Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,

vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President
for Sales of Mover Enterprises, Inc., respondents.

Melquiades P. de Leon for petitioner.

Rogelio A. Ajes for private respondent.

REGALADO, J.:

Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on
September 8, 1987, which reversed the decision of the trial Court 2 dismissing the complaint for
consignation filed by therein plaintiff Ricardo S. Santos, Jr.

The parties are substantially agreed on the following facts as found by both lower courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises,
Inc. in-charge of marketing and sales; and the president of the said corporation was
Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against
Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that
time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate
story. Plaintiff Ricardo S. Santos, Jr. did sign the check.

It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose
in consideration of the waiver or quitclaim by said defendant over a certain property
which the Government Service Insurance System (GSIS) agreed to sell to the clients
of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding
that upon approval by the GSIS of the compromise agreement with the spouses Ong,
the check will be encashed accordingly. However, since the compromise agreement
was not approved within the expected period of time, the aforesaid check for
P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal
Bank cheek bearing No. 379299 dated August 10, 1980, in the same amount of
P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement
check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.
 Santos, Jr. When defendant deposited this replacement check (Exhs. 'A' and '2') with
her account at Family Savings Bank, Mayon Branch, it was dishonored for
insufficiency of funds. A subsequent redepositing of the said check was likewise
dishonored by the bank for the same reason. Hence, defendant through counsel was
constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with
the Quezon City Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo
S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly
filed an amended information with the court charging both Oscar Benares and
Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal
Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against

Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas,
plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's
check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said
amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E').
Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z.
Benares and given to the plaintiff herein to be applied in payment of the dishonored
check. 3

After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to
in Article 1256 of the Civil Code is applicable to this case," rendered judgment dismissing plaintiff s
complaint and defendant's counterclaim. 4

As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived
the complaint for consignation, directing the trial court to give due course thereto.

Hence, the instant petition, the assignment of errors wherein are prefatorily stated and
discussed seriatim.

1. Petitioner contends that respondent Court of Appeals erred in holding that private
respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law
and a debtor of petitioner to the extent of the amount of said check.

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private
respondent who merely signed the check in question in a representative capacity, that is, as vice-
president of said corporation, hence he is not liable thereon under the Negotiable Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party an accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a party to the
instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3)
sign for the purpose of lending his name for the credit of some other person.

Based on the foregoing requisites, it is not a valid defense that the accommodation party did not
receive any valuable consideration when he executed the instrument. From the standpoint of
contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not
received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a
holder for value as if the contract was not for accommodation 5 in whatever capacity such
accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held
that in lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. 6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as
petitioner suggests, the inevitable question is whether or not it may be held liable on the
accommodation instrument, that is, the check issued in favor of herein petitioner.

We hold in the negative.

The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party
liable on the instrument to a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, does not include nor apply to corporations
which are accommodation parties. 7 This is because the issue or indorsement of negotiable paper by
a corporation without consideration and for the accommodation of another is ultra vires. 8 Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the form of the instrument, or the
nature of the transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of another, he cannot
recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse
a negotiable paper in the name of the corporation for the accommodation of a third person only if
specifically authorized to do so. 10 Corollarily, corporate officers, such as the president and vice-
president, have no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in any aspect of the corporate business or
operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be
personally liable therefor, as well as the consequences arising from their acts in connection
therewith.

The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge
petitioner in her aforesaid postulation, then she is effectively barred from recovering from Mover
Enterprises, Inc. the value of the check. Be that as it may, petitioner is not without recourse.

The fact that for lack of capacity the corporation is not bound by an accommodation paper does not
thereby absolve, but should render personally liable, the signatories of said instrument where the
facts show that the accommodation involved was for their personal account, undertaking or purpose
and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was
issued at the instance and for the personal account of Atty. Benares who merely prevailed upon
respondent Santos to act as co-signatory in accordance with the arrangement of the corporation with
its depository bank. That it was a personal undertaking of said corporate officers was apparent to
petitioner by reason of her personal involvement in the financial arrangement and the fact that, while
it was the corporation's check which was issued to her for the amount involved, she actually had no
transaction directly with said corporation.

There should be no legal obstacle, therefore, to petitioner's claims being directed personally against
Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr., president and vice-president,
respectively, of Mover Enterprises, Inc.

2. On her second assignment of error, petitioner argues that the Court of Appeals
erred in holding that the consignation of the sum of P45,000.00, made by private
respondent after his tender of payment was refused by petitioner, was proper under
Article 1256 of the Civil Code.

Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence
consignation is not proper. Concomitantly, this argument was premised on the assumption that
private respondent Santos is not an accommodation party.

As previously discussed, however, respondent Santos is an accommodation party and is, therefore,
liable for the value of the check. The fact that he was only a co-signatory does not detract from his
personal liability. A co-maker or co-drawer under the circumstances in this case is as much an
accommodation party as the other co-signatory or, for that matter, as a lone signatory in an
accommodation instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra,
he is in effect a co-surety for the accommodated party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the
check, there was created a debtor-creditor relationship, as between Atty. Benares and respondent
Santos, on the one hand, and petitioner, on the other. This circumstance enables respondent Santos
to resort to an action of consignation where his tender of payment had been refused by petitioner.

We interpose the caveat, however, that by holding that the remedy of consignation is proper under
the given circumstances, we do not thereby rule that all the operative facts for consignation which
would produce the effect of payment are present in this case. Those are factual issues that are not
clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain
in Civil Case No. Q-33160, for which reason it has advisedly been directed by respondent court to
give due course to the complaint for consignation, and which would be subject to such issues or
claims as may be raised by defendant and the counterclaim filed therein which is hereby ordered
similarly revived.

3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the
Regional Trial Court of Quezon City filed against private respondent for violation of
Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is the
final plaint of petitioner.

We sustain petitioner on this score.

Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV.
No. 05464. In its own decision therein, it declared that "(t)he lone issue dwells in the question of
whether an accommodation party can validly consign the amount of the debt due with the court after
his tender of payment was refused by the creditor." Yet, from the commercial and civil law aspects
determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867,
thus:

Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such

insufficiency of funds or credit. Thus, the making, drawing and issuance of a check,
payment of which is refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of insufficiency of funds or
credit, when the check is presented within 90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22 provides that the element of
knowledge of insufficiency of funds or credit is not present and, therefore, the crime
does not exist, when the drawer pays the holder the amount due or makes
arrangements for payment in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been paid by the drawee.

Based on the foregoing consideration, this Court finds that the plaintiff-appellant
acted within Ms legal rights when he consigned the amount of P45,000.00 on August
14, 1981, between August 7, 1981, the date when plaintiff-appellant receive (sic) the
notice of non-payment, and August 14, 1981, the date when the debt due was
deposited with the Clerk of Court (a Saturday and a Sunday which are not banking
days) intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal
liability has yet attached to plaintiff-appellant when he deposited the amount of
P45,000.00 with the Court a quo on August 14, 1981. 11

That said observations made in the civil case at bar and the intrusion into the merits of the criminal
case pending in another court are improper do not have to be belabored. In the latter case, the
criminal trial court has to grapple with such factual issues as, for instance, whether or not the period
of five banking days had expired, in the process determining whether notice of dishonor should be
reckoned from any prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual preliminary
investigation; and whether there was a justification for not making the requisite arrangements for
payment in full of such check by the drawee bank within the said period. These are matters alien to
the present controversy on tender and consignation of payment, where no such period and its legal
effects are involved.

These are aside from the considerations that the disputed period involved in the criminal case is only
a presumptive rule, juris tantum at that, to determine whether or not there was knowledge of
insufficiency of funds in or credit with the drawee bank; that payment of civil liability is not a mode for
extinguishment of criminal liability; and that the requisite quantum of evidence in the two types of
cases are not the same.

To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-
14867, the resolution of which should not be interfered with by respondent Court of Appeals at the
present posture of said case, much less preempted by the inappropriate and unnecessary holdings
in the aforequoted portion of the decision of said respondent court. Consequently, we modify the
decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring without force
and effect its pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and
the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals
is AFFIRMED.
SO ORDERED.

Paras, Padilla and Sarmiento, JJ., concur.

Melencio-Herrera J., took no part.

Footnotes

1 Penned by Justice Justo P. Torres, Jr. and concurred in by Associate Justices

Leonor Ines Luciano and Oscar M. Herrera; Rollo, 18.

2 Civil Case No. Q-33160, Regional Trial Court of Quezon City, Branch XCVI.

3 Rollo, 19-20.

4 Rollo, 18.

5 Ang Tiong vs. Ting, et al., 22 SCRA 713 (1968).

6 Philipine Bank of Commerce vs. Aruego, 102 SCRA 530 (1981).

7 11 C.J.S. 309.

8 14A C.J. 732.

9 Oppenheim vs. Simon Reigel Cigar Co., 90 N.Y.S. 355, cited in 11 C.J.S. 309.

10 In re Wrentham Mfg. Co., 2 Low. 119; Hall vs. Auburn Turnp. Co., 27 Cal. 255,
cited in 14A C.J. 461.

11 Rollo, 21-22.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17845 April 27, 1967

INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner,

vs.
FRANCISCO SEVILLA, respondent.

Belen Law Offices for petitioner.

Poblador, Cruz & Nazareno for respondent.

SANCHEZ, J.:

On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and
severally, in favor of the Bank of the Philippine Islands, or its order, a promissory note for
P15,000.00 with interest at 8% per annum, payable on demand. The entire, amount of P15,000.00,
proceeds of the promissory note, was received from the bank by Oscar Varona alone. Victor Sevilla
and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona.
Payments were made on account. As of June 15, 1950, the outstanding balance stood P4,850.00.
No payment thereafter made.

On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with
interest, totalled P5,416.12. Varona failed to reimburse Sadaya despite repeated demands.

Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal,
Special Proceeding No. 1518. Francisco Sevilla was named administrator.

In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus
attorneys fees in the sum of P1,500.00. The administrator resisted the claim upon the averment that
the deceased Victor Sevilla "did not receive any amount as consideration for the promissory note,"
but signed it only "as surety for Oscar Varona".

On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount
of P5,746.12, and directing the administrator to pay the same from any available funds belonging to
the estate of the deceased Victor Sevilla.

The motion to reconsider having been overruled, the administrator appealed.1 The Court of Appeals,
in a decision promulgated on July, 15, 1960, voted to set aside the order appealed from and to
disapprove and disallow "appellee's claim of P5,746.12 against the intestate estate."

The case is now before this Court on certiorari to review the judgment of the Court of Appeals.

Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the
amount of 50% of P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor
Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the
15,000.00-peso promissory note in favor of the Bank of the Philippine Islands, need not be essayed.
As such accommodation the makers, the individual obligation of each of them to the bank is no
different from, and no greater and no less than, that contract by Oscar Varona. For, while these two
did not receive value on the promissory note, they executed the same with, and for the purpose of
lending their names to, Oscar Varona. Their liability to the bank upon the explicit terms of the
promissory note is joint and several.2 Better yet, the bank could have pursued its right to collect the
unpaid balance against either Sevilla or Sadaya. And the fact is that one of the last two, Simeon
Sadaya, paid that balance.

2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount
paid from Oscar Varona. This is but right and just. Varona received full value of the promissory
note.3 Sadaya received nothing therefrom. He paid the bank because he was a joint and several
obligor. The least that can be said is that, as between Varona and Sadaya, there is an implied
contract of indemnity. And Varona is bound by the obligation to reimburse Sadaya.4

3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the
relations inter se amongst the three consigners of the promissory note. Their relations vis-a-vis the
Bank, we repeat, is that of joint and several obligors. But can the same thing be said about the
relations of the three consigners, in respect to each other?

Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can
not be joint and several. For, indeed, had payment been made by Oscar Varona, instead of Simeon
Sadaya, Varona could not have had reason to seek reimbursement from either Sevilla or Sadaya, or
both. After all, the proceeds of the loan went to Varona and the other two received nothing
therefrom.

4. On principle, a solidary accommodation maker who made payment has the right to
contribution, from his co-accommodation maker, in the absence of agreement to the contrary
between them, and subject to conditions imposed by law. This right springs from an implied promise
between the accommodation makers to share equally the burdens that may ensue from their having
consented to stamp their signatures on the promissory note.5 For having lent their signatures to the
principal debtor, they clearly placed themselves in so far as payment made by one may create
liability on the other in the category of mere joint grantors of the former.6 This is as it should be.
Not one of them benefited by the promissory note. They stand on the same footing. In misfortune,
their burdens should be equally spread.

Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is substantially reproduced
in Article 20738of our Civil Code, on this point stated:

Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto
juridico, se han extremado sus consecuencias hasta el punto de que estas son contrarias,
no solo a la logica, sino tambien a la equidad, que debe ser el alma del Derecho, como ha
dicho Laurent.

Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar una
misma deuda no crea ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores,
sino que trae, por el contrario, su origen de una acto posterior, cual es el pago de toda la
deuda realizado por uno de ellos, y la equdad, no permite que los denias fiadores, que
igualmente estaban estaban obligos a dicho pago, se aprovenchen de ese acto en perjuico
del que lo realozo.
 Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es
consecuencia del beneficio o del derecho de division, como tenemos ya dicho. En efecto,
por virtud de esta todos los cofiadores vienen obligados a contribuir al pago de parte que a
cada uno corresponde. De ese obligacion, contraida por todos ellos, se libran los que no han
pagado por consecuencia del acto realizado por el que pago, y si bien este no hizo mas
que cumplir el deber que el contracto de fianza le imponia de responder de todo el debito
cuando no limito su obligacion a parte alguna del mismo, dicho acto redunda en beneficio de
los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo
compromiso con el acreedor.9

5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-
accommodation maker.

By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be
supplied by the provisions of this Code". Nothing extant in the Negotiable Instruments Law would
define the right of one accommodation maker to seek reimbursement from another. Perforce, we
must go to the Civil Code.1wph1.t

Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes
within the ambit of Article 2073 of the Civil Code which reads:

ART. 2073. When there are two or more guarantors of the same debtor and for the same
debt, the one among them who has paid may demand of each of the others the share which
is proportionally owing from him.

If any of the guarantors should be insolvent, his share shall be borne by the others, including
the payer, in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made in
virtue of a judicial demand or unless the principal debtor is insolvent.10

As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has
paid the debt to the creditor and is seeking contribution from his cosureties."11

Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason.
Says Manresa:12

c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la

corresponsabilidad de los cofiadores.

La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que
deben concurrir para que pueda tener lugar lo dispuesto en el mismo. Ese derecho que
concede al fiador para reintegrarse directamente de los fiadores de lo que pago por ellos en
vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado por la ley solo ell
dos casos determinados, cuya justificacion resulta evidenciada desde luego; y esa limitacion
este debidamente aconsejada por una razon de prudencia que no puede desconocerse, cual
es la de evitar que por la mera voluntad de uno de los cofiadores pueda hacerse surgir la
accion de reintegro contra los demas en prejuicio de los mismos.

El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo
en primer termino el fiador que paga por el deudor el derecho de indemnizacion contra este,
 sancionado por el art. 1,838, es de todo punto indudable que ejercitando esta accion pueden
quedar libres de toda responsabilidad los demas cofiadores si, a consecuencia de ella,
indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. Por el
contrario de prescindir de dicho derecho el fiador, reclamando de los confiadores en primer
lugar el oportuno reintegro, estos en tendrian mas remedio que satisfacer sus ductares
respectivas, repitiendo despues por ellas contra el deudor con la imposicion de las molestias
y gastos consiguientes.

No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro
de dichos derechos, el de indemnizacion por el deudor y el del reintegro por los cofiadores,
indudablemente optaria siempre y en todo caso por el segundo, puesto que mucha mas
garantias de solvencia y mucha mas seguridad del cobro ha de encontrar en los fiadores
que en el deudor; y en la practica quedaria reducido el primero a la indemnizacion por el
deudor a los confiadores que hubieran hecho el reintegro, obligando a estos, sin excepcion
alguna, a soportar siempre los gastos y las molestias que anteriormente homos indicado.
Y para evitar estos perjuicios, la ley no ha podido menos de reducir el ejercicio de ese
derecho a los casos en que absolutamente sea indispensable.13

6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of
a negotiable promissory note may demand from the principal debtor reimbursement for the amount
that he paid to the payee; and (2) a joint and several accommodation maker who pays on the said
promissory note may directly demand reimbursement from his co-accommodation maker without first
directing his action against the principal debtor provided that (a) he made the payment by virtue of a
judicial demand, or (b) a principal debtor is insolvent.

The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without
any judicial demand," and that "there is an absolute absence of evidence showing that Varona is
insolvent". This combination of fact and lack of fact epitomizes the fatal distance between payment
by Sadaya and Sadaya's right to demand of Sevilla "the share which is proportionately owing from
him."

For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No
costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Castro, JJ.,
concur.

Footnotes

1CA-G.R. No. 22246-R, "Intestate Estate of the deceased Victor Francisco Sevilla,
administrator-appellant, vs. Simeon Sadaya, claimant-appellee".

2Section 29, Negotiable Instruments Law; Acua vs. Veloso and Xavier, 50 Phil. 241, 252:
Philippine Trust Company vs. Antigua Botica Ramirez, et al., 56 Phil. 562, 565-566, 571. See
also; Article 1216, Civil Code.

3Philippine National Bank vs. Masa, et al., 48 Phil. 207, 211; Acua vs. Veloso and Xavier,
supra; Daniel on Negotiable Instruments, 1933 ed., Vol. 3, p. 1598.

4Tolentino, Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I,

p. 255, citing Blanchard vs. Blanchard, 201 N.Y. 134, 94 NE 630.
5 Daniel on Negotiable Instruments, id., p. 1597.

6Daniel on Negotiable Instruments, id., p. 1595; and Footnote 65 ...: "The liability of
cosureties to each other for contribution is not joint [joint and several] but several", citing
Vansant vs. Gardner, 240 Ky. 318, 42 S. W. (2nd) 300; Voss vs. Lewis, 126 Ind. 155, 25
N.E. 892.

7"ARTICULO 1.844 Cuando son dos o mas los fiadores de un mismo deudor y por una
misma deuda, el que de ellos la haya pagado podra reclamar de cada uno de los otros la
parte que proporcionalmente le corresponda satisfacer.

Si algundo de ellos resultara insolvente, le parte de este recaera sobre todos en la misma
proporcion.

Para que pueda tener lugar la disposicion de este articulo, es preciso que se haya hecho el
pago en virtud de demanda judicial, o hallandose el deudor principal en estado de concurso
o quiebra."

8 Article, 2073 hereafter be recited in full.

9Manresa, Comentarios al Codigo Civil Espaol [1951 ed] Tomo XII, paginas 337, 38, 339;
emphasis supplied.

The word queibra [bankrupt] in the Spanish text of Article 1844 of the Civil Code of Spain is
10

eliminated in Article 2073 of the present Civil Code; emphasis supplied.

Cacho vs. Valles. 45 Phil. 107, 110-111, referring to Article 1844 of the Spanish Civil Code,
11

now Article 2073 of the Civil Code.

12 Manresa, Codigo Civil Espaol, Tomo XII, paginas 342-343.

13 Manresa, id., pp. 342-348.

 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).
 SECOND DIVISION

G.R. No. 117660 December 18, 2000

AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners,

vs.
THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents.

DECISION

QUISUMBING, J.:

This is a petition for review challenging the decision1 dated October 17, 1994 of the Court of Appeals
in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional Trial Court,
Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543.

This petition springs from three complaints for sums of money filed by respondent bank against
herein petitioners. In the decision of the Court of Appeals, petitioners were ordered to pay
respondent bank, as follows:

Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:

1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and
severally, to pay to plaintiff the amount of P78,212.29, together with interest and service
charge thereon, at the rates of 14% and 3% per annum, respectively, computed from
November 10, 1982, until fully paid, plus stipulated penalty on unpaid principal at the rate of
6% per annum, computed from November 10, 1982, plus 15% as liquidated damage plus
10% of the total amount due, as attorneys fees, plus costs;

2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of
P632,911.39, together with interest and service charge thereon at the rate of 14% and 3%
per annum, respectively, computed from January 15, 1983, until fully paid, plus stipulated
penalty on unpaid principal at the rate of 6% per annum, computed from January 15, 1983,
plus liquidated damages equivalent to 15% of the total amount due, plus attorneys fees
equivalent to 10% of the total amount due, plus costs; and

3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of
action, the amount of P510,000.00, together with interest and service charge thereon, at the
rates of 14% and 2% per annum, respectively, computed from March 13, 1983, until fully
paid, plus a penalty of 6% per annum, based on the outstanding principal of the loan,
computed from March 13, 1983, until fully paid; and on the second cause of action, the
amount of P494,936.71, together with interest and service charge thereon at the rates of
14% and 2%, per annum, respectively, computed from March 30, 1983, until fully paid, plus a
 penalty charge of 6% per annum, based on the unpaid principal, computed from March 30,
1983, until fully paid, plus (on both causes of action) an amount equal to 15% of the total
amounts due, as liquidated damages, plus attorneys fees equal to 10% of the total amounts
due, plus costs.2

Based on the records, the following are the factual antecedents.

On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to
Wonderland Food Industries, Inc. In their Memorandum of Agreement,3 the parties covenanted that
the purchase price of Five Million (P5,000,000.00) Pesos would be settled by the vendee, under the
following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the
signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock
of the Wonderland Food Industries, Inc.; and (3) The balance of P2,000,000.00 shall be paid in four
equal installments, the first installment falling due, 180 days after the signing of the agreement and
every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee
upon the signing of the agreement.

On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank
(formerly Summa Savings & Loan Association), executed an Addendum4 to the previous
Memorandum of Agreement. The new arrangement pertained to the revision of settlement of the
initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00) as
follows:

Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE
MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS.

WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further
covenant and agree as follows:

1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED
SIXTY THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to
obtain a loan from Summa Savings and Loan Association with office address at Valenzuela,
Metro Manila, being represented herein by its President, Mr. Jaime Cario and referred to
hereafter as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY
THOUSAND (P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and
the Financier may agree, which amount shall cover the ONE MILLION (P1,000,000.00)
PESOS cash which was agreed to be paid upon signing of the Memorandum of Agreement,
plus 18% interest on the balance of two million pesos stipulated upon in Item No. 1(c) of the
said agreement; provided however, that said loan shall be made for and in the name of the
VENDOR.

2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED
SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the
VENDEE hereby undertakes to pay the full amount of the said loan to the Financier on such
terms and conditions agreed upon by the Financier and the VENDOR, it being understood
that while the loan will be secured from and in the name of the VENDOR, the VENDEE will
be the one liable to pay the entire proceeds thereof including interest and other charges.5

This addendum was not notarized.

Consequently, petitioner Mario Soriano signed as maker several promissory notes,6 payable to the
respondent bank. Thereafter, the bank released the proceeds of the loan to petitioners. However,
petitioners failed to meet their obligations as they fell due. During that time, the bank was
experiencing financial turmoil and was under the supervision of the Central Bank. Central Bank
examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the banks
counsel for collection. The bank gave petitioners opportunity to settle their account by extending
payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show
up nor submit his formal written request.

Respondent bank filed three separate complaints before the Regional Trial Court of Manila for
Collection of Sums of money. The corresponding case histories are illustrated in the table below:

Date Amount Payment Payment

of Due Extension
Loan Date Dates

Civil Case 86-37374 P 78,212.29 Nov. 10, 1982 Feb. 8, 1983

August 12, 1982 May 9, 1983
Aug. 7, 1983

Civil Case 86-37388 P 632,911.39 Jan. 15, 1983 May 16, 1983
July 19, 1982 Aug. 14, 1983

Civil Case 86-37543 P 510,000.00 March 13, 1983 June 11, 1983
September 14, 1982 P 494,936.71 March 30, 1983 Sept. 9, 1983
October 1, 1982 June 28, 1983
Sept. 26, 1983

In their answer, petitioners interposed the defense of novation and insisted there was a valid
substitution of debtor. They alleged that the addendum specifically states that although the
promissory notes were in their names, Wonderland shall be responsible for the payment thereof.

The trial court held that petitioners are liable, to wit:

The evidences, however, disclose that Wonderland did not comply with its obligation under said
Addendum (Exh. S) as the agreement to turn over the farmland to it, did not materialize (57 tsn,
May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not
answerable. And since the loans obtained under the four promissory notes (Exhs. A, C, G, and
E) have not been paid, despite opportunities given by plaintiff to defendants to make payments, it
stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact,
defendants failed to file a third-party complaint against Wonderland, which shows the weakness of
its stand that Wonderland is answerable to make said payments.7

Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the appellate
court.

Hence, this recourse, wherein petitioners raise the sole issue of:

WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM,
SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC.,
CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH
EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of sale of a
farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court, no
such sale materialized.

A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or
consideration for the obligation or promise by the other. The vendee is obliged to pay the price, while
the vendor must deliver actual possession of the land. In the instant case the original plan was that
the initial payments would be paid in cash. Subsequently, the parties (with the participation of
respondent bank) executed an addendum providing instead, that the petitioners would secure a loan
in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the
settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano signed
several promissory notes and received the proceeds in behalf of petitioner-company.

By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the
promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners
became liable as accommodation party. An accommodation party is a person who has signed the
instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an
accommodation party.8 He has the right, after paying the holder, to obtain reimbursement from the
party accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety.9 Suretyship is defined as the relation which exists
where one person has undertaken an obligation and another person is also under the obligation or
other duty to the obligee, who is entitled to but one performance, and as between the two who are
bound, one rather than the other should perform.10 The suretys liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is directly and equally
bound with the principal.11 And the creditor may proceed against any one of the solidary debtors.12

We do not give credence to petitioners assertion that, as provided by the addendum, their obligation
to pay the promissory notes was novated by "substitution" of a new debtor, Wonderland. Contrary to
petitioners contention, the attendant facts herein do not make a case of novation.

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor.13 In order that a novation can take place, the concurrence of the following
requisites14 are indispensable:

1) There must be a previous valid obligation;

2) There must be an agreement of the parties concerned to a new contract;

3) There must be the extinguishment of the old contract; and

4) There must be the validity of the new contract.

In the instant case, the first requisite for a valid novation is lacking. There was no novation by
"substitution" of debtor because there was no prior obligation which was substituted by a new
contract. It will be noted that the promissory notes, which bound the petitioners to pay, were
executed after the addendum. The addendum modified the contract of sale, not the stipulations in
the promissory notes which pertain to the surety contract. At this instance, Wonderland apparently
assured the payment of future debts to be incurred by the petitioners. Consequently, only a contract
of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-settled
rule is that novation is never presumed,15 it must be clearly and unequivocally shown.16

As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by
the rescission of the contract of sale of the farmland. With the rescission, there was confusion or
merger in the persons of the principal obligor and the surety, namely the petitioners herein. The
addendum which was dependent thereon likewise lost its efficacy.

It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning
shall control. However, in order to judge the intention of the parties, their contemporaneous and
subsequent acts should be considered.17

The contract of sale between Wonderland and petitioners did not materialize. But it was admitted
that petitioners received the proceeds of the promissory notes obtained from respondent bank.

Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him.

Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private
respondent. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the
loan upon the rescission of their sales contract. If petitioners sustained damages as a result of the
rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a
necessary party does not prevent the court from proceeding in the action, and the judgment
rendered therein shall be without prejudice to the rights of such necessary party.18 But respondent
appellate court did not err in holding that petitioners are duty-bound under the law to pay the claims
of respondent bank from whom they had obtained the loan proceeds.

WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of
Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Footnotes

1
Rollo, pp. 49-55.

2
Id.at 68 - 70.

3
Id. at 71 - 73.

4
Id. at 74 - 75.
5
Id. at 74 only.

6
Records, pp. 159, 162,167, 171.

7
Rollo, p. 68.

8
The Negotiable Instruments Law, Section 29.

People vs. Maniego, 148 SCRA 30, 35 (1987); Philippine National Bank vs. Maza and
9

Mecenas, 48 Phil. 207 (1925).

10
74 Am Jur 2d, Suretyship, Sec. 1.

11
Garcia, Jr. vs. Court of Appeals, 191 SCRA 493, 496 (1990).

12
Civil Code of the Philippines, Art. 1216.

Ajax Marketing & Development Corporation vs. Court of Appeals, 248 SCRA 222, 226
13

(1995); citing FRANCISCO, V. J. Civil Code of the Philippines Annotated and Commented,
Bk IV Part 1, p. 676, citing 8 Manresa 417; De Cortes vs. Venturanza, 79 SCRA 709, 722-
723 (1977).

14
Reyes vs. Court of Appeals 264 SCRA 35, 43 (1996).

Ajax Marketing and Development Corporation vs. Court of Appeals, 248 SCRA 222, 227
15

(1995); Goi vs. Court of Appeals 144 SCRA 222, (1986).

16
Mercantile Insurance Co., Inc., vs. Court of Appeals, 196 SCRA 197, 204 (1991).

Manila Surety & Fidelity Co., Inc. vs. Court of Appeals, 191 SCRA 805, 812 (1990); citing
17

Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. & Co. Inc., 169 SCRA 66, 74 (1989);
Sy vs. Court of Appeals, 131 SCRA 116 (1984); GSIS vs. Court of Appeals, et al., 145 SCRA
311 (1986).

18
Revised Rules of Court, Civil Procedure, Sec. 9, Rule 3, par. 3.
 SECOND DIVISION

G.R. No. 156294 November 29, 2006

MELVA THERESA ALVIAR GONZALES, Petitioner,

vs.
RIZAL COMMERCIAL BANKING CORPORATION, Respondent.

DECISION

GARCIA, J.:

An action for a sum of money originating from the Regional Trial Court (RTC) of Makati City, Branch
61, thereat docketed as Civil Case No. 88-1502, was decided in favor of therein plaintiff, now
respondent Rizal Commercial Banking Corporation (RCBC). On appeal to the Court of Appeals (CA)
in CA-G.R. CV No. 48596, that court, in a decision1 dated August 30, 2002, affirmed the RTC minus
the award of attorneys fees. Upon the instance of herein petitioner Melva Theresa Alviar Gonzales,
the case is now before this Court via this petition for review on certiorari, based on the following
undisputed facts as unanimously found by the RTC and the CA, which the latter summarized as
follows:

Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts
Clerk in the Retail Banking Department at its Head Office.

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group
with address at 569 Western Avenue, Los Angeles, California, against the drawee bank Wilshire
Center Bank, N.A., of Los Angeles, California, U.S.A., and payable to Gonzales mother, defendant
Eva Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special accommodations
to its employees to receive the checks value without awaiting the clearing period, Gonzales
presented the foreign check to Olivia Gomez, the RCBCs Head of Retail Banking. After examining
this, Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced
to the early encashment of the check and signed the check but indicated thereon her authority of "up
to 17,500.00 only". Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC
employee Carlos Ramos and procure his signature. After inspecting the check, Carlos Ramos also
signed it with an "ok" annotation. After getting the said signatures Gonzales presented the check to
Rolando Zornosa, Supervisor of the Remittance section of the Foreign Department of the RCBC
Head Office, who after scrutinizing the entries and signatures therein authorized its encashment.
Gonzales then received its peso equivalent of 155,270.85.

RCBC then tried to collect the amount of the check with the drawee bank by the latter through its
correspondent bank, the First Interstate Bank of California, on two occasions dishonored the check
because of "END. IRREG" or irregular indorsement. Insisting, RCBC again sent the check to the
drawee bank, but this time the check was returned due to "account closed". Unable to collect, RCBC
demanded from Gonzales the payment of the peso equivalent of the check that she received.
Gonzales settled the matter by agreeing that payment be made thru salary deduction. This
temporary arrangement for salary deductions was communicated by Gonzales to RCBC through a
letter dated November 27, 1987 xxx

xxx xxx xxx

The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a demand
letter to Alviar for the payment of her obligation but this fell on deaf ears as RCBC did not receive
any response from Alviar. Taking further action to collect, RCBC then conveyed the matter to its
counsel and on June 16, 1988, a letter was sent to Gonzales reminding her of her liability as an
indorser of the subject check and that for her to avoid litigation she has to fulfill her commitment to
settle her obligation as assured in her said letter. On July 1988 Gonzales resigned from RCBC.
What had been deducted from her salary was only 12,822.20 covering ten months.

It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of money
against Eva Alviar, Melva Theresa Alviar-Gonzales and the latters husband Gino Gonzales. The
spouses Gonzales filed an Answer with Counterclaim praying for the dismissal of the complaint as
well as payment of 10,822.20 as actual damages, 20,000.00 as moral damages, 20,000.00 as
exemplary damages, and 20,000.00 as attorneys fees and litigation expenses. Defendant Eva
Alviar, on the other hand, was declared in default for having filed her Answer out of time.

After trial, the RTC, in its three-page decision,2 held two of the three defendants liable as follows:

WHEREFORE, premises above considered and plaintiff having established its case against the
defendants as above stated, judgment is hereby rendered for plaintiff and as against defendant EVA.
P. ALVIAR as principal debtor and defendants MELVA THERESA ALVIAR GONZLAES as guarantor
as follows:

1. To pay plaintiff the amount of 142,648.65 (155,270.85 less the amount of 12,622.20,
as salary deduction of [Gonzales]), representing the outstanding obligation of the defendants
with interest of 12% per annum starting February 1987 until fully paid;

2. To pay the amount of 40,000.00 as and for attorneys fees; and to

3. Pay the costs of this suit.

SO ORDERED.

On appeal, the CA, except for the award of attorneys fees, affirmed the RTC judgment.

Hence, this recourse by the petitioner on her submission that the CA erred

XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK

SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR;

XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC EMPLOYEE, DOES

NOT CONSTITUTE AS AN ENDORSEMENT BUT ONLY AN INTER-BANK APPROVAL OF
SIGNATURE NECESSARY FOR THE ENCASHMENT OF THE CHECK;

XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF [THE PETITIONER].

The recourse is impressed with merit.

The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical
Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank N.A., was dishonored
because of "End. Irregular," i.e., an irregular endorsement. While the foreign drawee bank did not
specifically state which among the four signatures found on the dorsal portion of the check made the
check irregularly endorsed, it is absolutely undeniable that only the signature of Olivia Gomez, an
RCBC employee, was a qualified endorsement because of the phrase "up to 17,500.00 only."
There can be no other acceptable explanation for the dishonor of the foreign check than this
signature of Olivia Gomez with the phrase "up to 17,500.00 only" accompanying it. This Court
definitely agrees with the petitioner that the foreign drawee bank would not have dishonored the
check had it not been for this signature of Gomez with the same phrase written by her.

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check
drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia
Gomez. It is, therefore, a useless piece of paper if returned in that state to its original payee, Eva
Alviar.

There is no doubt in the mind of the Court that a subsequent party which caused the defect in the
instrument cannot have any recourse against any of the prior endorsers in good faith. Eva Alviars
and the petitioners liability to subsequent holders of the foreign check is governed by the Negotiable
Instruments Law as follows:

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to
all subsequent holders in due course;

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and

(b) That the instrument is, at the time of his indorsement, valid and subsisting;

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.

The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the following:

(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 had capacity to contract;

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in
favor of subsequent endorsers extend only to the state of the instrument at the time of their
endorsements, specifically, that the instrument is genuine and in all respects what it purports to be;
that they have good title thereto; that all prior parties had capacity to contract; and that the
instrument, at the time of their endorsements, is valid and subsisting. This provision, however,
cannot be used by the party which introduced a defect on the instrument, such as respondent RCBC
in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subsequent party may render an instrument
useless and inutile and let innocent parties bear the loss while he himself gets away scot-free. It
cannot be over-stressed that had it not been for the qualified endorsement ("up to 17,500.00 only")
of Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor
of the check, and full payment by drawee bank therefor would have taken place as a matter of
course.

Section 66 of the Negotiable Instruments Law which further states that the general endorser
additionally engages that, on due presentment, the instrument 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
endorser who may be compelled to pay it, must be read in the light of the rule in equity requiring that
those who come to court should come with clean hands. The holder or subsequent endorser who
tries to claim under the instrument which had been dishonored for "irregular endorsement" must not
be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice
results when any subsequent party to the instrument may simply make the instrument defective and
later claim from prior endorsers who have no knowledge or participation in causing or introducing
said defect to the instrument, which thereby caused its dishonor.

Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot
unqualifiedly apply a provision of law so as to cause clear injustice which the framers of the law
could not have intended to so deliberately cause. In Carceller v. Court of Appeals,4 this Court had
occasion to stress:

Courts of law, being also courts of equity, may not countenance such grossly unfair results without
doing violence to its solemn obligation to administer fair and equal justice for all.

RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the
qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and
Gonzales in this case, liable on the instrument.

Moreover, it is a well-established principle in law that as between two parties, he who, by his acts,
caused the loss shall bear the same.5 RCBC, in this instance, should therefore bear the loss.

Relative to the petitioners counterclaim against RCBC for the amount of 12,822.20 which it
admittedly deducted from petitioners salary, the Court must order the return thereof to the petitioner,
with legal interest of 12% per annum, notwithstanding the petitioners apparent acquiescence to
such an arrangement. It must be noted that petitioner is not any ordinary client or depositor with
whom RCBC had this isolated transaction. Petitioner was a rank-and-file employee of RCBC, being
a new accounts clerk thereat. It is easy to understand how a vulnerable Gonzales, who is financially
dependent upon RCBC, would rather bite the bullet, so to speak, and expectedly opt for salary
deduction rather than lose her job and her entire salary altogether. In this sense, we cannot take
petitioners apparent acquiescence to the salary deduction as being an entirely free and voluntary
act on her part. Additionally, under the obtaining facts and circumstances surrounding the present
complaint for collection of sum of money by RCBC against its employee, which may be deemed
tantamount to harassment, and the fact that RCBC itself was the one, acting through its employee,
Olivia Gomez, which gave reason for the dishonor of the dollar-check in question, RCBC may
likewise be held liable for moral and exemplary damages and attorneys fees by way of damages, in
the amount of 20,000.00 for each.

WHEREFORE, the assailed CA Decision dated August 30, 2002 is REVERSED and SET ASIDE
and the Complaint in this case DISMISSED for lack of merit. Petitioners counterclaim is GRANTED,
ordering the respondent RCBC to reimburse petitioner the amount 12,822.20, with legal interest
computed from the time of salary deduction up to actual payment, and to pay petitioner the total
amount of 60,000.00 as moral and exemplary damages, and attorneys fees.

Costs against the respondent.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S . PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it
is hereby certified that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

1Penned by Associate Justice Roberto A. Barrios, with Associate Justices Bienvenido L.

Reyes and Edgardo F. Sundiam, concurring; Rollo, pp. 29-38.

2 Id. at 130-132.
3 Exhibits "J" and "J-1"; Id. at 48.

4 362 Phil. 332 (1999).

5 Valderama v. Macalde, G.R. No. 165005, September 16, 2005, 470 SCRA 168.