There are 2 kinds of defenses in negotiable instruments: personal and real

 Real Defenses
1.) Minority
2.) Forgery
3.) Non-delivery of an incomplete instrument
4.) Material alteration
5.) Ultra vires act of the corporation
6.) Fraud in factum/esse contractus
7.) illegality (if declared void for any purpose)
8.) Force/violence
9.) Lack of authority
10.) Prescription
11.) Discharge in insolvency
 Personal Defenses
1.) Failure/absence of consideration
2.) Illegal consideration
3.) Non-delivery of a complete instrument
4.) Conditional delivery of a complete instrument
5.) Fraud in inducement
6.) Filling up blank not within authority
7.) Duress/intimidation
8.) Filling up blank beyond reasonable time
9.) Transfer in breach of faith
10.) Mistake
11.) Insertion of wrong date
12.) Ante-dating or post-dating for illegal/fraudulent purposes
 Real/absolute defenses attach to the instrument and are available against all holders, whether in
due course or not, but only the entitled party/ies can raise them. Personal/equitable defenses are
available only against the holder standing in privity with the party entitled to the defense or those who
don't have the rights of a holder in due course.

Case # 1:
[ GR Nos. 18751 & 18915, Sep 26, 1922 ]
PHILIPPINE NATIONAL BANK v. BARTOLOME PICORNELL ET AL. +
DECISION
46 Phil. 716
ROMUALDEZ, J.:
In a decision rendered January 9, 1922, and amended by an order of February 18th next, the Court of
First Instance of Manila sentenced the defendants to pay solidarily to the plaintiff bank the sum of
P28,790.72 with interest at the rate of 9 per centum per annum from May 3, 1921, and costs; and the
defendant Bartolome Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9 per centum
per annum, all as aforesaid, deducting the sum of P6,708.82 from such amounts to be paid by the
defendants.
This total sum which the defendants are required to pay represents the value of a bill of exchange drawn
by Bartolome Picornell in favor of the National Bank, plaintiff, against the firm of Hyndman, Tavera &
Ventura, now dissolved, its only successor being the defendant Joaquin Pardo de Tavera. The sum of
P6,708.82, which the trial court ordered deducted from the value of the bill of exchange, is the proceeds
received by the bank from the sale of a part of a certain quantity of tobacco shipped by Picornell at Cebu
to the Hyndman, Tavera & Ventura company at Manila, the price of which, together with his commission,
was received by him from the branch of the-plaintiff bank in Cebu, and in consideration whereof he drew
the bill in favor of the central office of said bank in Manila and against the said Hyndman, Tavera &
Ventura company, the consignee of the tobacco.
The P28,790.72, which the defendants are sentenced to pay solidarily to the plaintiff bank, constitutes the
value of the tobacco at the date when the bill fell due, as appraised for the purpose.
The reasoning of the trial court for fixing the respective responsibilities of the defendants is given in its
decision and is as follows:
" * * * The defendant Pardo de Tavera, successor to Hyndman, Tavera & Ventura, by his having accepted
the bill and denied payment thereof, notwithstanding the existence of a consideration which is the real
value of the tobacco, and the defendant Picornell by his having drawn such bill and received its value
from the branch of the plaintiff bank in Cebu, became liable upon the same bill, the defendant Picornell to
its full value, and the defendant Pardo de Tavera to the extent of the value of the tobacco.

From this judgment the defendants appealed.

Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that judgment
should not have been rendered against him. The appellant Picornell contended that it should have been
taken into account that he merely acted as an agent of Hyndman, Tavera & Ventura in all these
transactions; that the tobacco was not of inferior quality, as alleged by the said company; that the
condition "D/P" attached to the transaction was not modified; that he had the right to complain because
the bank consented to the said company taking possession of the tobacco before the payment of the bill;
that the bank held the tobacco as a deposit; that the bank was not authorized to sell the tobacco, said
sale not being allowed either by law or by the circumstances; that he should not have been ordered to
pay the value of the bill without proof that he was notified of its dishonor, as required by section 89 of the
Negotiable Instruments Law.
The appellee bank maintains that the appellants have no right to discuss issues of fact in this instance for
not having complied with the requirements enumerated in paragraph (a) of Rule 16 of the Rules of the
Courts of First Instance. The rule cited refers to special proceedings. Moreover, we believe that the
necessary requirements in order that this court may pass upon questions of fact have been complied with
by the appellants.
The following facts are proved: That Bartolome Picornell, following instruction of Hyndman, Tavera &
Ventura, bought in Cebu 1,735 bales of tobacco; that Picornell obtained from the branch of the National
Bank in Cebu the sum of P39,529.83, the value of the tobacco, together with his commission of 1 real per
quintal (according to stipulation Exhibit 4), having, in turn, drawn the following bill of exchange, Exhibit A:

CEBU, 28
"No. For
febrero,
2-A. P39,529.83
1920.

"At treinta (30) days sight please pay this first of exchange (second unpaid) to the order of Philippine
National Bank treinta y nueve mil quinientos veintinueve pesos con 83/100. Value received.

"To Sres. HYNDMAN, TAVERA Y

VENTURA,
"Calle Soler 26 y 28.
(Sgd.) "B. Picornell"

This instrument was delivered to the branch of the National Bank in Cebu, together with the invoice and
bill of lading of the tobacco, which was shipped in the boat Don Ildefonso, on February 27, 1920,
consigned to Hyndman, Tavera & Ventura at Manila. The invoice and bill of lading were delivered to the
National Bank with the understanding that the bank should not deliver them to Hyndman, Tavera &
Ventura except upon payment of the bill; which condition was expressed by the well-known formula "D/P"
(documents for [against] payment).
The central office of the National Bank in Manila received the bill and the aforesaid documents annexed
thereto; and on March 3, 1920, presented the bill to Hyndman, Tavera & Ventura, who accepted it, stating
on the face thereof the following:
"Accepted, 3d March, 1920. Due, 2d April, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de
Tavera, member of the firm."

The tobacco having arrived at Manila, the firm of Tam-bunting, owner of the ship Don Ildefonso, that
brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by
the company without the knowledge of the National Bank which retained and always had in its possession
the invoice and bill of lading of the tobacco, until it presented them as evidence at the trial.
Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in their
warehouses, and wrote and cabled to Bartolome Picornell, notifying him that of the tobacco received,
there was a certain portion which was of no use and was damaged. To these communications, Picornell
answered, sending the following letter:

"CEBU, March 13, 1920.

"MESSRS. HYNDMAN,
TAVERA & VENTURA,
"Manila.
"TABACO

"Dear Sirs: Your letters of the 3d and 9th, and your telegram of the 5th, inst. received, and the sample of
tobacco sent through the captain of the boat Don Ildefonso.
"I wired to the seller asking him to come over and I hope he will do so at the first opportunity.
"It would be well that you should inform me of the exact number of bales deteriorated and useless, and if
possible that said information should be furnished by the Bureau of Internal Revenue. Moreover, it would
be well also that you should not sell any bale of said shipment until the matter is settled.

Yours very
truly,
(Sgd.) "B.
PICORNELL"
Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had in their
possession the tobacco aforementioned.
In view of the question raised by the said company as to the quality of the aforesaid tobacco, more
correspondence was exchanged between the company and Picornell, who, upon the suggestion of the
former, wrote on March 26, 1920, this letter:

"Messrs. PHILIPPINE
NATIONAL BANK,
"Cebu.
"Dear Sirs : I would be obliged to you if you would wire your central office at Manila to extend thirty days
the time for payment of the bill for P39,529.83 against Messrs. Hyndman, Tavera & Ventura of Manila.
"Awaiting your favor, I remain,

"Yours very
truly,

(Sgd.) "B.
PICORNELL"
The bank granted this' request of the defendants; wherefore Hyndman, Tavera & Ventura reaccepted the
bill in the following terms:
"Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, By (Sgd.) J. Pardo de Tavera,
member of the firm." May 2, 1920, arrived and the bill was not paid. On the 4th of the same month,
Hyndman, Tavera & Ventura sent a letter to the plaintiff bank as follows:
"DEAR SIRS: We very much regret to have to inform you that we absolutely refuse to pay draft No. 2 for
thirty-nine thousand five hundred and twenty-nine pesos and eighty-three cents (P39,529.83), referring to
1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the drawer.
"We, therefore, beg to notify you that the said Leaf Tobacco is at the disposal of your goodselves at our
go-down No. 26-36 Calle Soler."

The bank protested the bill, took possession of the tobacco, and had it appraised on the 12th of the same
month, its value having been fixed at P28,790.72. That this valuation was just, reasonable and exact is
not questioned by the parties.
The bank brought this action, and about September, 1921, sold the tobacco, obtaining from the sale
P6,708.82.
This action is for the recovery of the value of the bill of exchange above-mentioned. The Hyndman,
Tavera & Ventura company accepted it unconditionally, but did not pay it at its maturity; wherefore its
responsibility, or that of its successor, J. Pardo de Tavera, to pay the same, is clear. (Sec. 62, Negotiable
Instruments Law.)
The question whether or not the tobacco was worth the value of the bill, does not concern the plaintiff
bank. Such partial want of consideration, if it was, does not exist with respect to the bank which paid to
Picornell the full value of said bill of exchange. The bank was a holder in due course, and was such for
value full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of
section 28 of the Negotiable Instruments Law.
"* * * The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer
himself. But the drawer arid acceptor are the immediate parties to the consideration, and if the
acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a
different relation; he is a stranger to the transaction between the drawer and the acceptor, and is,
therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the
consideration between the drawer and the acceptor cannot be inquired into. The payee or holder gives
value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in the
position of a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has
been discounted, and upon which money has been advanced by the plaintiff, that the draft was accepted
for the accommodation of the drawer. * * *" (3 R. C. L., pp. 1143, 1144, par. 358.)

As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper
presentment and paid in due course, and as it was not paid, he became liable to the payment of its value
to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.)
The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the
tobacco, does not necessarily make him an agent of the company in its obligations arising from the
drawing of the bill by him. His acts in negotiating the bill constitute a different contract from that made by
his having purchased the tobacco on behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot
exempt himself from responsibility by the fact of his having been a mere agent of this company, because
nothing to this effect was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable
Instruments Law.)
The fact that the tobacco was or was not of inferior quality does not affect the responsibility of Picornell,
because while it may have an effect upon the contract between him and the firm of Hyndman, Tavera &
Ventura, yet it cannot have upon the responsibility of both to the bank, upon the bill drawn and accepted
as above stated.
As to the instruction "D/P" appearing on the instrument, it was not violated by the bank, which, as above
stated, kept possession of the invoice and the bill of lading of the tobacco. By virtue of this circumstance,
the bank had the right to deal with that tobacco as a security in case of non-payment of the bill, and this
was admitted by Hyndman, Tavera & Ventura when, upon their refusal to pay the bill, they placed the
tobacco at the disposal of the bank.
Neither does the fact of Hyndman, Tavera & Ventura having been given possession of the tobacco before
the payment of the bill affect the liability of the defendants to the bank thereon.
The title of the bank to the tobacco in question by reason of the condition "D/P" was that of a pledgee,
and its possession after its delivery to it by Hyndman, Tavera & Ventura was of the same nature a
discount security, which it was authorized to accept and retain. (Act No. 2938.)
The appellants question the power of the bank to sell, as it did, the tobacco in question. Taking into
account the circumstances of the case, we hold that the bank did not violate the law in making such sale
without notice. We hold that it is one of those cases provided for by law (sec. 33, Act No. 2938), wherein
a previous notice of the sale is not indispensable. Besides, as to the price obtained in the sale, no
question is made that it was the best obtainable.
Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C, which is the protest
for the non-payment thereof, that a copy of such protest was sent by mail in good season addressed to
Bartolome Picor,nell, the presumption, now conclusive, that the latter received it (sees. 105, 106,
Negotiable Instruments Law), not having been rebutted, or at least, contradicted.
Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it
exercised, against the drawer. (Sec. 84, Negotiable Instruments Law.)
The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted
the bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome
Picornell, is secondarily liable. (3 R. C. L., pp. 1144, 1145.) However, no question has been raised about
this aspect of the responsibility of the defendants.
We are of the opinion that the appellants are liable to the National Bank for the value of the bill of
exchange Exhibit
A, deducting therefrom P6,708.82 the proceeds of the sale of the tobacco. But the bank, not having
appealed from the judgment of the lower court, we cannot alter it in favor of said party, which, by its
omission to appeal, has shown full conformity with the judgment rendered.
For the foregoing, the judgment appealed from is affirmed, with costs against the defendants. So ordered.
Araullo, C. J., Street, Malcolm, Avancena, Villamor, Ostrand, and Johns, JJ., concur.

CASE # 2:
SECOND DIVISION
[G.R. No. 136729. September 23 ,2003]
ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION, respondent.

DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of
the Court of Appeals in CA-G.R. CV No. 41274,[1] affirming the decision of the Regional Trial Court
(Branch 147) of Makati, then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics Corp.
(Astro for brevity) were ordered to pay respondent Philippine Export and Foreign Loan Guarantee
Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with interests and costs.
The antecedent facts are undisputed.
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to
P3,000,000.00 with interest and secured by three promissory notes: PN NO. PFX-254 dated December
14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for P400,000.00 and PN No.
15477 dated August 27, 1981 for P2,000,000.00.In each of these promissory notes, it appears that
petitioner Roxas signed twice, as President of Astro and in his personal capacity. [2] Roxas also signed a
Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety. [3]
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of
70% of Astros loan,[4] subject to the condition that upon payment by Philguanrantee of said amount, it
shall be proportionally subrogated to the rights of Philtrust against Astro.[5]
As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of
the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint
for sum of money with the RTC of Makati.
In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely
signed the same in blank and the phrases in his personal capacity and in his official capacity were
fraudulently inserted without his knowledge.[6]
After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive
portion:

WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff
and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to
pay, jointly and severally, the plaintiff the sum of P3,621.187.52 representing the total obligation of
defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the stipulated rate
of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1, 1985
until the amount is fully paid. With costs.

SO ORDERED.[7]

The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as
President of Astro, then he should have signed only once in the promissory note. [8]
On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas
failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that
private transactions have been fair and regular must be sustained.[9]
In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly
and severally liable (solidary) with Astro for the sum awarded by the RTC.
The answer is in the affirmative.
Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are
valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as
president of Astro and second, in his personal capacity. In signing his name aside from being the
President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability
arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers,[10] promising that they will pay to the order of the payee or any holder
according to its tenor.[11] Thus, even without the phrase personal capacity, Roxas will still be primarily
liable as a joint and several debtor under the notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on each of the promissory notes twice which
necessarily would imply that he is undertaking the obligation in two different capacities, official and
personal.
Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures
affixed by Roxas on the promissory notes, Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that
portions of his signatures covered portions of the typewritten words personal capacity indicating with
certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus
demolishing his claim that the typewritten words were just inserted after he signed the promissory
notes. If what he claims is true, then portions of the typewritten words would have covered portions of his
signatures, and not vice versa.
As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so that this
Court could not discern the same observations on the notes, Exhibits A-4 and 3-A and B-4 and 4-A.
Nevertheless, the following discussions equally apply to all three promissory notes.
The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order...[12] An instrument which begins with I, We, or
Either of us promise to pay, when signed by two or more persons, makes them solidarily liable. [13] Also,
the phrase joint and several binds the makers jointly and individually to the payee so that all may be sued
together for its enforcement, or the creditor may select one or more as the object of the suit. [14] Having
signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose
to enforce the notes against him alone or jointly with Astro.
Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the
notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not
disputed that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and
appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to overcome the
presumptions that private transactions are presumed to be fair and regular [15] and that a person takes
ordinary care of his concerns.[16] Aside from his self-serving allegations, Roxas failed to prove the truth of
such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated
by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court. [17]
Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary
care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign
document without first informing himself of its contents and consequences. Clearly, he knew the nature of
the transactions and documents involved as he not only executed these notes on two different dates but
he also executed, and again, signed twice, a continuing Surety ship Agreement notarized on July 31,
1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to
Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability Philtrust because
as a surety, he bound himself jointly and severally with Astros obligation. [18] Roxas cannot now avoid
liability by hiding under the convenient excuse that he merely signed the notes in blank and the phrases
in personal capacity and in his official capacity were fraudulently inserted without his knowledge.
Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of
Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of
70% of roxas and Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in
favor of Philtrust.
Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights.[19] It may either be legal or conventional. Legal subrogation is that which takes place without
agreement but by operation of law because of certain acts. [20] Instances of legal subrogation are those
provided in Article 1302 of the Civil Code.Conventional subrogation, on the other hand, is that which
takes place by agreement of the parties.[21]
Roxas acquiescence is not necessary for subrogation to take place because the instant case is one
of the legal subrogation that occurs by operation of law, and without need of the debtors
knowledge.[22] Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as
against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor.[23]
WHEREFORE, finding no error with the decision of the Court of Appeals dated December 10, 1998,
the same is hereby AFFIRMED in toto.
SO ORDERED.
Bellosillo, (Chairman), Callejo, Sr., and Tinga, JJ., concur.
Quisumbing, J., in the result.

CASE # 3:
FIRST DIVISION
[G.R. No. 154127. December 8, 2003.]
ROMEO C. GARCIA, Petitioner, v. DIONISIO V. LLAMAS, Respondent.
DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by
the complete incompatibility between the old and the new agreements. Petitioner herein fails to show
either requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary
debtor stands.chanrob1es virtua1 1aw 1ibrary

The Case

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to nullify the November
26, 2001 Decision 2 and the June 26, 2002 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No.
60521. The appellate court disposed as follows:jgc:chanrobles.com.ph

"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains
to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the
award for attorney’s fees and cost of suit is DELETED. The portion of the judgment that pertains to . . .
Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against . . . Eduardo de Jesus is
REMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas’
evidence against . . . Eduardo de Jesus." 4

The challenged Resolution, on the other hand, denied petitioner’s Motion for Reconsideration.
The Antecedents

The antecedents of the case are narrated by the CA as follows:jgc:chanrobles.com.ph

"This case started out as a complaint for sum of money and damages by . . . [Respondent] Dionisio
Llamas against . . . [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-
32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed
P400,000.00 from [respondent]; that, on the same day, [they] executed a promissory note wherein they
bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest
per month; that the loan has long been overdue and, despite repeated demands, [petitioner and de
Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was
compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered
from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint
were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent]
addressed to [petitioner and de Jesus].

"Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under
the promissory note because he signed it merely as an accommodation party for . . . de Jesus; and,
alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been
paid by . . . de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the
check and [respondent’s] acceptance thereof novated or superseded the note.

" [Respondent] tendered a reply to [Petitioner] Garcia’s answer, thereunder asserting that the loan
remained unpaid for the reason that the check issued by . . . de Jesus bounced, and that [Petitioner]
Garcia’s answer was not even accompanied by a certificate of non-forum shopping. Annexed to the reply
were the face of the check and the reverse side thereof.

"For his part, . . . de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed
P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon
for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by
way of interests; that this was made when [respondent’s] daughter, one Nits Llamas-Quijencio, received
from the Central Police District Command at Bicutan, Taguig, Metro Manila (where . . . de Jesus worked),
the sum of P40,000.00, representing the peso equivalent of his accumulated leave credits, another
P40,000.00 as advance interest, and still another P40,000.00 as interest for the months of March and
April 1997; that he had difficulty in paying the loan and had asked [respondent] for an extension of time;
that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to accept the
benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant
case while his retirement was being processed; and that, in defense of his rights, he agreed to pay his
counsel P20,000.00 [as] attorney’s fees, plus P1,000.00 for every court appearance.chanrob1es virtua1
1aw 1ibrary

"During the pre-trial conference, . . . de Jesus and his lawyer did not appear, nor did they file any pre-trial
brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no
[longer] present evidence. Given this development, the trial court gave [respondent] permission to present
his evidence ex parte against . . . de Jesus; and, as regards [Petitioner] Garcia, the trial court directed
[respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment
or opposition thereto.

"Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present
his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a
judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case
for judgment on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted
that [petitioner’s and de Jesus’] solidary liability under the promissory note cannot be any clearer, and that
the check issued by de Jesus did not discharge the loan since the check bounced." 5

On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as
follows:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of

[respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally,
the [respondent] the following sums, to wit:chanrob1es virtual 1aw library

‘1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23,
1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests
already paid by . . . de Jesus;

‘2) P100,000.00 as attorney’s fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance,
and;

‘3) Cost of this suit.’" 6

Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De
Jesus. According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he
was still required to present his evidence ex parte. Thus, respondent was not ipso facto entitled to the
RTC judgment, even though De Jesus had been declared in default. The case against the latter was
therefore remanded by the CA to the trial court for the ex parte reception of the former’s evidence.

As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise
even a single genuine issue regarding any material fact.

The appellate court ruled that no novation — express or implied — had taken place when respondent
accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the
loan that was covered by the promissory note jointly and severally undertaken by petitioner and De
Jesus. Respondent’s acceptance of the check did not serve to make De Jesus the sole debtor because,
first, the obligation incurred by him and petitioner was joint and several; and, second, the check — which
had been intended to extinguish the obligation — bounced upon its presentment.chanrob1es virtua1 1aw
1ibrary

Hence, this Petition. 7

Issues

Petitioner submits the following issues for our consideration:chanrob1es virtual 1aw library
"I
Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the
instant case as . . . Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan
obligation he obtained from . . . Respondent Dionisio Llamas, as clearly evidenced by:chanrob1es virtual
a) Issuance by . . . de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor
of Respondent Llamas, although the check subsequently bounced[;]
b) Acceptance of the check by the . . . Respondent. . . which resulted in [the] substitution by . . . de Jesus
or [the superseding of] the promissory note;
c) . . . de Jesus having paid interests on the loan in the total amount of P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal of . . . de Jesus that due to financial
difficulties, he be given an extension of time to pay his loan obligation and that his retirement benefits
from the Philippine National Police will answer for said obligation.
"II
Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of
petitioner that he was merely an accommodation party, despite the fact that the promissory note provided
for a joint and solidary liability, should have been given weight and credence considering that subsequent
events showed that the principal obligor was in truth and in fact . . . de Jesus, as evidenced by the
foregoing circumstances showing his assumption of sole liability over the loan obligation.
‘’III
Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent
Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself
admitted in its Decision, which call for the presentation of evidence in a full-blown trial." 8
Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the
defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment
against him — be it a judgment on the pleadings or a summary judgment — was proper.
The Court’s Ruling
The Petition has no merit
First Issue:chanrob1es virtual 1aw library
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that
novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the
promissory note by the check. Alternatively, the former argues that the original obligation was
extinguished when the latter, who was his co-obligor, "paid" the loan with the check.ch
anrob1es virtua1 1
The fallacy of the second (alternative) argument is all too apparent. The check could not have
extinguished the obligation, because it bounced upon presentment. By law, 9 the delivery of a check
produces the effect of payment only when it is encashed.
We now come to the main issue of whether novation took place.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by

substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor. 10 Article 1293 of the Civil Code defines novation as follows:jgc:chanrobles.com.ph

"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237."cralawtua1aw
library
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from — and may even be made
without the knowledge of — the debtor, since it consists of a third person’s assumption of the obligation.
As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor
offers, and the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary. 11 Both modes of substitution by the
debtor require the consent of the creditor. 12

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new one that takes the place of the former. It is merely modificatory when the old obligation
subsists to the extent that it remains compatible with the amendatory agreement. 13 Whether extinctive or
modificatory, novation is made either by changing the object or the principal conditions, referred to as
objective or real novation; or by substituting the person of the debtor or subrogating a third person to the
rights of the creditor, an act known as subjective or personal novation. 14 For novation to take place, the
following requisites must concur:chanrob1es virtual 1aw library

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract. 15

Novation may also be express or implied. It is express when the new obligation declares in unequivocal
terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the
old one on every point. 16 The test of incompatibility is whether the two obligations can stand together,
each one with its own independent existence. 17

Applying the foregoing to the instant case, we hold that no novation took place.

The parties did not unequivocally declare that the old obligation had been extinguished by the issuance
and the acceptance of the check, or that the check would take the place of the note. There is no
incompatibility between the promissory note and the check. As the CA correctly observed, the check had
been issued precisely to answer for the obligation. On the one hand, the note evidences the loan
obligation; and on the other, the check answers for it. Verily, the two can stand together.chanrob1es
virtua1 1aw 1ibrary

Neither could the payment of interests — which, in petitioner’s view, also constitutes novation 18 —
change the terms and conditions of the obligation. Such payment was already provided for in the
promissory note and, like the check, was totally in accord with the terms thereof.

Also unmeritorious is petitioner’s argument that the obligation was novated by the substitution of debtors.
In order to change the person of the debtor, the old one must be expressly released from the obligation,
and the third person or new debtor must assume the former’s place in the relation. 19 Well-settled is the
rule that novation is never presumed. 20 Consequently, that which arises from a purported change in the
person of the debtor must be clear and express. 21 It is thus incumbent on petitioner to show clearly and
unequivocally that novation has indeed taken place.

In the present case, petitioner has not shown that he was expressly released from the obligation, that a
third person was substituted in his place, or that the joint and solidary obligation was cancelled and
substituted by the solitary undertaking of De Jesus. The CA aptly held:jgc:chanrobles.com.ph

". . . Plaintiff’s acceptance of the bum check did not result in substitution by de Jesus either, the nature of
the obligation being solidary due to the fact that the promissory note expressly declared that the liability of
appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or
performance from one of the solidary debtors or some or all of them simultaneously, and payment made
by one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from
one of the solidary debtors, he may still proceed against the other or others . . ." 22

Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor
expressly consent to the substitution of a new debtor. 23 Since novation implies a waiver of the right the
creditor had before the novation, such waiver must be express. 24 It cannot be supposed, without clear
proof, that the present respondent has done away with his right to exact fulfillment from either of the
solidary debtors.25cralaw:red

More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and
solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment.
Respondent’s acceptance of his check did not change the person of the debtor, because a joint and
solidary obligor is required to pay the entirety of the obligation.

It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. 26 It is up to the former to determine against whom to
enforce collection. 27 Having made himself jointly and severally liable with De Jesus, petitioner is
therefore liable 28 for the entire obligation. 29

Second Issue:chanrob1es virtual 1aw library

Accommodation Party

Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as
such, he was released as obligor when respondent agreed to extend the term of the obligation.

This reasoning is misplaced, because the note herein is not a negotiable instrument. The note
reads:jgc:chanrobles.com.ph

"PROMISSORY NOTE

"P400,000.00

"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS,
Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City,
with interest at the rate of 5% per month or fraction thereof.chanrob1es virtua1 1aw 1ibrary

"It is understood that our liability under this loan is jointly and severally [sic].

"Done at Quezon City, Metro Manila this 23rd day of December, 1996." 30

By its terms, the note was made payable to a specific person rather than to bearer or to order 31 — a
requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot
avail himself of the NIL’s provisions on the liabilities and defenses of an accommodation party. Besides, a
non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may
have been created by the assent of the parties. 32 The promissory note is thus covered by the general
provisions of the Civil Code, not by the NIL.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory
note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for
value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The
relation between an accommodation party and the party accommodated is, in effect, one of principal and
surety — the accommodation party being the surety. 33 It is a settled rule that a surety is bound equally
and absolutely with the principal and is deemed an original promisor and debtor from the beginning. The
liability is immediate and direct. 34

Third Issue:chanrob1es virtual 1aw library

Propriety of Summary Judgment or Judgment on the Pleadings

The next issue illustrates the usual confusion between a judgment on the pleadings and a summary
judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after
a summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that
(1) except as to the amount of damages, there is no genuine issue regarding any material fact; and (2)
the moving party is entitled to a judgment as a matter of law.

A summary judgment is a procedural device designed for the prompt disposition of actions in which the
pleadings raise only a legal, not a genuine, issue regarding any material fact. 35 Consequently, facts are
asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific
denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the
pleadings, depositions or admissions. 36 A summary judgment may be applied for by either a claimant or
a defending party. 37

On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is
proper when an answer fails to render an issue or otherwise admits the material allegations of the
adverse party’s pleading. The essential question is whether there are issues generated by the pleadings.
38 A judgment on the pleadings may be sought only by a claimant, who is the party seeking to recover
upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. 39

Apropos thereto, it must be stressed that the trial court’s judgment against petitioner was correctly treated
by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer
40 apparently raised several issues — that he signed the promissory note allegedly as a mere
accommodation party, and that the obligation was extinguished by either payment or novation. However,
these are not factual issues requiring trial. We quote with approval the CA’s
observations:jgc:chanrobles.com.ph

"Although Garcia’s [A]nswer tendered some issues, by way of affirmative defenses, the documents
submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues.
Firstly, Garcia’s claim that he was merely an accommodation party is belied by the promissory note that
he signed. Nothing in the note indicates that he was only an accommodation party as he claimed to be.
Quite the contrary, the promissory note bears the statement: ‘It is understood that our liability under this
loan is jointly and severally [sic].’ Secondly, his claim that his co-defendant de Jesus already paid the loan
by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check."
41

From the records, it also appears that petitioner himself moved to submit the case for judgment on the
basis of the pleadings and documents. In a written Manifestation, 42 he stated that "judgment on the
pleadings may now be rendered without further evidence, considering the allegations and admissions of
the parties." 43
In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court
had issued against petitioner.

WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

CASE # 4:
SECOND DIVISION
[G.R. No. 80599. September 15, 1989.]
ERNESTINA CRISOLOGO-JOSE,
petitioner vs. COURT OFAPPEALS and RICARDO S. SANTOS, JR. in his own behalf and asVice-
President for Sales of Mover Enterprises, Inc.,
respondents. Melquiades P. de Leon
for petitioner.
Rogelio A. Ajes
for private respondent.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; ACCOMMODATIONPARTY;
REQUISITES THEREOF, CITED; THAT ACCOMMODATION PARTY FAILED TORECEIVE ANY
VALUABLE CONSIDERATION WHEN HE EXECUTED INSTRUMENT,NOT A VALID DEFENSE.
— To be considered an accommodation party, a person must (1) be a party to the instrument, signing as
maker, drawer, acceptor, or endorser, (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.
2. ID.; ID.; ID.; LIABLE TO A HOLDER FOR VALUE. — 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; in whatever capacity such accommodation party signed the instrument,
whether primarily or secondarily.
3. ID.; ID.; ID.; ID.; DOES NOT INCLUDE NOR APPLY TO CORPORATIONS,REASON. —
Section 29 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.
This is because the issue or indorsement of negotiable paper by a corporationwithout
consideration and for the accommodation of another is ultra vires . 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 endorsee with knowledge that the issue or endorsement of the instrument by the
corporation is for the accommodation of another, he cannot recover against the corporation thereon.

CASE # 5:
SUPREME COURT REPORTS ANNOTATED
Sadaya vs. Sevilla
No. L-17845. April 27, 1967.INTESTATE ESTATE OF VlCTOR SEVILLA. SlMEON SADAYA,petitioner,
vs.
FRANCISCO SEVILLA, respondent.
Obligations; Solidary liability of accommodation makers.
—Where the principal debtor failed to pay the bank the balance due on a promissory note, either one of
the solidary accommodation makers may be held liable for the said balance.
Same; Obligation of principal debtor to reimburse accommodation maker who paid the debt.
—The principal debtor, who received from the bank the full value of the note. is obligated to make full
reimbursement to an accommodation maker who paid the bank the balance due on said note.
Same; Negotiable Instruments Law; Right to seek contribution from co-accommodation maker.
—Where a solidary accommodation maker paid to the bank the balance due on a promissory note, he
may seek contribution from the other solidary accommodation maker, in the absence of a contrary
agreement betweenthem. This right springs from an implied promise between the accommodationmakers
to share equally the burdens resulting from their execution of the note. They are joint guarantors of the
principal debtors.
Same; New Civil Code supplements Negotiable Instruments Law
—Since the Negotiable Instruments Law does not define the right of an accommodation maker, to seek
reimbursement from another accommodation maker, this deficiency should be supplied by article 2073 of
the New Civil Code, which deals with a situation where one surety has paid the debt and is seeking
contribution from his co-sureties.
Same; Rules on reimbursement under article 2073.
—A solidary accommodation maker (1) may demand from the principal debtor reimbursement of the
amount which he paid on the promissory note and (2) he may demand contribution from his co-
accommodation maker. Without first directing his action
925
VOL. 19, APRIL 27, 1967925
Sadaya vs. Sevilla
against the principal debtor, provided that (a) he made the payment by virtue of a judicial demand, or (b)
the principal debtor is insolvent.

CASE # 6:
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.

Footnotes
1 Section 24 of the Negotiable Instruments Law provides:

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.

Section 5(s) of Rule 131 also establishes the presumption "[t]hat a negotiable instrument
was given or indorsed for a sufficient consideration; . . ."

2 Pineda vs. dela Rama, 121 SCRA 671 (1983); Bank of Philippine Islands vs. Laguna
Coconut Oil Co., 48 Phil. 5 (1925).

3 Section 60 of the Negotiable Instruments Law provides:

Section 60. Liability of maker. — The maker of a negotiable instrument, by making it,
engages that he will pay it according to its tenor, and admits the existence of the payee
and his then capacity to indorse.

Further, Section 61 provides:

Section 61. Liability of drawer. — The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor, and
that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder or to any subsequent indorser who may be
compelled to pay it. . . .

Finally, Section 66 provides:

Section 66. Liability of general indorser. — Every indorser who indorses without
qualification, warrants to all subsequent holders in due course:

xxx xxx xxx

And in addition, he engages that, on due presentment, it shall be accepted or paid, or

both, as the case may be, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it.

4 Section 59 of the Negotiable Instruments Law provides:

Section 59. — Who is deemed holder in due course. — Every holder is deemed prima
facie to be a holder in due course; . . .

See Also Fossum v. Fernandez Hermanos, 44 Phil. 713 (1923).

5 Section 24, Negotiable Instruments Law, supra; A similar provision is found in Article
1354, Civil Code of the Philippines:

Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary.
Also Penaco v. Ruaya, 110 SCRA 46 (1981).

6 See generally Cuyugan v. Santos, 34 Phil. 100 (1916); Tolentino v. Gonzales, 50 Phil.
558 (1927).