The Philippine Bank of Commerce vs Aruego
thereto because he wants to accommodate another. In
G.R. Nos. L-25836-37 January 31, 1981
Facts:
The Philippine Bank of Commerce filed a complaint
against Aruego for the recovery of money. It was alleged
that Aruego obtained a credit accommodation from the
bank in order to pay the printing cost of his periodical. It
was further alleged that the printing company collected
the cost by drawing a draft against the plaintiff and said
draft being sent later to the defendant for acceptance.
Aruego received a copy of the complaint together with
the summons; however, the latter filed an urgent motion
for extension only on December 14, 1959. The court
denied the motion. Thereafter, Aruego filed a motion to
dismiss the complaint on the ground that the complaint
did not state a cause of action because he was just an
accommodating party only for the drawer, the printing
company and will only be liable in the event that the
drawer fails to pay its obligation to the bank. The
complaint was dismissed by the court. The bank filed for
a motion for reconsideration and on March 7, 1960, the
court dismissed its earlier decision and set the case for
hearing on March 15, 1960. The court declared Aruego in
default for his failure to file his answer on time. Aruego
filed a motion for reconsideration but the same was
denied. The trial court rendered a decision ordering
Aruego to pay the bank. On appeal, the CA denied
Aruego’s petition. Hence, this present petition.
Issue: WON Aruego is primary liable for the drafts he had
accepted.
Ruling:
Section 20 of the NIL 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.
In the case at, an inspection of the drafts accepted by
Aruego revealed that he had accepted the drafts without
disclosing his principal, thus, Aruego is personally liable
for the drafts he accepted. Furthermore, 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
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.
“Quickie” PHILIPPINE BANK OF COMMERCE V. ARUEGO
102 SCRA 530
FACTS: Aruego, on behalf of World Current Events,
entered into a Credit Agreement with PBCom, for the
publication of the company’s periodicals. At every
printing endeavor by the printing press, a bill of
exchange is drawn against PBCom. The instruments are
signed by Aruego, without any indication that he is an
agent of World Current Events. When he was being held
liable by PBCom, he averred that he only signed the
instrument in the capacity of agent of the company.
HELD: An inspection of the drafts accepted by the
defendant would show nowhere that he has disclosed
that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his
name. For failure to disclose his principal, Aruego was
personally liable for the drafts he accepted.
TOWN SAVINGS AND LOAN BANK, INC., petitioner,
vs.
THE COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND
ALICIA N. HIPOLITO, respondents.
FACTS:
 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.
ISSUE:
Whether the Hipolitos are liable on the promissory note which
they executed in favor of the petitioner.
HELD:
YES, the Hipolitos are liable on the promissory note which
they executed in favor of 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.
|”Quickie”
TOWN SAVINGS AND LOAN BANK V. CA- Accommodation
Party
223 SCRA 459
FACTS: Spouses Hipolito applied for and was granted
a loan by the bank, which was secured by a
promissory note. For failure to pay their monthly
payments, they were declared in default.
The spouses denied having any liability. They stated that
the real party-in-interest is the sister of the husband,
Pilarita Reyes. The spouses, not having received part
of the loan, were mere guarantors of Reyes. As such,
they protested against being dragged into the litigation.
The trial court held that they were liable as
accommodation parties to the promissory note. This was
reversed by the Court of Appeals.
HELD: An accommodation party is one who has signed
the instrument as maker, drawer, indorser, without
receiving value therefore 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 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.
In the case at bar, it is indisputable that the spouses
signed the promissory note to enable Reyes to secure a
loan from the bank. She was the actual beneficiary of the
loan and the spouses accommodated her by signing the
note.
Ang Tiong vs. Ting
22 SCRA 713
Facts: On 15 August 1960 Lorenzo Ting issued Philippine
Bank of Communications check payable to "cash or
bearer". With Felipe Ang's signature at the back thereof,
the instrument was received by Ang Tiong who
thereafter presented it to the drawee bank for payment.
The bank dishonored it. Ang Tiong then made written
demands on both Lorenzo Ting and Felipe Ang that they
make good the amount represented by the check. These
demands went unheeded; so he filed for collection of the
sum of money. Felipe Ang then elevated the case to the
Court of Appeals contending that he is a mere
accommodation party.
Issue: Whether Felipe Ang is liable as an
accommodation party
Held: Yes.
Nothing in the check in question indicates that Felipe Ang
is not a general indorser within the purview of section 63
of the Negotiable Instruments Law which makes "a
person placing his signature upon an instrument
otherwise than as maker, drawer or acceptor" a general
indorser, "unless he clearly indicates by appropriate
words his intention to be bound in some other capacity,"
which he did not do.
Section 66 ordains that "every indorser who indorses
without qualifications, warrants to all subsequent holders
in due course" (a) that the instrument is genuine and in
all respects what it purports to be; (b) that he has a good
title to it; (c) that all prior parties have capacity to
contract; and (d) that the instrument is at the time of his
indorsement valid and subsisting. In addition, "he
engages that on due presentment, it shall be accepted or
paid, or both, as the case may be, and that if it be
dishonored, he will pay the amount thereof to the
holder."
Even on the assumption that Felipe Ang is a mere
accommodation party, as he professes to be, he is
nevertheless, by the clear mandate of section 29 of the
Negotiable Instruments Law, yet "liable on the
instrument to a holder for value, notwithstanding that
such holder at the time of taking the instrument knew
him to be only an accommodation party." The
accommodation party is liable to a holder for value as if
the contract was not for accommodation. It is not a valid
defense that the accommodation party did not receive
any valuable consideration when he executed the
instrument. Nor is it correct to say that the holder for
value is not a holder in due course merely because at the
time he acquired the instrument he knew that the
indorser was only an accommodation party.
That Felipe Ang, 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
Ang Tiong, as the said remedy is a matter of concern
exclusively between accommodation indorser and
accommodated party. So that the fact that Felipe Ang
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 Ang Tiong, and does not a whit diminish nor
defeat the rights of the latter who is a holder for value.
The liability of Felipe Ang remains primary and
unconditional. To sanction Felipe Ang'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.
“Quickie”
ANG TIONG V. TING
FACTS: Ting issued a PBCom check payable to cash or
bearer. This was indorsed by Ang at the back and it was
received by plaintiff. Upon encashment of the check, the
same was dishonored. Plaintiff moved that the two
make good the value of the check but despite
demands, he was unheeded, prompting him to file a
complaint. The trial court decided in his favor.
HELD: Even on the assumption that the appellant
was an accommodation indorser, as he professes to be,
he is nevertheless by the clear mandate of section 29,
liable on the instrument to a holder for value,
notwithstanding that such holder at the time of taking
the instrument knew him to be an accommodation party.
And assuming that he was an accommodation party,
he may obtain security from the maker to protect
himself against the danger of insolvency of the latter but
this doesn't affect his liability to the appellee, as the said
remedy is a matter of recourse between him and the
maker.
“Quickie 2”
Ang Tiong v. Ting [G.R. No. L-26767. February 22, 1968]
FACTS Defendant Ting issued a check payable to “cash or
bearer”. appellant Ang indorsed the check to plaintiff-
appellee Ang Tiong. The check was dishonored.
ISSUE Whether or not appellant Ang may be considered
as a general indorser.
RULING YES. Nothing in the check in question indicates
that the appellant is not a general indorser within the
purview of section 63 of the Negotiable Instruments Law
which makes “a person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor”
a general indorser, — “unless he clearly indicates plaintiff
appropriate words his intention to be bound in some
other capacity,” which he did not do.
ANG VS ASSOCIATED BANK, ETAL (532 SCRA 244)
Ang vs Associated Bank, etal
532 SCRA 244 [G.R. No. 146511 September 5, 2007]
Facts: On August 28, 1990, respondent Associated Bank
(formerly Associated Banking Corporation and now known as
United Overseas Bank Philippines) filed a collection suit against
Antonio Ang Eng Liong and petitioner Tomas Ang for the two
(2) promissory notes that they executed as principal debtor
and co-maker, respectively. In the Complaint, respondent Bank
alleged that on October 3 and 9, 1978, the defendants
obtained a loan of P evidenced by a promissory note bearing
PN-No. DVO-78-382, and P 50,000, 30,000, evidenced by a
promissory note bearing PNNo. DVO-78-390. As agreed, the
loan would be payable, jointly and severally, on January 31,
1979 and December 8, 1978, respectively. In addition,
subsequent amendments to the promissory notes as well as
the disclosure statements6 stipulated that the loan would earn
14% interest rate per annum, 2% service charge per annum, 1%
penalty charge per month from due date until fully paid, and
attorney’s fees equivalent to 20% of the outstanding
obligation. Despite repeated demands for payment, the latest
of which were on September 13, 1988 and September 9, 1986,
on Antonio Ang Eng Liong and Tomas Ang, respectively,
respondent Bank claimed that the defendants failed and
refused to settle their obligation, resulting in a total
indebtedness of P 539,638.96 as of July 31, 1990. In his
Answer, Antonio Ang Eng Liong only admitted to have secured
a loan amounting to P 80,000. He pleaded though that the
bank “be ordered to submit a more reasonable computation”
considering that there had been “no correct and reasonable
statement of account” sent to him by the bank, which was
allegedly collecting excessive interest, penalty charges, and
attorney’s fees despite knowledge that his business was
destroyed by fire, hence, he had no source of income for
several years. For his part, petitioner Tomas Ang filed an
Answer with Counterclaim and Cross-claim. He interposed the
affirmative defenses that: the bank is not the real party in
interest as it is not the holder of the promissory notes, much
less a holder for value or a holder in due course; the bank knew
that he did not receive any valuable consideration for affixing
his signatures on the notes but merely lent his name as an
accommodation party; he accepted the promissory notes in
blank, with only the printed provisions and the signature of
Antonio Ang Eng Liong appearing therein.
Issue: Whether or not Petitioner is liable to the obligation
despite being a mere co-maker and accommodation party.
Held: Yes. Notably, Section 29 of the NIL 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, 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 surety – the accommodation party being the
surety. from the beginning; As such, he is deemed an original
promisor and debtor 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 surety’s 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.
In the instant case, petitioner agreed to be “jointly and
severally” liable under the two promissory notes that he co-
signed with Antonio Ang Eng Liong as the principal debtor. This
being so, it is completely immaterial if the bank would opt to
proceed only against petitioner or Antonio Ang Eng Liong or
both of them since the law confers upon the creditor the
prerogative to choose whether to enforce the entire obligation
against any one, some or all of the debtors. Nonetheless,
petitioner, as an accommodation party, may seek
reimbursement from Antonio Ang Eng Liong, being the party
accommodated.
Consequently, in issuing the two promissory notes, petitioner
as accommodating party warranted to the holder in due course
that he would pay the same according to its tenor. value
therefore It is no defense to state on his part that he did not
receive any because the phrase “without receiving value
therefor” used in Sec. 29 of the NIL means “without receiving
value by virtue of the instrument” and not as it is apparently
supposed to mean, “without receiving payment for lending his
name.” Stated differently, when a third person advances the
face value of the note to the accommodated party at the time
of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its
creation. As in the instant case, a sum of money was received
by virtue of the notes, hence, it is immaterial so far as the bank
is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the
use of his name.
Furthermore, since the liability of an accommodation party
remains not only primary but also unconditional to a holder for
value, 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.
“Quickie”
Tomas Ang v. Associated Bank and Antonio Ang Eng
Liong
Facts: • Tomas Ang and Antonio Ang Eng Liong
obtained a loan of P50,000 and P30,000 on October 3 and
9,1978 respectively evidenced by 2 promissory notes and
was agreed that the loan would be payable, jointly and
severally on January 31, 1979 and December 8, 1978
respectively.
• Despite repeated demands for payment, the
defendants failed and refused to settle their obligation.
• Petitioner Tomas Ang contends the bank knew
that he did not receive any valuable consideration for
affixing his signatures on the notes but merely lent his
name as an accommodation party and thus should not be
held liable.
Issue: Whether the bank could proceed against Tomas
Ang for the payment of the loan.
Ruling: Yes. 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.
In the instant case, petitioner agreed to be "jointly and
severally" liable under the two promissory notes that he
co-signed with Antonio Ang Eng Liong as the principal
debtor. This being so, it is completely immaterial if the
bank would opt to proceed only against petitioner or
Antonio Ang Eng Liong or both of them since the law
confers upon the creditor the prerogative to choose
whether to enforce the entire obligation against any one,
some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimbursement from
Antonio Ang Eng Liong, being the party accommodated.
Consequently, in issuing the two promissory notes,
petitioner as accommodating party warranted to the
holder in due course that he would pay the same
according to its tenor. It is no defense to state on his part
that he did not receive any value therefor because the
phrase "without receiving value therefor" used in Sec. 29
of the NIL means "without receiving value by virtue of the
instrument" and not as it is apparently supposed to
mean, "without receiving payment for lending his name."
Furthermore, since the liability of an accommodation
party remains not only primary but also unconditional to
a holder for value, 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.
Ernestina Crisologo-Jose vs. CA and Ricardo S. Santos, JR.
in his own behalf and as VP for Sales Of Mover
Enterprises
GR No. 80599
September 15, 1989.
FACTS:
Mover Enterprises [Corporation]: 1980
Vice President: Ricardo S. Santos
President: Atty. Oscar Z. Benares
April 30, 1980: Atty. Benares, in accommodation of his
clients, spouses Jaime and Clarita Ong, issued Check No.
093553 drawn against Traders Royal Bank, dated June 14,
1980, in the amount of P45,000 payable to Ernestina
Crisologo-Jose. The check was under the account of
Mover Enterprises, Inc., and thus, it was supposed to be
signed by the President and Treasurer. Since the
treasurer was not available, the check was signed by
Ricardo Santos instead, and by Atty. Benares.
The check was replaced by Atty. Benares with another
Traders Royal Bank check bearing No. 379299 dated Aug.
10, 1980, in the same amount of P45,000 also payable to
Crisologo-Jose. The check was also signed by Benares and
Santos.
When it was deposited at Family Savings Bank, Mayon
Branch, the check was dishonored for insufficiency of
funds. A subsequent redepositing of the said check was
likewise dishonored by the bank for the same reason.
Hence, a criminal complaint for violation of BP 22 was
filed against Benares and Santos.
ISSUE:
WON Mover Enterprises can be held liable as an
accommodation party.
HELD/RATIO: No.
The issue or indorsement of negotiable paper by a
corporation without 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 indorsee with
knowledge that the issue or indorsement of the
instrument by the corporation is for accommodation of
another, he cannot recover against the corporation
thereon.
However, an officer or agent of the corporation shall
have the power to execute or indorse a negotiable paper
in the name of a corporation for the accommodation of a
third person only if specifically authorized to do so.
Corporate officers, such as Pres and VP, have no power
to execute for mere accommodation a NI of the
corporation for their individual debts or transactions
arising from or in relation to matters which the
corporation has no legitimate concern. Since it cannot be
enforced against the corporation, the inescapable
conclusion in law and in logic is that the signatories
thereof shall be personally liable therefore, as well as the
consequences arising from their acts in connection
therewith.
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 therefore, 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.
Requisites:
a. A person must be a party to the instrument
signing as maker, drawer, acceptor or indorser
b. Not receive value therefore
c. And sign for the purpose of lending his name for
the credit of some other person.
“Quickie”
CRISOLOGO JOSE V. CA - Accommodation Party
FACTS: The president of Movers Enterprises, to
accommodate its clients Spouses Ong, issued a check
in favor of petitioner Crisologo-Jose. This was in
consideration of a quitclaim by petitioner over a parcel of
land, which the GSIS agreed to sell to spouses Ong,
with the understanding that upon approval of the
compromise agreement, the check will be encashed
accordingly. As the compromise agreement wasn't
approved during the expected period of time, the
aforesaid check was replaced with another one for the
same value. Upon deposit though of the checks by
petitioner, it was dishonored. This prompted the
petitioner to file a case against Atty. Bernares and
Santos for violation of BP22. Meanwhile, during the
preliminary investigation, Santos tried to tender a
cashier’s check for the value of the dishonored check
but petitioner refused to accept such. This was consigned
by Santos with the clerk of court and he instituted
charges against petitioner. The trial court held that
consignation wasn't applicable to the case at bar but was
reversed by the CA.
HELD: Petitioner averred that it is not Santos who is the
accommodation party to the instrument but the
corporation itself. But assuming arguendo that the
corporation is the accommodation party, it cannot be
held liable to the check issued in favor of petitioner.
The rule on accommodation party
doesn't include or apply to corporations which are
accommodation parties. This is because the issue or
indorsement 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 indorsee with the
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.
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 party
only is specifically authorized to do so. Corollarily,
corporate officers have no power to execute for
mere accommodation a negotiable instrument of
the corporation for their individual debts and
transactions arising from or in relation to matters in
which the corporation has no legitimate concern.
Since such accommodation paper cannot be
enforced against the corporation, the signatories
thereof shall be personally liable therefore, as well as the
consequences arising from their acts in connection
therewith.\
Gonzales vs PCIB
Facts:
Gonzales was a client of PCIB. He was granted a
credit line by the bank through a Credit-On-Hand-
Loan Agreement (COHLA). He drew from the credit
line through a check and said credit line was secured
by a collateral in the form of his accounts with PCIB
which was a foreign currency deposit worth USD
8000.
He obtained below loans from PCIB:
1. obtained with his wife – P500K
2. obtained with spouses Panlilio – P1M, P300K
the above loans (total: 1.8M) were covered by 3
promissory notes and were secured by a real estage
mortgage on a land co owned by Gonzales and
spouses Panlilio. the promissory notes states the
solidary liability of Gonzales andspouses Panlilio.
However, it was the spouses Panlilio who received
the proceeds of 1.8M. The monthly interest dues
were paid by the spouses Panlilio through auto debit
from their PCIB account. however, they defaulted in
the payment because their PCIB account had
insufficient deposits.
Gonzales issued a check to Rene Unson worth 250K
drawn against his credit line but said check was
subsequently dishonored due to termination of
gonzales’ credit line because of the unpaid period
interest dues from the loans. PCIB also froze the
foreign currency deposit account of Gonzales.
Issue: W/N Gonzales is liable for the three
promissory notes covering PHP1.8M loan he made
with spouses Panlilio?
Held:
Yes. Gonzales was an accommodation party of the
loan. An accommodation party is one who meets all
the three requisites according to Sec 29 of NIL:
1. he must be a party to the instrument, signing as a
maker, drawer, acceptor, or indorser
2. he must not receive value therefor
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 partyy to obtain credit or raise
money. he receives no part but assumed liability.
the relation between an accommodation party is
one of principal and surety, the AP 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 toruching the obligation of the
latter since their liabilities are interwoven.
Lastly, the solidary nature of the loan was expressly
stated in the promissory notes which state:
“…the undersigned JOINTLY AND SEVERALLY
promise
to pay xx”.
G.R. No. L-34539 July 14, 1986
PRUDENCIO v. COURT OF APPEALS
Plaintiffs: EULALIO PRUDENCIO and ELISA T. PRUDENCIO
Defendant:
• 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 (relative of plaintiffs)
• THE DISTRICT ENGINEER, Puerto Princesa,
Palawan
BACKGROUND:
• Plaintiffs are registered owners of a land in
Sampaloc, Manila.
• October 7, 1954 ^ this property was mortgaged
by the appellants to PNB to guarantee a loan of
P1,000.00 extended to one Domingo Prudencio.
• 1955 ^ Concepcion & Tamayo Construction
Company had a pending project with the Bureau of Public
Works amounting to P36,800, and they needed funds.
o Jose Toribio approached plaintiffs asking them to
mortgage their property to secure the loan of P10,000.00
which the Company was negotiating with the PNB.
• December 23, 1955
o Appellants signed 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
o Jose Toribio also executed the 'Deed of Assignment'
assigning all payments to be made by the Bureau to the
Company on account of the building contract to be made
to PNB.
• December 29, 1955 ^ Appellants also signed the
promissory note indicating that they are requesting PNB
to issue the check constituting the loan to the Company.
• Notwithstanding the assignment of credit
executed in December 23, the Bureau (with approval of
PNB) made three payments (totalling P11,234.40) for
labor and materials TO THE COMPANY.
• June 20, 1956 ^ the Bureau's last request for
payment of P5,000 was denied by PNB for the reason
that 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.
• June 30, 1956 ^ The Bureau rescinded the
contract after the Company abandoned the work.
• November 14, 1958 ^ appellants wrote the PNB
contending that since the PNB authorized payments to
the Company, instead of applying such payments to the
loan as agreed upon, 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.
• Trial Court: Petition denied
o The petitioners were ordered to pay jointly and
severally with their co-makers Ramon C. Concepcion and
Manuel M. Tamayo. 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
• Court of Appeals: affirmed the trial court's
decision in toto.
o As accommodation makers, the petitioners' liability is
that of solidary co-makers. The appellate court further
held that PNB had no obligation whatsoever to notify
the petitioners of its authorizing the three payments 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.
ISSUES TO BE RESOLVED:
1. Whether or not petitioners should be held as
solidary co¬debtors instead of as merely sureties.
2. Whether or not PNB was a holder in due course
RESOLUTIONS AND ARGUMENTS
ISSUE 1 ^ Whether or not petitioners should be held as
solidary co¬debtors instead of as merely sureties ^ YES.
Petitioners are solidary co¬debtors by virtue of being
accommodation makers.
Major Point 1: Accommodation parties gratuitously
guarantee debt of another, and is liable for the whole
value.
• Section 29 of the Negotiable Instrument Law:
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.
• Philippine Bank of Commerce v. Aruego ^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.
• 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.
ISSUE 2 ^ Whether or not PNB was a holder in due course
^ NO. PNB was in bad faith.
Major Point 1: PNB lacked the requisite of good faith
under Section 52
• 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.
• 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.
• PNB 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.
• 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.
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.
FINAL VERDICT: Petitioners are absolved from liability,
and PNB is ordered to release the property from its
mortgage contact.
NO SEPARATE OPINIONS
“Quickie”
Negotiable Instruments Case Digest: Prudencio V. CA
(1986)
Lessons Applicable: Consideration and Accomodation
Party; Holder in Due Course (Negotiable Instruments)
FACTS: Oct 7 1954: Eulalio and Elisa Prudencios,
registered owners of a parcel of land mortgaged to
Philippine National Bank (PNB) to guarantee a loan of
P1,000.00 extended to Domingo Prudencio
1955: Concepcion & Tamayo Construction Company
(Concepcion) had a pending contract with the Bureau of
Public Works (Bureau) for the construction of the
municipal building in Puerto Princess, Palawan
amounting to P36,800.00
In need of funds, Jose Toribio, Concepcions' relative, and
attorney-in-fact of the Company, approached PNB to
mortgage their property to secure the loan of P10,000.00
w/ PNB.
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
Dec 23 1955:
promissory note covering the loan of P10,000.00 dated
Dec 29 1955, maturing on Apr 27 1956, was signed by
Jose Toribio, as attorney-in-fact of the Company, and by
the Prudencios'
Deed of Assignment assigning all payments to be made
by the Bureau to the Co. on account of the contract for
the construction in favor of the PNB.
PNB approved the Bureau's release of 3 payments directly
to Concepcion for material and labor instead of paying
the same to the Bank on account of the contract price
totalling P11,234.40 without the knowledge of the
Prudencios'
PNB did not apply the initial and subsequent payments to
the Prudencios' debt as provided for in the deed of
assignment
Jun 30 1956: Concepcion abandoned their work so Bureau
rescinded the construction contract and assumed the
work of completing
Jun 27 1959: Concepcion filed to cancelled their mortgage
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.
CA affirmed RTC: Denied
no stipulation in the deed making it obligatory on the part
of the PNB to notify the petitioners everytime it
authorizes payment to the Company
Prudencios' 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.
ISSUE: W/N the Prudencios' as accomodating party are
liable as solidary debtors so real estate mortgage
executed by them CANNOT be cancelled
W/N PNB was a holder in due course
HELD: Petition is Granted. CA reversed.
1. YES , Section 29 of the Negotiable Instrument Law
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.
Philippine Bank of Commerce v. Aruego: liability of the
accommodation party remains not only primary but also
unconditional to a holder for value
remedy is a matter of concern exclusively between
accommodation indorser and accommodated party
2. NO , 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
holder in due course - payee either acquired the note
from another holder or has not directly dealt with the
maker thereof
PNB, in effect, waived payments of the first three releases
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
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.
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.
PNB V. MAZA AND MECENAS
48 PHIL 207
FACTS:
Maza and Macenas executed a total of five promissory
notes. These were not paid at maturity. And to recover
the amounts stated on the face of the promissory notes,
PNB initiated an action against the two. The special
defense posed by the two is that the promissory
notes were delivered to
them in blank by a certain Enchaus and were made
to sign the notes so that the latter could secure a loan
from the bank. They also alleged that they never
negotiated the notes with the bank nor have they
received any value thereof. They also prayed that
Enchaus be impleaded in the
complaint but such was denied. The trial court then
held in favor of the bank.
HELD:
The defendants attested to the genuineness of the
instruments sued on. Neither did they point out any
mistake in regard to the amount and interest that
the lower court sentenced them to pay. Given such,
the defendants are liable. They appear as the makers of
the promissory notes
and as such, they must keep their engagement and pay
as promised.
And assuming that they are accommodation parties, the
defendants having signed the instruments without
receiving value thereof, for the purpose of lending their
names to some other person, are still liable for the
promissory notes. The law now is such that an
accommodation party cannot claim no benefit as such,
but he is liable according to the face of his
undertaking, the same as he himself financially interest in
the transaction. It is also no defense to say that they
didn't receive the value of the notes. To fasten
liability however to an accommodation maker, it is not
necessary that any consideration should move to him.
The accommodation which supports the promise of the
accommodation maker is that parted with by the
person taking the note and received by the person
accommodated.
“Quickie”
Philippine National Bank v. Maza and Mecenas [G.R.
No. L-24224. November 3, 1925]
FACTS Appellants claim that they executed a promissory
note sent to them in blank by a certain Enrique Echaus,
which they neither did negotiate nor have received the
value thereof.
ISSUe Whether or not appellants are liable as
accommodation parties.
RULING YES. 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
Caneda Jr. V. CA (1990)
G.R. No. 81322 February 5, 1990
Lessons Applicable: Consideration and Accommodation
Party (Negotiable Instruments Law)
FACTS:
November 8, 1977: Buenaventura Gueson for value
received, executed a promissory note for P18,960 in
favor of Gregorio Caneda, Jr. promising to pay a monthly
installment of P 790 for 24 months with 14%
interest/annum
Gueson executed a chattel mortgage and used a Toyota
Jiffy jeep as a collateral
expressly stipulated in the promissory note and chattel
mortgage that default in the payment of any installment
will make the entire obligation due and demandable
promissory note and chattel mortgage was assigned by
Gregorio Caneda in favor of Investors Finance
Corporation (FNCB).
September 24, 1980: Gueson defaulted in his obligation
December, 1980: FNCB filed a complaint for replevin
and/or sum of money against Gueson and John Doe. As
relief, FNCB prayed for the seizure of the Toyota Jiffy
jeep. In the alternative FNCB also prayed for the payment
Gueson: he did not receive any value for the promissory
note he executed as he merely accommodated the real
debtor Gregorio Caneda, Jr.; that as the accommodated
party Caneda, Jr. executed a deed of sale in Gueson's
favor covering the Jiffy jeep subject matter of the chattel
mortgage and he also executed a counter deed of sale in
favor of Caneda, Jr.; that with the consent of FNCB,
Caneda Jr. executed an "undertaking" whereby he bound
himself to pay and assume the obligation stipulated in
the promissory note and chattel mortgage; that FNCB is
not a holder in due course of the promissory note nor an
assignee in good faith
Trial Court:
Gueson was merely an accommodation party for the
benefit of Caneda, Jr.
"With recourse to Buenaventura Gueson in case of
default" found in the undertaking was inserted only after
Caneda and FNCB had already signed the undertaking
and without the knowledge of B. Gueson and that
Caneda was in bad faith
ISSUES:
W/N notice was duly served in Caneda Jr.'s office
W/N Caneda Jr. can be held liable even if Gueson is an
accommodation party (surety)
HELD:
1. YES
Received by Boy Reyes (neighbor)
The statutory requirements of substituted service must
be followed strictly, faithfully and fully and any
substituted service other than that authorized by statute
is considered ineffective (Filmerco Commercial Co., Inc. v.
IAC, 149 SCRA 194-196 [1987]).
Well-settled is the rule that remanding of a case for the
reception of evidence is not necessary if the Supreme
Court could resolve the dispute based on the records
before it
procedural steps can be dispensed with, which would not
anyway affect substantially the merits of their respective
claims
2. YES
No novation
CaNeda became a surety as accommodation party
In resume, FNCB can go against both Caneda, the
principal debtor and Gueson as the surety or either of
them
But the lower court erred in dismissing the claim against
Gueson
By not appealing the decision of the lower court, FNCB
merely opted to recover its credit from Caneda and
waived its right to recover from Gueson
"with recourse to Buenaventura Gueson in case of
default" is immaterial insofar as the liability of Caneda is
concerned
merely confirms the fact that Gueson is merely an
accommodation party and will not absolve Caneda, the
principal debtor, from payment of the indebtedness with
FNCB.
CANEDA V. CA- Accommodation Party
181 SCRA 762
FACTS:
Gueson for value received, executed a promissory note in
favor of Caneda, promising to pay monthly installments
with interest per annum. That to secure the
obligation, he executed a chattel mortgage and used a
Toyota Jiffy jeep as collateral; that it is expressly
provided for in the promissory note that in case of
default in any installment would deem that whole
obligation demandable. This promissory note was later
assigned to FNCB. Gueson then defaulted in his
obligation and had an outstanding balance. Despite
demands on Gueson, he failed and refused to pay. This
prompted FNCB to file an action for replevin and sum
of money, and in the alternative, prayed for the
payment of the outstanding balance plus interest.
Gueson in his answer alleged that he was just an
accommodation party in favor of Caneda. This was
denied by Caneda.
The trial court held that Gueson was indeed an
accommodation party in favor of Caneda; that there was
a novation in the form of substitution of debtors when
Caneda executed the undertaking assuming the
liability of Gueson in favor of FNCB; that the phrase “with
recourse to Gueson in case of default” found in the
undertaking was inserted only after Caneda and FNCB
had already signed the undertaking and without the
knowledge of Gueson and that Caneda was in bad faith
when it tried to evade payment of a justly-secured legal
obligation.
HELD:
As to the merits of the case, it is undisputed that
Gueson executed a promissory note in favor of
Caneda, secured by a chattel mortgage on a Toyota
Jiffy jeep as collateral; which promissory note and chattel
mortgage was assigned by Caneda in favor of FNCB
evidently to secure his obligation with said company,
with the knowledge and consent of Gueson. The
records also clearly established that FNCB tried to
collect from Gueson, Caneda consented and affixed his
signature in an undertaking thereby acknowledging
indebtedness in favor of FNCB.
As between Gueson and Caneda, it is obvious that
whether private agreement between them is binding on
them alone and not on FNCB whose only concern in the
whole transaction is the repayment of the loan it has
extended.
As regards FNCB, Caneda is the real debtor of the
company and Gueson is only an accommodation party
of Caneda. The trial court held that there was
novation as there was substitution of debtors when
Caneda executed the undertaking. But the CA is
correct, by saying that there was no
novation. Novation is never presumed. It must be
explicitly stated. Caneda merely confirmed that he
was the real debtor of FNCB in the undertaking
signed, while Gueson merely accommodated Caneda in
signing the promissory note and executing the chattel
mortgage. Thus, it has been
ruled that one who signs as maker, drawer, acceptor or
indorser, without receiving value therefore, and for the
purpose of lending his name to some other person is
liable to the instrument to a holder for value,
notwithstanding the fact that such holder at the time
of the taking the instrument knew him to be only an
accommodation party. Nonetheless, after paying the
holder, he is entitled to obtain reimbursement from
the party accommodated.
Likewise, it is no defense to state that Caneda and
Gueson didn't receive any value for the promissory
note executed, both claiming to be accommodation
parties. A third person advances the face value of
the note to the accommodated party at the time of
the creation of the note,
the consideration for the note as regards the maker is the
money advanced to the accommodated party, and it
cannot be said that the note is lacking in consideration
as to the accommodating party just becaue he
himself received some of the money. It is enough that the
value given for the note
at the time of its creation.
Montinola v. PNB (1951)
Concept: Effect of Negligence of Drawer
Instrument: Check
Parties:
Maker: Ubaldo Laya
Drawer: Ubaldo Laya
Drawee: PNB
Payee: Mariano Ramos
Indorser: Ramos
Indorsee: Enrique Montinola
FACTS:
Laya was the Provincial Treasurer of Misamis and an ex
officio agent of PNB. In his capacity as treasurer, he
issued for USAFFE Php400,000 in emergency notes and a
PNB check for P100,000. The check was payable to
Ramos, an assistant agent. Ramos later indorsed the
check to Montinola before having been incarcerated as a
prisoner of war. Montinola claims that this was because
at that time, Ramos needed foodstuffs and medicine.
Ramos claims that it was only up to the value of
Php30,000. PNB came into the picture as the photostatic
copy had the words, “Agent, Phil. National Bank” under
Laya’s signature. Montinola sued PNB for the value of the
check, 2 and a half years overdue.
ISSUE: WON PNB is liable to Montinola? NO
Reasons why the complaint of Montinola cannot prosper:
1. The insertion of the words "Agent, Phil. National
Bank" which converts the bank from a mere drawee to a
drawer and therefore changes its liability, constitutes a
material alteration of the instrument without the consent
of the parties liable thereon, and so discharges the
instrument.
2. The check was not legally negotiated within the
meaning of the Negotiable Instruments Law. Section 32
of the same law provides that "the indorsement must be
an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a
part only of the amount payable, . . . (as in this case) does
not operate as a negotiation of the instrument."
Montinola may therefore not be regarded as an indorsee.
At most he may be regarded as a mere assignee.
3. Neither can Montinola be considered as a holder
in due course because section 52 of said law defines a
holder in due course as a holder who has taken the
instrument under certain conditions, one of which is that
he became the holder before it was overdue. When
Montinola received the check, it was long overdue.
4. And, Montinola is not even a holder because
section 191 of the same law defines holder as the payee
or indorsee of a bill or note and Montinola is not a payee.
Neither is he an indorsee for as already stated, at most
he can be considered only as assignee. Neither could it be
said that he took it in good faith. As already stated, he
has not paid the full amount of P90,000 for which Ramos
sold him P30,000 of the value of the check.
5. Also, he should have known that a check for such
a large amount of P100,000 could not have been issued
to Ramos in his private capacity but rather in his capacity
as disbursing officer of the USAFFE, and that at the time
that Ramos sold a part of the check to him, Ramos was
no longer connected with the USAFFE but already a
civilian who needed the money only for himself and his
family.
DISPOSITIVE: PNB may not be held liable through its
agent, Laya. When the latter drew the check, he did so
as provincial treasurer and not as PNB’s agent. The
addition of these words is a material alteration, and
since it was made without the assent of Laya and
PNB, the instrument is avoided.
MONTINOLA V. PNB
88 PHIL 178
FACTS:
Ramos, as a disbursing officer of an army division of the
USAFE, made cash advancements w/ the Provincial
Treasurer of Lanao. In exchange, the Prov’l Treasurer
of Lanao gave him a P500,000 check. Thereafter, Ramos
presented the check to Laya for encashment. Laya in
his capacity as Provincial Treasurer of Misamis
Oriental as drawer, issued a check to Ramos in the
sum of P100000, on the Philippines National Bank as
drawee; the P400000 value of the check was paid in
military notes.
Ramos was unable to encash the said check for he
was captured by the Japanese. But after his release, he
sold P30000 of the check to Montinola for P90000
Japanese Military notes, of which only P45000 was paid
by the latter. The writing made by Ramos at the back
of the check was to the effect that he was assigning
only P30000 of the value of the document with an
instruction to the bank to pay P30000 to Montinola and
to deposit the balance to Ramos's credit. This writing
was, however, mysteriously obliterated and in its place,
a supposed indorsement appearing on the back of the
check was made for the whole amount of the check. At
the time of the transfer of this check to Montinola,
the check was long overdue by about 2-1/2 years.
Montinola instituted an action against the PNB and the
Provincial Treasurer of Misamis Oriental to collect the
sum of P100,000, the amount of the aforesaid check.
There now appears on the face of said check the words in
parenthesis "Agent, Phil. National Bank" under the
signature of Laya purportedly showing that Laya issued
the check as agent of the Philippine National Bank.
HELD:
The words "Agent, Phil. National Bank" now appearing on
the face of the check were added or placed in the
instrument after it was issued by the Provincial
Treasurer Laya to Ramos. The check was issued by
only as Provincial Treasurer and as an official of the
Government, which was under obligation to provide the
USAFE with advance funds, and not as agent of the
bank, which had no such obligation. The addition of
those words was made after the check had been
transferred by Ramos to Montinola. The insertion of
the words "Agent, Phil. National Bank," which
converts the bank from a mere drawee to a drawer and
therefore changes its liability, constitutes a material
alteration of the instrument without the consent of
the parties liable thereon, and so discharges the
instrument
Case: THE CAPITAL INSURANCE & SURETY CO., INC vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS
Digested by: marccarillo
Facts: On Dec. 7, 1960, Capital Insurance & Surety Co.,
Inc (Capital Insurance) delivered to Plastic Era
Manufacturing Co., Inc (Plastic Era) its Open Fire Policy
No.22760 wherein the former undertook to insure the
latter’s building, equipments, raw materials, products
and accessories located at Sheridan Street,
Mandaluyong, Rizal. The policy expressly provides that if
the property insured would be destroyed or damaged by
fire after the payment of the premiums, at anytime
between the Dec. 15 1960 and one o'clock in the
afternoon of the Dec. 15, 1961, the insurance company
shall make good all such loss or damage in an amount not
exceeding P100k. Plastic Era failed to pay its premium
and instead executed an acknowledgment receipt
promising to pay 30 days after date.
On Jan.8,1961, Plastic Era delivered a check as partial
payment of the insurance premium worth 1k. However, it
was dishonored by the Bank of America for lack of funds
on Feb.20, 1961. Records revealed that Plastic Era had a
balance of P1,193.41 as early as Jan.19, 1961. (Note:
premium due date was on Jan.16,1961)
Not unexpectedly, the property insured by Plastic Era
was destroyed by fire on Jan.18, 1961 (that’s 2 days after
the premium became due). Plastic Era filed a claim for
indemnity. Capital Insurance wanted to become part of
Philippine Jurisprudence so it denied the claim on the
ground that the premium was not paid.
Pissed, Plastic Era then filed a case in the lower court
which renderred judgment in its favor. The appelate
court affirmed it and so the issue is brought before the
SC.
Issue: W/N a contract of insurance has been duly
perfected between the petitioner, Capital Insurance, and
respondent Plastic Era.
Ruling: Yup, it has been perfected.
The Insurnace Policy states that: “THE COMPANY HEREBY
AGREES with the Insured but subject to the terms and
conditions endorsed or otherwise expressed hereon,
which are to be taken as part of this Policy), that if the
Property described, or any part thereof, shall be
destroyed or damaged by Fire or Lightning after payment
of the Premiums, at anytime between...xxx”
In clear and unequivocal terms the insurance policy
provides that it is only upon payment of the premiums by
Plastic Era that Capital Insurance agrees to insure the
properties of the former against loss or damage in an
amount not exceeding P100,000.00. It appears on record
that on the day the insurance policy was delivered,
Plastic Era did not pay the Capital Insurance, but instead
executed an acknowledgment receipt.
Q:Could not this have been considered a valid payment
of the insurance premium?
Article 1249 NCC:
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they
have been impaired.
Under this provision the mere delivery of a bill of
exchange in payment of a debt does not immediately
effect payment. It simply suspends the action arising
from the original obligation in satisfaction of which it was
delivered, until payment is accomplished either actually
or presumptively. But wait...

Acceptance by Capital Insurance considered as waiver
Significantly, in the case before Us the Capital Insurance
accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date
of policy. By so doing, it has implicitly agreed to modify
the tenor of the insurance policy and in effect, waived
the provision therein that it would only pay for the loss
or damage in case the same occurs after the payment of
the premium. Considering that the insurance policy is
silent as to the mode of payment, Capital Insurance is
deemed to have accepted the promissory note in
payment of the premium.
Citing a US Case, our Supreme Court sad that “that
although one of conditions of an insurance policy is that
"it shall not be valid or binding until the first premium is
paid", if it is silent as to the mode of payment,
promissory notes received by the company must be
deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment
of the first or initial premium in advance or actual cash
may be waived by acceptance of a promissory note ...”
The fact that the check issued by Plastic Era in partial
payment of the promissory note was later on dishonored
did not in any way operate as a forfeiture of its rights
under the policy, there being no express stipulation
therein to that effect.
This is how the story ends. :D
Insurance Case Digest: Capital Insurance & Surety Co.
Inc. V. Plastic Era Co. Inc (1975)
G.R.No. L-22375 July 18, 1975
Lessons Applicable: Estoppel and credit extension
(Insurance)
Laws Applicable: Article 1249 of the New Civil Code
FACTS:
December 17, 1960: Capital Insurance & Surety Co., Inc.
delivered to the respondent Plastic Era Manufacturing
Co., Inc. its open Fire Policy insuring its building,
equipments, raw materials, products and accessories
located at Sheridan Street, Mandaluyong, Rizal between
December 15, 1960 1 pm - December 15, 1961 1 pm up to
P100,000 but Plastic Era did not pay the premium
January 8, 1961: Plastic Era delivered to Capital Insurance
its partial payment through check P1,000 postdated
January 16, 1961
February 20, 1961: Capital Insurance tried to deposit the
check but it was dishonored due to lack of funds.
According to the records, on January 19, 1961 Plastic Era
has had a bank balance of P1,193.41
January 18, 1961: Plastic Era's properties were destroyed
by fire amounting to a loss of P283,875. The property
was also insured to Philamgen Insurance Company for
P200K.
Capital Insurance refused Plastic Era's claim for failing to
pay the insurance premium
CFI: favored Capital Insurance
CA: affirmed
ISSUE: W/N there was a valid insurance contract because
there was an extention of credit despite failing to encash
the check payment
HELD: YES. Affirmed
Article 1249 of the New Civil Code
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been
impaired
Capital Insurance accepted the promise of Plastic Era to
pay the insurance premium within 30 days from the
effective date of policy. Considering that the insurance
policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory
note in payment of the premium. This rendered the policy
immediately operative on the date it was delivered.
By accepting its promise to pay the insurance premium
within thirty (30) days from the effectivity date of the
policy — December 17, 1960 Capital Insurance had in
effect extended credit to Plastic Era.
Where credit is given by an insurance company for the
payment of the premium it has no right to cancel the
policy for nonpayment except by putting the insured in
default and giving him personal notice
Having held the check for such an unreasonable period of
time, Capital Insurance was estopped from claiming a
forfeiture of its policy for non-payment even if the check
had been dishonored later.