[Negotiable Instruments]
Prudencio v CA
Topic: Applicability of NIL
DOCTRINE:
VOCABULARY
FACTS:
In 1955, Concepcion and Tamayo Construction Enterprise had
a contract with the Bureau of Public Works. The firm needed
fund to push through with the contract so it convinced
spouses Eulalio and Elisa Prudencio to mortgage their parcel
of land with the Philippine National Bank for P10,000.00.
Prudencio, without consideration, agreed and so he
mortgaged the land and executed a promissory note for P10k
in favor of PNB. Prudencio also authorized PNB to issue the
P10k check to the construction firm. In December 1955, the
firm executed a Deed of Assignment in favor of PNB which
provides that any payment from the Bureau of Public Works in
consideration of work done (by the firm) so far shall be paid
directly to PNB this will also ensure that the loan gets to be
paid off before maturity. Notwithstanding the provision in the
Deed of Assignment, the Bureau of Public Works asked PNB if
it can make the payments instead to the firm because the firm
needs the money to buy construction materials to complete
the project. Notwithstanding the provision of the Deed of
Assignment, PNB agreed. And so the loan matured without
PNB actually receiving any payment from the Bureau of Public
Works. Prudencio, upon learning that no payment was made
on the loan, petitioned to have the mortgage cancelled (to
save his property from foreclosure). The trial court ruled
against Prudencio; the Court of Appeals affirmed the trial
court.
ISSUE: WON Prudencio should pay the promissory note to
PNB?
HELD:
No. PNB is not a holder in due course. Prudencio is an
accommodation party for he signed the promissory note as
maker but he did not receive value or consideration therefor.
He expected the firm (accommodated party) to pay the loan
this obligation was shifted to the Bureau of Public Works by
way of the Deed of Assignment). As a general rule, an
accommodation party is liable on the instrument to a holder
for value/in due course, notwithstanding such holder at the
time of taking the instrument knew him to be only an
accommodation party. The exception is that if the holder, in
this case PNB, is not a holder in due course. The court finds
that PNB is not a holder in due course because it has not
acted in good faith when it waived the supposed payments
from the Bureau of Public Works contrary to the Deed of
Assignment. Had the Deed been followed, the loan would
have been paid off at maturity.