was acting as agent for the
latter or, as a mere vehicle for the transference of the naked title from the
borrower or maker of the note (Moreno). Furthermore, his indorsement was
wholly without consideration. We ruled that Serrano was not an
accommodation indorser; he was not liable on the note.
. . . Where, however, an indorsement is made as a favor to
the indorsee, who requests it, not the better to secure
payment, but to relieve himself from a distasteful situation,
 and where the only consideration for such indorsement Petitioner Claude P. Bautista, in his capacity as President and
passes from the indorser to the indorsee, the situation does Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased
not present one creating an accommodation indorsement, various spare parts from private respondent Auto Plus Traders, Inc. and issued
nor one where there is a consideration sufficient to sustain two postdated checks to cover his purchases. The checks were subsequently
an action on the indorsement. (p. 644.) dishonored. Private respondent then executed an affidavit-complaint for
violation of Batas Pambansa Blg. 22[3] against petitioner.Consequently, two
Unlike the Maulini case, there was no agreement here, written or verbal, that Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court
in signing the promissory note, Miguel and Alicia Hipolito were acting as in Cities (MTCC) of Davao City against the petitioner. These were docketed as
agents for the money lender the Bank. The consideration of the note signed Criminal Case Nos. 102,004-B-2001 and 102,005-B-
by the Hipolitos was received by them through Pilarita. They acted as agents 2001. The Informations[4] read:
of Pilarita, not of the bank. They signed the promissory note as favor to Criminal Case No. 102,004-B-2001:
Pilarita, to help her raise the funds that she needed. It was Pilarita whom The undersigned accuses the above-named accused
they accommodated, not the bank, contrary to the erroneous finding of the for violation of Batas Pambansa Bilang 22, committed as
appellate court. follows:
That on or about December 15, 2000, in the City of
Davao, Philippines, and within the jurisdiction of this
WHEREFORE, the petition for review is GRANTED. The appealed decision
Honorable Court, the above-mentioned accused, knowing
of the Court of Appeals is hereby REVERSED and that of the trial court is
fully well that he had no sufficient funds and/or credit with the
REINSTATED. Costs against the private respondents.
drawee bank, wilfully, unlawfully and feloniously issued and
made out Rural Bank of Digos, Inc. Check No. 058832, dated
SO ORDERED. December 15, 2000, in the amount of P151,200.00, in favor
of Auto Plus Traders, Inc., but when said check was presented
CLAUDE P. BAUTISTA, G.R. No. 166405 to the drawee bank for encashment, the same was
Petitioner, dishonored for the reason DRAWN AGAINST INSUFFICIENT
Present: FUNDS and despite notice of dishonor and demands upon
QUISUMBING, J., Chairperson, said accused to make good the check, accused failed and
PUNO, C.J.,* refused to make payment to the damage and prejudice of
- versus - TINGA, herein complainant.
VELASCO, JR., and CONTRARY TO LAW.
BRION, JJ. Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused
AUTO PLUS TRADERS, Promulgated: for violation of Batas Pambansa Bilang 22, committed as
INCORPORATED and COURT OF follows:
APPEALS (Twenty-First Division), August 6, 2008 That on or about October 30, 2000, in the City of
Respondents. Davao, Philippines, and within the jurisdiction of this
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x Honorable Court, the above-mentioned accused, knowing
DECISION fully well that he had no sufficient funds and/or credit with the
QUISUMBING, J.: drawee bank, wilfully, unlawfully and feloniously issued and
This petition for review on certiorari assails the made out Rural Bank of Digos, Inc. Check No. 059049, dated
Decision[1] dated August 10, 2004 of the Court of Appeals in CA-G.R. CR No. October 30, 2000, in the amount of P97,500.00, in favor of
28464 and the Resolution[2] dated October 29, 2004, which denied petitioners Auto Plus Traders, [Inc.], but when said check was presented
motion for reconsideration. The Court of Appeals affirmed the February 24, to the drawee bank for encashment, the same was
2004 Decision and May 11, 2004 Order of the Regional Trial Court dishonored for the reason DRAWN AGAINST INSUFFICIENT
(RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634- FUNDS and despite notice of dishonor and demands upon
03. said accused to make good the check, accused failed and
The antecedent facts are as follows:
 refused to make payment, to the damage and prejudice of
herein complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the
presentation of the prosecutions evidence, petitioner filed a demurrer to
evidence. On April 21, 2003, the MTCC granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted,
premised on reasonable doubt as to the guilt of the
accused. Cruiser Bus Line[s] and Transport Corporation,
through the accused is directed to pay the complainant the
sum of P248,700.00 representing the value of the two checks,
with interest at the rate of 12% per annum to be computed
from the time of the filing of these cases in Court, until the
account is paid in full; ordering further Cruiser Bus Line[s] and
Transport Corporation, through the accused, to reimburse
complainant the expense representing filing fees amounting
to P1,780.00 and costs of litigation which this Court hereby
fixed at P5,000.00.
SO ORDERED.[5]
Petitioner moved for partial reconsideration but his motion was
denied. Thereafter, both parties appealed to the RTC. On February 24, 2004,
the trial court ruled:
WHEREFORE, the assailed Order dated April 21,
2003 is hereby MODIFIED to read as follows: Accused is
directed to pay and/or reimburse the complainant the
following sums: (1) P248,700.00 representing the value of the
two checks, with interest at the rate of 12% per annum to be
computed from the time of the filing of these cases in Court,
until the account is paid in full; (2) P1,780.00 for filing fees
and P5,000.00 as cost of litigation.
SO ORDERED.[6]
Petitioner moved for reconsideration, but his motion was denied
on May 11, 2004. Petitioner elevated the case to the Court of Appeals, which
affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant
petition is DENIED. The assailed Decision of the Regional
Trial Court, Branch 16, Davao City, dated February 24,
2004 and its Order dated May 11, 2004 are AFFIRMED.
SO ORDERED.[7]
Petitioner now comes before us, raising the sole issue of whether the Court of
Appeals erred in upholding the RTCs ruling that petitioner, as an officer of the
corporation, is personally and civilly liable to the private respondent for the
value of the two checks.[8]
Petitioner asserts that BP Blg. 22 merely pertains to the criminal
liability of the accused and that the corporation, which has a separate
personality from its officers, is solely liable for the value of the two checks.
Private respondent counters that petitioner should be held personally
liable for both checks. Private respondent alleged that petitioner issued two
postdated checks: a personal check in his name for the amount of P151,200
and a corporation check under the account of Cruiser Bus Lines and Transport
Corporation for the amount of P97,500. According to private respondent,
petitioner, by issuing his check to cover the obligation of the corporation,
became an accommodation party. Under Section 29[9] of the Negotiable
Instruments Law, an accommodation party is liable on the instrument to a
holder for value. Private respondent adds that petitioner should also be liable
for the value of the corporation check because instituting another civil action
against the corporation would result in multiplicity of suits and delay.
At the outset, we note that private respondents allegation that
petitioner issued a personal check disputes the factual findings of the
MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and
Transport Corporation while the RTC found that one of the checks was a
personal check of the petitioner. Generally this Court, in a petition for review
on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over
questions of facts. But, considering that the findings of the MTCC and the RTC
are at variance,[10] we are compelled to settle this issue.
A perusal of the two check return slips[11] in conjunction with the
Current Account Statements[12] would show that the check for P151,200 was
drawn against the current account of Claude Bautista while the check
for P97,500 was drawn against the current account of Cruiser Bus Lines and
Transport Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the
decision of the RTC holding petitioner liable for the value of the checks
considering that petitioner was acquitted of the crime charged and that the
debts are clearly corporate debts for which only Cruiser Bus Lines and
Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its
officers and the persons composing it.[13] Generally, the stockholders and
officers are not personally liable for the obligations of the corporation except
only when the veil of corporate fiction is being used as a cloak or cover for
fraud or illegality, or to work injustice.[14] These situations, however, do not
exist in this case. The evidence shows that it is Cruiser Bus Lines and
Transport Corporation that has obligations to Auto Plus Traders, Inc. for
tires. There is no agreement that petitioner shall be held liable for the
corporations obligations in his personal capacity. Hence, he cannot be held
liable for the value of the two checks issued in payment for the corporations
obligation in the total amount of P248,700.
Likewise, contrary to private respondents contentions, petitioner cannot be
considered liable as an accommodation party for Check No. 58832. Section
29 of the Negotiable Instruments Law defines an accommodation party as a
person 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. As gleaned from the text,
an accommodation party is one who meets all the three requisites, viz: (1) he
must be a party to the instrument, signing as maker, drawer, acceptor, VELASCO, JR., J.:
or indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other The Case
person.[15] An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no part of This is an appeal via a Petition for Review on Certiorari under Rule 45
the consideration for the instrument but assumes liability to the from the Decision[1] dated October 22, 2007 of the Court of Appeals (CA) in
other party/ies thereto.[16] The first two elements are present here, however CA-G.R. CV No. 74466, which denied petitioners appeal from the December
there is insufficient evidence presented in the instant case to show the 10, 2001 Decision[2] in Civil Case No. 99-1324 of the Regional Trial Court
presence of the third requisite. All that the evidence shows is that petitioner (RTC), Branch 138 in Makati City. The RTC found justification for respondents
signed Check No. 58832, which is drawn against his personal account. The dishonor of petitioners check and found petitioner solidarily liable with the
said check, dated December 15, 2000, corresponds to the value of 24 sets of spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory
tires received by Cruiser Bus Lines and Transport Corporation on August 29, notes they executed in favor of respondent Philippine Commercial and
2000.[17] There is no showing of when petitioner issued the check and in what International Bank (PCIB).
capacity. In the absence of concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation. Hence, petitioner The Facts
cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a
checks especially since there is no evidence that the debts covered by the good 15 years before he filed the instant case. His account with PCIB was
subject checks have been paid. handled by respondent Edna Ocampo (Ocampo) until she was replaced by
WHEREFORE, the petition is GRANTED. The Decision dated August respondent Roberto Noceda (Noceda).
10, 2004 and the Resolution dated October 29, 2004 of the Court of Appeals
in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE.Criminal Case In October 1992, PCIB granted a credit line to Gonzales through the
Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right execution of a Credit-On-Hand Loan Agreement[3] (COHLA), in which the
of private respondent Auto Plus Traders, Inc., to file the proper civil action aggregate amount of the accounts of Gonzales with PCIB served as collateral
against Cruiser Bus Lines and Transport Corporation for the value of the two for and his availment limit under the credit line. Gonzales drew from said credit
checks. line through the issuance of check. At the institution of the instant case,
No pronouncement as to costs. Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.
SO ORDERED.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP
EUSEBIO GONZALES, G.R. No. 180257 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the
Petitioner, spouses Panlilio and Gonzales obtained two additional loans from PCIB in the
Present: amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans
- versus - amounting to PhP 1,800,000 were covered by three promissory notes. [4] To
CORONA, C.J., Chairperson, secure the loans, a real estate mortgage (REM) over a parcel of land covered
VELASCO, JR., by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales
NACHURA,* and the spouses Panlilio. Notably, the promissory notes specified, among
PHILIPPINE COMMERCIAL AND DEL CASTILLO, and others, the solidary liability of Gonzales and the spouses Panlilio for the
INTERNATIONAL BANK, EDNA OCAMPO, PEREZ, JJ. payment of the loans. However, it was the spouses Panlilio who received the
and ROBERTO NOCEDA, loan proceeds of PhP 1,800,000.
Respondents. Promulgated:
The monthly interest dues of the loans were paid by the spouses
February 23, 2011 Panlilio through the automatic debiting of their account with PCIB. But the
x-----------------------------------------------------------------------------------------x spouses Panlilio, from the month of July 1998, defaulted in the payment of the
periodic interest dues from their PCIB account which apparently was not
DECISION maintained with enough deposits. PCIB allegedly called the attention of
Gonzales regarding the July 1998 defaults and the subsequent accumulating
periodic interest dues which were left still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998
in favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit line
(COHLA). However, on October 13, 1998, upon presentment for payment by
Unson of said check, it was dishonored by PCIB due to the termination by
PCIB of the credit line under COHLA on October 7, 1998 for the unpaid
periodic interest dues from the loans of Gonzales and the spouses
Panlilio. PCIB likewise froze the FCD account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the
dishonor of the check. They had a heated argument in the premises of the
Philippine Columbian Association (PCA) where they are both members, which
caused great embarrassment and humiliation to Gonzales. Thereafter,
on November 5, 1998, Unson sent a demand letter[5] to Gonzales for the PhP
250,000. And on December 3, 1998, the counsel of Unson sent a second
demand letter[6] to Gonzales with the threat of legal action. With his FCD
account that PCIB froze, Gonzales was forced to source out and pay the PhP
250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB
insisting that the check he issued had been fully funded, and demanded the
return of the proceeds of his FCD as well as damages for the unjust dishonor
of the check.[7] PCIB replied on March 22, 1999 and stood its ground in
freezing Gonzales accounts due to the outstanding dues of the loans. [8] On
May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew
well that the actual borrowers were the spouses Panlilio and he never
benefited from the proceeds of the loans, which were serviced by the PCIB
account of the spouses Panlilio.[9]
PCIBs refusal to heed his demands compelled Gonzales to file the
instant case for damages with the RTC, on account of the alleged unjust
dishonor of the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision
in favor of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a) on the first issue, plaintiff is liable to pay defendant
Bank as principal under the promissory notes, Exhibits A, B
and C;
(b) on the second issue, the Court finds that there is
justification on part of the defendant Bank to dishonor the
check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not
entitled to damages from each other.
No pronouncement as to costs.
SO ORDERED.[10]
The RTC found Gonzales solidarily liable with the spouses Panlilio on
the three promissory notes relative to the outstanding REM loan. The trial court
found no fault in the termination by PCIB of the COHLA with Gonzales and in
freezing the latters accounts to answer for the past due PhP 1,800,000
loan. The trial court ruled that the dishonor of the check issued by Gonzales in
favor of Unson was proper considering that the credit line under the COHLA
had already been terminated or revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales appeal and affirming in toto the RTC Decision.
The fallo reads:
WHEREFORE, in view of the foregoing, the decision,
dated December 10, 2001, in Civil Case No. 99-1324 is
hereby AFFIRMED in toto.
SO ORDERED.[11]
In dismissing Gonzales appeal, the CA, first, confirmed the RTCs
findings that Gonzales was indeed solidarily liable with the spouses Panlilio for
the three promissory notes executed for the REM loan; second, it likewise
found neither fault nor negligence on the part of PCIB in dishonoring the check
issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely
exercising its rights under the contractual stipulations in the COHLA brought
about by the outstanding past dues of the REM loan and interests for which
Gonzales was solidarily liable with the spouses Panlilio to pay under the
promissory notes.
Thus, we have this petition.
The Issues
 Gonzales, as before the CA, raises again the following assignment of
errors:
I - IN NOT CONSIDERING THAT THE LIABILITY ARISING
FROM PROMISSORY NOTES (EXHIBITS A, B AND C,
PETITIONER; EXHIBITS 1, 2 AND 3, RESPONDENT)
PERTAINED TO BORROWER JOSE MA. PANLILIO AND
NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE
COMMERCIAL & INDUSTRIAL BANK (RESPONDENT
BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT
FAULT NOR GUILTY OF GROSS NEGLIGENCE IN
DISHONORING PETITIONERS CHECK DATED 30
SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR
THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY
REFER TO DRAWER GIVEN THE FACT THAT EVEN
AFTER DISHONOR, RESPONDENT SIGNED A ATTY. DE JESUS:
CERTIFICATION DATED 7 DECEMBER 1998 THAT
CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL
VALID WITH A COLLATERAL OF FOREIGN CURRENCY
DEPOSIT (FCD) OF [USD] 48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST
RESPONDENTS DESPITE PRESENTATION OF CLEAR
PROOF TO SUPPORT ACTION FOR DAMAGES.[12]
The Courts Ruling
The core issues can be summarized, as follows: first, whether
Gonzales is liable for the three promissory notes covering the PhP 1,800,000
loan he made with the spouses Panlilio where a REM over a parcel of land
covered by TCT No. 38012 was constituted as security; and second, whether
PCIB properly dishonored the check of Gonzales drawn against the COHLA
he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly
found Gonzales solidarily liable with the spouses Panlilio for the three
promissory notes.
The promissory notes covering the PhP 1,800,000 loan show the
following:
(1) Promissory Note BD-090-1766-95,[13] dated October 30, 1995, for
PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,[14] dated December 26, 1995,
for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96,[15] dated January 3, 1996, for
PhP 300,000 was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above
promissory notes. First, Gonzales admitted that he is an accommodation party
which PCIB did not dispute. In his testimony, Gonzales admitted that he merely
accommodated the spouses Panlilio at the suggestion of Ocampo, who was
then handling his accounts, in order to facilitate the fast release of the
loan. Gonzales testified:
Now in this case you filed against the bank you mentioned
there was a loan also applied for by the Panlilios in the sum
of P1.8 Million Pesos. Will you please tell this Court how this
came about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is
a P42.0 Million loan and if he secures another P1.8 Million
loan the release will be longer because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of
mine and we co-owned the property I agreed initially
to use my name so that the loan can be utilized
immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually
received the proceeds of this P1.8 Million Pesos
loan?
A: A check was deposited in the account of Mr. Panlilio.[16]
 xxxx
Q: By the way upon whose suggestion was the loan of Mr.
Panlilio also placed under your name initially?
A: Well it was actually suggested by the account officer at that
time Edna Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr.
Noceda is the boss of Edna so he has been familiar
with my account ever since its inception.
Q: So these two officers Ocampo and Noceda knew that this
was actually the account of Mr. Panlilio and not your
account?
A: Yes, sir. In fact even if there is a change of account officer
they are always informing me that the account will be
debited to Mr. Panlilios account.[17]
Moreover, the first note for PhP 500,000 was signed by Gonzales and
his wife as borrowers, while the two subsequent notes showed the spouses
Panlilio sign as borrowers with Gonzales. It is, thus, evident that Gonzales
signed, as borrower, the promissory notes covering the PhP 1,800,000 loan
despite not receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by
Noceda, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio,
thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are]
concerned the proceeds of the 1.8 million loan was received
by Mr. Panlilio?
NOCEDA:
Yes sir.[18]
The fact that the loans were undertaken by Gonzales when he signed
as borrower or co-borrower for the benefit of the spouses Panlilioas shown by
the fact that the proceeds went to the spouses Panlilio who were servicing or
paying the monthly duesis beside the point. For signing as borrower and co-
borrower on the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with
the spouses Panlilio for the loans. In Ang v. Associated Bank,[19] quoting the
definition of an accommodation party under Section 29 of the Negotiable
Instruments Law, the Court cited that an accommodation party is a person 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.[20] The Court further explained:
[A]n accommodation party is one who meets all the
three requisites, viz: (1) he must be a party to the instrument,
signing as maker, drawer, acceptor, or indorser; (2) he must
not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other
person. An accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. The
accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the
instrument, knew him or her to be merely an accommodation
party, as if the contract was not for accommodation.
As petitioner acknowledged it to be, the relation
between an accommodation party and the accommodated
party is one of principal and suretythe accommodation party
being the surety. As such, he is deemed an original promisor
and debtor from the beginning; he is considered in law as the
same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are
interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid
principal obligation, the suretys liability to the creditor
is immediate, primary and absolute; he
is directly and equally bound with the principal. As an
equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.[21]
Thus, the knowledge, acquiescence, or even demand by Ocampo for
an accommodation by Gonzales in order to extend the credit or loan of PhP
1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability
on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, For value received, the undersigned
(the BORROWER) jointly and severally promise to pay x x x.Solidary liability
cannot be presumed but must be established by law or contract.[22] Article
1207 of the Civil Code pertinently states that there is solidary liability only when
the obligation expressly so states, or when the obligation requires
solidarity. This is true in the instant case where Gonzales, as accommodation
party, is immediately, equally, and absolutely bound with the spouses Panlilio
on the promissory notes which indubitably stipulated solidary liability for all the
borrowers. Moreover, the three promissory notes serve as the contract
between the parties. Contracts have the force of law between the parties and
must be complied with in good faith.[23]
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory
notes, We shall now touch upon the question of whether it was proper for PCIB
to dishonor the check issued by Gonzales against the credit line under the
COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court
is limited to review of errors of law.[24] The factual findings of the trial court,
especially when affirmed by the appellate court, are generally binding on us
unless there was a misapprehension of facts or when the inference drawn from
the facts was manifestly mistaken.[25] The instant case falls within the
exception.
The courts a quo found and held that there was a proper dishonor of
the PhP 250,000 check issued by Gonzales against the credit line, because
the credit line was already closed prior to the presentment of the check by
Unson; and the closing of the credit line was likewise proper pursuant to the
stipulations in the promissory notes on the banks right to set off or apply all
moneys of the debtor in PCIBs hand and the stipulations in the COHLA on the
PCIBs right to terminate the credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed
about the default of the spouses Panlilio and that the September 21, 1998
account statement of the credit line shows a balance of PhP 270,000 which
was likewise borne out by the December 7, 1998 PCIBs certification that he
has USD 8,715.72 in his FCD account which is more than sufficient collateral
to guarantee the PhP 250,000 check, dated September 30, 1998, he issued
against the credit line.
A careful scrutiny of the records shows that the courts a
quo committed reversible error in not finding negligence by PCIB in the
dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the default and
delinquency of the PhP 1,800,000 loan. It must be borne in mind that while
solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered
by the three promissory notes, Gonzales is only an accommodation party and
as such only lent his name and credit to the spouses Panlilio. While not
exonerating his solidary liability, Gonzales has a right to be properly apprised
of the default or delinquency of the loan precisely because he is a co-signatory
of the promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the
spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan, since
he was only an accommodation party and was not personally interested in the
loan. Thus, a meeting was set by Gonzales with the spouses Panlilio and the
PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in
SM Megamall on October 5, 1998. Unfortunately, the meeting did not push
through due to the heavy traffic Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough
to properly apprise Gonzales about the default and the outstanding
dues. Verily, it is not enough to be merely informed to pay over a hundred
thousand without being formally apprised of the exact aggregate amount and
the corresponding dues pertaining to specific loans and the dates they became
due.
Gonzales testified that he was not duly notified about the outstanding
interest dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the
bank did the defendant bank [advise] you of any problem with
the same account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.[26]
On the other hand, the PCIB contends otherwise, as Corazon
Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr.
Gonzales when you spoke to him at the celphone?
 NEPOMUCENO:
I just told him to update the interest so that we would not have
to cancel the COH Line and he could withdraw the money that
was in the deposit because technically, if an account is past
due we are not allowed to let the client withdraw funds
because they are allowed to offset funds so, just to help him
get his money, just to update the interest so that we could
allow him to withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he
would not be able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he
has with us so thats why we suggested just to update
the interest because at the end of everything, he
would be able to withdraw more funds than the
interest that the money he would be needed to update
the interest.[27]
From the foregoing testimonies, between the denial of Gonzales and
the assertion by PCIB that Gonzales was properly apprised, we find for
Gonzales. We find the testimonies of the former PCIB employees to be self-
serving and tenuous at best, for there was no proper written notice given by
the bank. The record is bereft of any document showing that, indeed,
Gonzales was formally informed by PCIB about the past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact by releasing
the proceeds of the loan to the spouses Panlilio and likewise only informed the
spouses Panlilio of the interest dues. The spouses Panlilio, through their
account[28] with PCIB, were paying the periodic interest dues and were the
ones periodically informed by the bank of the debiting of the amounts for the
periodic interest payments. Gonzales never paid any of the periodic interest
dues. PCIBs Noceda admitted as much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even
interest for this loan, is it not, its always Mr. Panlilio who was
paying the interest for this loan?
NOCEDA:
Yes sir.[29]
Indeed, no evidence was presented tending to show that Gonzales
was periodically sent notices or notified of the various periodic interest dues
covering the three promissory notes. Neither do the records show that
Gonzales was aware of amounts for the periodic interests and the payment for
them. Such were serviced by the spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the
default or delinquency of the interest dues that were not paid starting July
1998. And such notification must be formal or in written form considering that
the outstanding periodic interests became due at various dates, i.e., on July 8,
17, and 28, 1998, and the various amounts have to be certain so that Gonzales
is not only properly apprised but is given the opportunity to pay them being
solidarily liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues
must be put into writing and formally served to Gonzales if he were asked to
pay them, more so when the payments by the spouses Panlilio were charged
through the account of the spouses Panlilio where the interest dues were
simply debited. Such arrangement did not cover Gonzales bank account with
PCIB, since he is only an accommodation party who has no personal interest
in the PhP 1,800,000 loan. Without a clear and determinate demand through
a formal written notice for the exact periodic interest dues for the loans,
Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the
debtor or borrower have to be definite, clear, and without ambiguity. It is not
sufficient simply to be informed that one must pay over a hundred thousand
aggregate outstanding interest dues without clear and certain figures. Thus,
We find PCIB negligent in not properly informing Gonzales, who is an
accommodation party, about the default and the exact outstanding periodic
interest dues. Without being properly apprised, Gonzales was not given the
opportunity to properly act on them.
It was only through a letter[30] sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP 1,800,000 loan at a much
later date, i.e., as of October 31, 1998, when Gonzales was formally apprised
by PCIB. In it, the interest due was PhP 106,1616.71 and penalties for the
unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP
171,383.37. But it is not certain and the records do not show when the letter
was sent and when Gonzales received it. What is clear is that such letter was
belatedly sent by PCIB and received by Gonzales after the fact that the latters
FCD was already frozen, his credit line under the COHLA was terminated or
suspended, and his PhP 250,000 check in favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the
counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000
loan. Obviously, these formal written notices sent to Gonzales were too late in
the day for Gonzales to act properly on the delinquency and he already
suffered the humiliation and embarrassment from the dishonor of his check
drawn against the credit line.
To reiterate, a written notice on the default and deficiency of the PhP
1,800,000 loan covered by the three promissory notes was required to apprise
Gonzales, an accommodation party. PCIB is obliged to formally inform and
apprise Gonzales of the defaults and the outstanding obligations, more so
when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to
do.
Second. PCIB was grossly negligent in not giving prior notice to
Gonzales about its course of action to suspend, terminate, or revoke the credit
line, thereby violating the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY The COH shall be effective for a
period of one (1) year commencing from the receipt by the
CLIENT of the COH checkbook issued by the BANK, subject
to automatic renewals for same periods unless terminated by
the BANK upon prior notice served on
CLIENT.[31] (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as required by the
above stipulation in the COHLA. Noceda testified on cross-examination on the
Offering Ticket[32] recommending the termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the
plaintiff Mr. Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know
about this Exhibit 8?
A: It was relayed to him verbally.
Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed
to him, its only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it
was relayed by Liza that he has to pay his obligations
or else it will adversely affect the status of the
account.[33]
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on
hand extended solely of course to Mr. Eusebio Gonzales who
is the plaintiff here, Mr. Panlilio is not included in this credit on
hand facility. Did I gather from you as per your Exhibit 7 as
of October 2, 1998 you were the one who recommended the
cancellation of this credit on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his
credit on hand facility?
A: As far as I know, it is the account officer who will inform
him.
Q: But you have no record that he was informed?
A: I dont recall and we have to look at the folder to determine
if they were informed.
Q: If you will notice, this letter . . . what do you call this letter
of yours?
A: That is our letter advising them or reminding them of their
unpaid interest and that if he is able to update his
interest he can extend the promissory note or
restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing
in this letter to the clients advising them or Mr.
Gonzales that his credit on hand facility was already
cancelled?
A: I dont know if there are other letters aside from this.
 Q: So in this letter there is nothing to inform or to make Mr.
Eusebio aware that his credit on hand facility was
already cancelled?
A: No actually he can understand it from the last sentence. If
you will be able to update your outstanding interest,
we can apply the extention of your promissory note
so in other words we are saying that if you dont, you
cannot extend the promissory note.
Q: You will notice that the subject matter of this October 2,
1998 letter is only the loan of 1.8 million is it not, as
you can see from the letter? Okay?
A: Ah . . .
Q: Okay. There is nothing there that will show that that also
refers to the credit on hand facility which was being
utilized by Mr. Gonzales is it not?
A: But I dont know if there are other letters that are not
presented to me now.[34]
The foregoing testimonies of PCIB officers clearly show that not only
did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the
process of termination, suspension, or revocation of the credit line under the
COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit
line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the
COHLA. While PCIB invokes its right on the so-called cross default provisions,
it may not with impunity ignore the rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and
great reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service. Like a common carrier whose
business is imbued with public interest, a bank should exercise extraordinary
diligence to negate its liability to the depositors.[35] In this instance, PCIB is
sorely remiss in the diligence required in treating with its client, Gonzales. It
may not wantonly exercise its rights without respecting and honoring the rights
of its clients.
Art. 19 of the New Civil Code clearly provides that [e]very person must,
in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith. This is the
basis of the principle of abuse of right which, in turn, is based upon the
maxim suum jus summa injuria (the abuse of right is the greatest possible
wrong).[36]
In order for Art. 19 to be actionable, the following elements must be
present: (1) the existence of a legal right or duty, (2) which is exercised in bad
faith, and (3) for the sole intent of prejudicing or injuring another. [37] We find
that such elements are present in the instant case. The effectivity clause of the
COHLA is crystal clear that termination of the COH should be done only upon
prior notice served on the CLIENT. This is the legal duty of PCIBto inform
Gonzales of the termination. However, as shown by the above testimonies,
PCIB failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith implies
a conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity.[38] In the instant case, PCIB was able to send a letter
advising Gonzales of the unpaid interest on the loans [39] but failed to mention
anything about the termination of the COHLA. More significantly, no letter was
ever sent to him about the termination of the COHLA. The failure to give prior
notice on the part of PCIB is already prima facie evidence of bad
faith.[40] Therefore, it is abundantly clear that this case falls squarely within the
purview of the principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate,
or revoke the COHLA under the cross default provisions of both the promissory
notes and the COHLA. However, these cross default provisions do not confer
absolute unilateral right to PCIB, as they are qualified by the other stipulations
in the contracts or specific circumstances, like in the instant case of an
accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and
without notice, to set off or apply to the payment of this
Note any and all moneys which may be in its hands on
deposit or otherwise belonging to the Borrower. The
Borrower irrevocably appoint/s the Lender, effective upon the
nonpayment of this Note on demand/at maturity or upon the
happening of any of the events of default, but without any
obligation on the Lenders part should it choose not to perform
this mandate, as the attorney-in-fact of the Borrower, to sell
and dispose of any property of the Borrower, which may be in
the Lenders possession by public or private sale, and to apply
the proceeds thereof to the payment of this Note; the
Borrower, however, shall remain liable for any
deficiency.[41] (Emphasis ours.)

The above provisos are indeed qualified with the specific
circumstance of an accommodation party who, as such, has not been servicing
the payment of the dues of the loans, and must first be properly apprised in
writing of the outstanding dues in order to answer for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT The CLIENT shall be considered in default
under the COH if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or
any contract of the CLIENT with the BANK or any
bank, persons, corporations or entities for the
payment of borrowed money, or any other event of
default in such contracts.[42]
The above pertinent default clause must be read in conjunction with
the effectivity clause (No. 4 of the COHLA, quoted above), which expressly
provides for the right of client to prior notice. The rationale is simple:in cases
where the bank has the right to terminate, revoke, or suspend the credit line,
the client must be notified of such intent in order for the latter to act
accordinglywhether to correct any ground giving rise to the right of the bank to
terminate the credit line and to dishonor any check issued or to act in accord
with such termination, i.e., not to issue any check drawn from the credit line or
to replace any checks that had been issued. This, the bankwith gross
negligencefailed to accord Gonzales, a valued client for more than 15 years.
Fourth. We find the testimony[43] of Ocampo incredible on the point
that the principal borrower of the PhP 1,800,000 loan covered by the three
promissory notes is Gonzales for which the bank officers had special
instructions to grant and that it was through the instructions of Gonzales that
the payment of the periodic interest dues were debited from the account of the
spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed
shows Gonzales as the principal borrower, the other promissory notes dated
December 26, 1995 and January 3, 1996 evidently show that it was Jose
Panlilio who was the principal borrower with Gonzales as co-borrower. For
another, Ocampo cannot feign ignorance on the arrangement of the payments
by the spouses Panlilio through the debiting of their bank account. It is
incredulous that the payment arrangement is merely at the behest of Gonzales
and at a mere verbal directive to do so. The fact that the spouses Panlilio not
only received the proceeds of the loan but were servicing the periodic interest
dues reinforces the fact that Gonzales was only an accommodation party.
Thus, due to PCIBs negligence in not giving Gonzalesan
accommodation partyproper notice relative to the delinquencies in the PhP
1,800,000 loan covered by the three promissory notes, the unjust termination,
revocation, or suspension of the credit line under the COHLA from PCIBs
gross negligence in not honoring its obligation to give prior notice to Gonzales
about such termination and in not informing Gonzales of the fact of such
termination, treating Gonzales account as closed and dishonoring his PhP
250,000 check, was certainly a reckless act by PCIB. This resulted in the
actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and
had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a
good father of the family considering that the business of banking is imbued
with public interest due to the nature of their function. The law imposes on
banks a high degree of obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of banking.[44] Had
Gonzales been properly notified of the delinquencies of the PhP 1,800,000
loan and the process of terminating his credit line under the COHLA, he could
have acted accordingly and the dishonor of the check would have been
avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized
societybanks have attained a ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against injury
attributable to negligence or bad faith on its part.[45]
In the instant case, Gonzales suffered from the negligence and bad
faith of PCIB. From the testimonies of Gonzales witnesses, particularly those
of Dominador Santos[46] and Freddy Gomez,[47] the embarrassment and
humiliation Gonzales has to endure not only before his former close friend
Unson but more from the members and families of his friends and associates
in the PCA, which he continues to experience considering the confrontation he
had with Unson and the consequent loss of standing and credibility among
them from the fact of the apparent bouncing check he issued. Credit is very
important to businessmen and its loss or impairment needs to be recognized
and compensated.[48]
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute acts of contra
bonus mores. Art. 21 of the Civil Code refers to such acts when it says, Any
person who willfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for
damage.
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages are recoverable
where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind x x x. [49] We
further explained the nature of nominal damages in Almeda v. Cario:
x x x Its award is thus not for the purpose of
indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are damages
in name only and not in fact. When granted by the courts, they
are not treated as an equivalent of a wrong inflicted but simply
a recognition of the existence of a technical injury. A violation
of the plaintiffs right, even if only technical, is sufficient to
support an award of nominal damages. Conversely, so long
as there is a showing of a violation of the right of the
plaintiff, an award of nominal damages is
proper.[50] (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the
accrued interest and most especially, for the suspension of his COHLA. For
failure to do so, the bank is liable to pay nominal damages. The amount of
such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.[51] In this case, the Court finds that the
grant of PhP 50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,[52] failure to give prior
notice when required, such as in the instant case, constitutes a breach of
contract and is a clear violation of Art. 21 of the Code. In cases such as this,
Art. 2219 of the Code provides that moral damages may be recovered in acts
referred to in its Art. 21. Further, Art. 2220 of the Code provides that [w]illful
injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due.
The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. Similarly, every person who, contrary to law,
willfully or negligently causes damage to another, shall indemnify the latter for
the same.[53] Evidently, Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the
right to recover reasonable moral damages, if the depositor suffered mental
anguish, serious anxiety, embarrassment, and humiliation.[54] Although
incapable of pecuniary estimation, moral damages are certainly recoverable if
they are the proximate result of the defendants wrongful act or omission. The
factual antecedents bolstered by undisputed testimonies likewise show the
mental anguish and anxiety Gonzales had to endure with the threat of Unson
to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account
in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the
instant suit.
The award of moral damages is aimed at a restoration within the limits
of the possible, of the spiritual status quo anteit must always reasonably
approximate the extent of injury and be proportional to the wrong
committed.[55] Thus, an award of PhP 50,000 is reasonable moral damages for
the unjust dishonor of the PhP 250,000 which was the proximate cause of the
consequent humiliation, embarrassment, anxiety, and mental anguish suffered
by Gonzales from his loss of credibility among his friends, colleagues and
peers.
Furthermore, the initial carelessness of the banks omission in not
properly informing Gonzales of the outstanding interest duesaggravated by its
gross neglect in omitting to give prior notice as stipulated under the COHLA
and in not giving actual notice of the termination of the credit linejustifies the
grant of exemplary damages of PhP 10,000. Such an award is imposed by
way of example or correction for the public good.
Finally, an award for attorneys fees is likewise called for from PCIBs
negligence which compelled Gonzales to litigate to protect his interest. In
accordance with Art. 2208(1) of the Code, attorneys fees may be recovered
when exemplary damages are awarded. We find that the amount of PhP
50,000 as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the
CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is
hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages,
PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.
No pronouncement as to costs.
SO ORDERED.