G.R. No.

L-18751 September 26, 1922

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BARTOLOME PICORNELL, ET AL., defendants.
BARTOLOME PICORNELL, appellant.
G.R. No. L-18915 September 26, 1922

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BARTOLOME PICORNELL, ET AL., defendants.
JOAQUIN PARDO DE TAVERA, appellant.
Recto, Casal & Ozaeta for appellant Picornell.

Camus and Delgado for appellant Pardo de Tavera.

Roman J. Lacson for appellee.

ROMUALDEZ, J.:

In a decision rendered January 9, 1922, and amended by an order of February 18th next, the Court
of First Instance of Manila sentenced the defendants to pay solidarily to the plaintiff bank of the
sum of P28,790.72 with interest at the rate of 9 per centum per annum from May 3, 1921, and
costs; and the defendant Bartolome Picornell, to pay said plaintiff the sum of P10,739.11 with
interest at 9 per centum per annum, all as aforesaid, deducting the sum of P6,708.82 from such
amounts to be paid be the defendants.
This total sum which the defendants are required to pay represents the value of a bill of exchange
drawn in favor of the National Bank, plaintiff, against the firm, its only successor being the
defendant Joaquin Pardo de Tavera. The sum of P6,708.82, which the trial court ordered deducted
from the value of the bill of exchange, is the proceeds received by the bank from the sale of a part
of a certain quality of tobacco shipped by Picornell at Cebu to the Hyndman, Tavera & Ventura
company at Manila, the price of which, together with his commission, was received by him from
the branch of the plaintiff bank in Cebu, and in consideration whereof he drew the bill from
the central office of said bank in Manila and against the said Hyndman, Tavera & Ventura
company, the consignee of the tobacco.
The P28,790.72, which the defendants are sentenced to pay solidarily to the plaintiff bank,
constitutes the value of the tobacco at the date when the bill fell due, as appraised for the purpose.
The reasoning of the trial court for fixing the respective responsibilities of the defendants is given
in its decision and is as follows:
. . . The defendant Pardo de Tavera, successor to Hyndman, Tavera & Ventura, by his having
accepted the bill and denied payment thereof, notwithstanding the existence of a consideration
which is the real value of the tobacco, and the defendant Picornell by his having drawn such bill
and received its value from the branch of the plaintiff bank in Cebu, became liable upon the same
bill, the defendant Picornell to its full value, and the defendant Pardo de Tavera to the extent of the
value of the tobacco.
From this judgment the defendants appealed.
Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that
judgment should not have been rendered against him. The appellant Picornell contended that it
should have been taken into account that he merely acted as an agent of Hyndman, Tavera &
Ventura in all these transactions; that the tobacco was not of inferior quality, as alleged by the said
company; that the condition "D/P" attached to the transaction was not modified; that he had the
right to complain because the bank consented to the said company taking possession of the
tobacco before the payment of the bill; that the bank held the tobacco as a deposit; that the bank
was not authorized to sell the tobacco, said sale not being allowed either by law or by the
circumstances that he should not have been ordered to pay the value of the bill without proof that
he was notified of its dishonor, as required by section 89 of the Negotiable Instruments Law.
The appellee bank maintains that the appellants have no right to discuss issues of fact in this
instance for not having complied with the requirements enumerated in paragraph (a) of Rule 16 of
the Rules of the Courts of First Instance. The rule cited refers to special proceedings. Moreover,
we believe, we believe that the necessary requirements in order that this court may pass upon
questions of fact have been complied with by the appellants.
The following facts are proved: That Bartolome Picornell, following instruction of Hyndman,
Tavera & Ventura, bought in Cebu 1,735 bales of tobacco; that Picornell obtained from the branch
of the National Bank in Cebu the sum of P39,529.83, the value of the tobacco, together with his
commission of 1 real per quintal (according to stipulation Exhibit 4), having, in turn, drawn the
following bill of exchange, Exhibit A:
No. 2-A. Cebu, 28 febrero, 1920. For P39,529.83
At treinta (30) days sight please pay this first of exchange (second unpaid) to the order of
Philippine National Bank treinta y nueve mil quinientos veintinueve pesos con 83/100. Value
received.
To Sres. HYNDMAN, TAVERA Y VENTURA
Calle Soler 26 y 28.
(Sgd.) B. PICORNELL
This instrument was delivered to the branch of the National Bank in Cebu, together with the
invoice and bill of lading of the tobacco, which was shipped in the boat Don Ildefonso, on
February 27, 1920, consigned to Hyndman, Tavera & Ventura at Manila. The invoice and bill of
lading were delivered to the National Bank with the understanding that the bank should not
delivered them to Hyndman, Tavera & Ventura except upon payment of the bill; which condition
was expressed by the well-known formula "D/P" (documents for [against] payment).
The central office of the National Bank in Manila received the bill and the aforesaid documents
annexed thereto; and on March 3, 1920, presented the bill to Hyndman, Tavera & Ventura, who
accepted it stating on the face thereof the following:
Accepted, 3d March, 1920. Due, 2d April, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo
de Tavera, member of the firm.
The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso,
that brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which
was done by the company without the knowledge of the National Bank which retained and always
had in its possession the invoice and bill of lading of the tobacco, until it presented them as
evidence at the trial.
Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in
their warehouses, and wrote and cable to Bartolome Picornell, notifying him that of the tobacco
received, there was a certain portion which was no use and was damaged. To these
communications, Picornell answered, sending the following letter:
Cebu, March 13, 1920.
Messrs. HYNDMAN, TAVERA & VENTURA,
Manila.
TABACO
DEAR SIRS: Your letters of the 3d and 9th, and your telegram of the 5th, inst, received and the
sample of tobacco sent through the captain of the boat Don Ildefonso.
I wired to the seller asking him to come over and I hope he will do so at the first opportunity.
It would be well that you should inform me of the exact number of bales deteriorated and useless,
and if possible that said information should be furnished by the Bureau of Internal Revenue.
Moreover, it would be well also that you should not sell any bale of said shipment until the matter
is settled.
Yours very truly,
(Sgd.) B. PICORNELL
Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had
in their possession the tobacco aforementioned.
In view of the question raised by the said company as to the quality of the aforesaid tobacco, more
correspondence was exchange between the company and Picornell, who, upon the suggestion of
the former, wrote on March 26, 1920, this letter:
Messrs. Philippine National Bank,
Cebu.
DEAR SIRS: I would be obliged to you if you would wire your central office at Manila to extend
thirty days the time for payment of the bill for P39,529.83 against Messrs. Hyndman, Tavera &
Ventura of Manila.
Awaiting your favor, I remain,
Yours very truly,
(Sgd.) B. PICORNELL
The bank granted this request of the defendants; wherefore Hyndman, Tavera & Ventura
reaccepted the bill in the following terms:
Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, By (Sgd.) J Pardo de
Tavera, member of the firm.
May 2, 1920, arrived and the bill was not paid. On the 4th of the same month, Hyndman, Tavera &
Ventura sent a letter to the plaintiff bank as follows:
DEAR SIRS: We very much regret to have to inform you that we absolutely refuse to pay draft
No. 2 for thirty-nine thousand five hundred and twenty-nine pesos and eighty-three cents
(P39,529.83), referring to 1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of
the contract by the drawer.
We, therefore, beg to notify you that the said Lead Tobacco is at the disposal of your goodselves at
our go-down No. 26-36 Calle Soler.
The bank protested the bill, tool possession of the tobacco, and had it appraised on the 12th of the
same month, its value having been fixed at P28,790.72. That this valuation was just, reasonable
and exact is not questioned by the parties.
The bank brought this action, and about September, 1921, sold the tobacco, obtaining from the
sale P6,708.82.
This action is for the recovery of the value of the bill of exchange above-mentioned. The
Hyndman, Tavera & Ventura company accepted it unconditionally, but did not pay it at its
maturity; wherefore its responsibility, or that of its successor, J. Pardo de Tavera, to pay the same,
is clear. (Sec. 62, Negotiable Instruments Law.)
The question whether or not the tobacco was worth the value of the bill, does not concern the
plaintiff bank. Such partial want of consideration, if it was, does not exist with respect to the bank
which paid to Picornell the full value of said bill of exchange. The bank was a holder in due
course, and was such for value full and complete. The Hyndman, Tavera & Ventura company
cannot escape liability in view of section 28 of the Negotiable Instruments Law.
. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer
himself. But the drawer and acceptor are the immediate parties to the consideration, and if the
acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a
different relation; he is a stranger to the transaction between the drawer and the acceptor, and is,
therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to
the consideration between the drawer and the acceptor cannot be inquired into. The payee or
holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the
acceptor, he is in the position on a bona fide indorsee. Hence, it is no defense to a suit against the
acceptor of a draft which has been discounted, and upon which money has been advance by the
plaintiff, that the draft was accepted or the accommodation of the drawer. . . . (3 R. C. L., pp.
1143, 1144, par, 358.)
As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon
proper presentment and paid in due course, and as it was not paid, he became liable to the payment
of its value to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments
Law.)
The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of
the tobacco, does not necessarily make him an agent of the company in its obligations arising from
the drawing of the bill by him. His acts in negotiating the bill constitute a different contract from
that made by his having purchased the tobacco on behalf of Hyndman, Tavera & Ventura.
Furthermore, he cannot exempt himself from responsibility by the fact of his having been a mere
agent of this company, because nothing to this effect was indicated or added to his signature on
signing the bill. (Sec. 20, Negotiable Instruments Law.)
The fact that the tobacco was or was not of inferior quality does not affect the responsibility of
Picornell, because while it may an effect upon the contract between him and the firm of Hyndman,
Tavera & Ventura, yet it cannot have upon the responsibility of both to the bank, upon the bill
drawn and accepted as above stated.
As to the instruction "D/P" appearing on the instrument, it was not violated by the bank, which, as
above stated, kept possession of the invoice and the bill of lading of the tobacco. By virtue of this
circumstance, the bank had the right to deal with that tobacco as a security in case of non-payment
of the bill, and this was admitted by Hyndman, Tavera & Ventura when, upon their refusal to pay
the bill, they placed the tobacco at the disposal of the bank.
Neither does the fact of Hyndman, Tavera & Ventura having been given possession of the tobacco
before the payment of the bill affect the liability of the defendants to the bank thereon.
The title of the bank to the tobacco in question by reason of the condition "D/P" was that a
pledgee, and its possession after its delivery to it by Hyndman, Tavera & Ventura was of the same
nature -- a discount security, which it was authorized to accept and retail. (Act No. 2938.)
The appellants question the power of the bank to sell, as it did, the tobacco in question. Taking
into account the circumstances of the case, we fold that the bank did not violate the law in making
such sale without notice. We hold that it is one of those cases provided for by law (sec. 33, Act.
No. 2938), wherein a previous notice of the sale is not indispensable. Besides, as to the price
obtained in the sale, no question is made that it was the best obtainable.
Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C, which is
to protest for the non-payment thereof, that a copy of such protest was sent by mail in good season
addressed to Bartolome Picornell, the presumption, now conclusive, that the latter received it
(secs. 105, 106, Negotiable Instruments Law), not having been rebutted, or at least, contradicted.
Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse,
which it exercised, against the drawer. (Sec. 84, Negotiable Instruments Law.)
The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera,
accepted the bill and is primarily liable for the value of the negotiable instrument, while the
drawer, Bartolome Picornell, is secondarily liable. (3. R. C. L., pp. 1144, 1145.) However, no
question has been raised about this aspect of the responsibility of the defendants.
We are of the opinion that the appellants are liable to the National Bank for the value of the bill of
exchange Exhibit A, deducting therefrom P6,708.82 the proceeds of the sale of the tobacco. But
the bank, not having appealed from the judgment of the lower court, we cannot alter it in favor of
said party, which, by its omission to appeal, has shown full conformity with the judgment
rendered.
For the foregoing, the judgment appealed from is affirmed, with costs against the defendants. So
ordered.

G.R. No. 154127. December 8, 2003]

ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.

DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of the parties
or by the complete incompatibility between the old and the new agreements. Petitioner herein fails
to show either requirement convincingly; hence, the summary judgment holding him liable as a
joint and solidary debtor stands.
The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the
November 26, 2001 Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 60521. The appellate court disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it
pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the
modification that the award for attorneys fees and cost of suit is DELETED. The portion of the
judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the
case against x x x Eduardo de Jesus is REMANDED to the court of origin for purposes of
receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus.[4]
The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Antecedents

The antecedents of the case are narrated by the CA as follows:

This case started out as a complaint for sum of money and damages by x x x [Respondent]
Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil
Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de
Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or before
23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite
repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason
of the[ir] unjustified refusal, [respondent] was compelled to engage the services of counsel to
whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus], plus
P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note
above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to
[petitioner and de Jesus].
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability
under the promissory note because he signed it merely as an accommodation party for x x x de
Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as
the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any
event, the issuance of the check and [respondents] acceptance thereof novated or superseded the
note.
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan
remained unpaid for the reason that the check issued by x x x de Jesus bounced, and that
[Petitioner] Garcias answer was not even accompanied by a certificate of non-forum shopping.
Annexed to the reply were the face of the check and the reverse side thereof.
For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed
P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest
thereon for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of
P120,000.00 by way of interests; that this was made when [respondents] daughter, one Nits
Llamas-Quijencio, received from the Central Police District Command at Bicutan, Taguig, Metro
Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso equivalent of
his accumulated leave credits, another P40,000.00 as advance interest, and still another
P40,000.00 as interest for the months of March and April 1997; that he had difficulty in paying the
loan and had asked [respondent] for an extension of time; that [respondent] acted in bad faith in
instituting the case, [respondent] having agreed to accept the benefits he (de Jesus) would receive
for his retirement, but [respondent] nonetheless filed the instant case while his retirement was
being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as]
attorneys fees, plus P1,000.00 for every court appearance.
During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any
pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested
that he would no [longer] present evidence. Given this development, the trial court gave
[respondent] permission to present his evidence ex parte against x x x de Jesus; and, as regards
[Petitioner] Garcia, the trial court directed [respondent] to file a motion for judgment on the
pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto.
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to
present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting
his defense to a judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/
[M]otion to submit the case for judgement on the pleadings, withdrawing in the process his
previous motion. Thereunder, he asserted that [petitioners and de Jesus] solidary liability under the
promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the
loan since the check bounced.[5]
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the
case as follows:
WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of
[respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and
severally, the [respondent] the following sums, to wit:
1) P400,000.00 representing the principal amount plus 5% interest thereon per month from
January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00
representing interests already paid by x x x de Jesus;
2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt
appearance, and;
3) Cost of this suit.[6]
Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against
De Jesus. According to the appellate court, his Answer raised genuinely contentious issues.
Moreover, he was still required to present his evidence ex parte. Thus, respondent was not ipso
facto entitled to the RTC judgment, even though De Jesus had been declared in default. The case
against the latter was therefore remanded by the CA to the trial court for the ex parte reception of
the formers evidence.
As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to
raise even a single genuine issue regarding any material fact.
The appellate court ruled that no novation -- express or implied -- had taken place when
respondent accepted the check from De Jesus. According to the CA, the check was issued
precisely to pay for the loan that was covered by the promissory note jointly and severally
undertaken by petitioner and De Jesus. Respondents acceptance of the check did not serve to make
De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and
several; and, second, the check -- which had been intended to extinguish the obligation -- bounced
upon its presentment.
Hence, this Petition.[7]
Issues

Petitioner submits the following issues for our consideration:

I

Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies
in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for
the loan obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by:
a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00
in favor of Respondent Llamas, although the check subsequently bounced[;]
b) Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x
x x de Jesus or [the superseding of] the promissory note;
c) x x x de Jesus having paid interests on the loan in the total amount of P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial
difficulties, he be given an extension of time to pay his loan obligation and that his retirement
benefits from the Philippine National Police will answer for said obligation.
II

Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of
petitioner that he was merely an accommodation party, despite the fact that the promissory note
provided for a joint and solidary liability, should have been given weight and credence considering
that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus, as
evidenced by the foregoing circumstances showing his assumption of sole liability over the loan
obligation.
III

Whether or not judgment on the pleadings or summary judgment was properly availed of by
Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable
Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a
full-blown trial.[8]
Simply put, the issues are the following: 1) whether there was novation of the obligation; 2)
whether the defense that petitioner was only an accommodation party had any basis; and 3)
whether the judgment against him -- be it a judgment on the pleadings or a summary judgment --
was proper.
The Courts Ruling

The Petition has no merit.

First Issue:
Novation

Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting
that novation took place, either through the substitution of De Jesus as sole debtor or the
replacement of the promissory note by the check. Alternatively, the former argues that the original
obligation was extinguished when the latter, who was his co-obligor, paid the loan with the check.
The fallacy of the second (alternative) argument is all too apparent. The check could not have
extinguished the obligation, because it bounced upon presentment. By law,[9] the delivery of a
check produces the effect of payment only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations,
by substituting a new debtor in place of the old one, or by subrogating a third person to the rights
of the creditor.[10] Article 1293 of the Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236
and 1237.
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from -- and may even be
made without the knowledge of -- the debtor, since it consists of a third persons assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.[11]
Both modes of substitution by the debtor require the consent of the creditor.[12]
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new one that takes the place of the former. It is merely
modificatory when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement.[13] Whether extinctive or modificatory, novation is made either by
changing the object or the principal conditions, referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a third person to the rights of the creditor, an
act known as subjective or personal novation.[14] For novation to take place, the following
requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.[15]
Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point.[16] The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished by the
issuance and the acceptance of the check, or that the check would take the place of the note. There
is no incompatibility between the promissory note and the check. As the CA correctly observed,
the check had been issued precisely to answer for the obligation. On the one hand, the note
evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand
together.
Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18]
-- change the terms and conditions of the obligation. Such payment was already provided for in
the promissory note and, like the check, was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the substitution of
debtors. In order to change the person of the debtor, the old one must be expressly released from
the obligation, and the third person or new debtor must assume the formers place in the relation.
[19] Well-settled is the rule that novation is never presumed.[20] Consequently, that which arises
from a purported change in the person of the debtor must be clear and express.[21] It is thus
incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place.
In the present case, petitioner has not shown that he was expressly released from the obligation,
that a third person was substituted in his place, or that the joint and solidary obligation was
cancelled and substituted by the solitary undertaking of De Jesus. The CA aptly held:
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the
nature of the obligation being solidary due to the fact that the promissory note expressly declared
that the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor
may demand payment or performance from one of the solidary debtors or some or all of them
simultaneously, and payment made by one of them extinguishes the obligation. It therefore
follows that in case the creditor fails to collect from one of the solidary debtors, he may still
proceed against the other or others. x x x [22]
Moreover, it must be noted that for novation to be valid and legal, the law requires that the
creditor expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver
of the right the creditor had before the novation, such waiver must be express.[24] It cannot be
supposed, without clear proof, that the present respondent has done away with his right to exact
fulfillment from either of the solidary debtors.[25]
More important, De Jesus was not a third person to the obligation. From the beginning, he was a
joint and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its
extinguishment. Respondents acceptance of his check did not change the person of the debtor,
because a joint and solidary obligor is required to pay the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors.[26] It is up to the former to determine against
whom to enforce collection.[27] Having made himself jointly and severally liable with De Jesus,
petitioner is therefore liable[28] for the entire obligation.[29]
Second Issue:
Accommodation Party

Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as
such, he was released as obligor when respondent agreed to extend the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable instrument. The note
reads:
PROMISSORY NOTE
P400,000.00

RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND
PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias,
Quezon City, with interest at the rate of 5% per month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
By its terms, the note was made payable to a specific person rather than to bearer or to order[31] --
a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence,
petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is
evidence of such intangible rights as may have been created by the assent of the parties.[32] The
promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the latter knew the former to be
only an accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety -- the accommodation party being the
surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promissor and debtor from the beginning. The liability is immediate and
direct.[34]
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings

The next issue illustrates the usual confusion between a judgment on the pleadings and a summary
judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be
rendered after a summary hearing if the pleadings, supporting affidavits, depositions and
admissions on file show that (1) except as to the amount of damages, there is no genuine issue
regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of law.
A summary judgment is a procedural device designed for the prompt disposition of actions in
which the pleadings raise only a legal, not a genuine, issue regarding any material fact.[35]
Consequently, facts are asserted in the complaint regarding which there is yet no admission,
disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer,
but the issues are fictitious as shown by the pleadings, depositions or admissions.[36] A summary
judgment may be applied for by either a claimant or a defending party.[37]
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings
is proper when an answer fails to render an issue or otherwise admits the material allegations of
the adverse partys pleading. The essential question is whether there are issues generated by the
pleadings.[38] A judgment on the pleadings may be sought only by a claimant, who is the party
seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [39]
Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly
treated by the appellate court as a summary judgment, rather than as a judgment on the pleadings.
His Answer[40] apparently raised several issues -- that he signed the promissory note allegedly as
a mere accommodation party, and that the obligation was extinguished by either payment or
novation. However, these are not factual issues requiring trial. We quote with approval the CAs
observations:
Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents
submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid
issues. Firstly, Garcias claim that he was merely an accommodation party is belied by the
promissory note that he signed. Nothing in the note indicates that he was only an accommodation
party as he claimed to be. Quite the contrary, the promissory note bears the statement: It is
understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that
his co-defendant de Jesus already paid the loan by means of a check collapses in view of the
dishonor thereof as shown at the dorsal side of said check.[41]
From the records, it also appears that petitioner himself moved to submit the case for judgment on
the basis of the pleadings and documents. In a written Manifestation,[42] he stated that judgment
on the pleadings may now be rendered without further evidence, considering the allegations and
admissions of the parties.[43]
In view of the foregoing, the CA correctly considered as a summary judgment that which the trial
court had issued against petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.

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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.

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 20738 of 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.1äwphï1.ñët
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.

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.

[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 decision[1] 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 Addendum[4]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 of Loan

Amount

Payment Due Date

Payment Extension Dates

Civil Case 86-37374

August 12, 1982

P 78,212.29

Nov. 10, 1982

Feb. 8, 1983
May 9, 1983
Aug. 7, 1983

Civil Case 86-37388

July 19, 1982

P 632,911.39

Jan. 15, 1983

May 16, 1983

Aug. 14, 1983

Civil Case 86-37543

September 14, 1982

October 1, 1982

P 510,000.00

P 494,936.71

March 13, 1983

March 30, 1983

June 11, 1983

Sept. 9, 1983

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 requisites[14] 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.

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 attorney’s 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 check’s value without awaiting the clearing
period, Gonzales presented the foreign check to Olivia Gomez, the RCBC’s 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 latter’s 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 attorney’s 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 attorney’s fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of attorney’s 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 Alviar’s
and the petitioner’s 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 petitioner’s counterclaim against RCBC for the amount of ₱12,822.20 which it
admittedly deducted from petitioner’s salary, the Court must order the return thereof to the
petitioner, with legal interest of 12% per annum, notwithstanding the petitioner’s 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 petitioner’s 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 attorney’s 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. Petitioner’s 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 attorney’s fees.
Costs against the respondent.
SO ORDERED.

TOMAS ANG, G.R. No. 146511

Petitioner,
Present:
PUNO, C.J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
ASSOCIATED BANK AND
ANTONIO ANG ENG LIONG, Promulgated:
Respondents.
September 5, 2007

X -------------------------------------------------------------------------------------- X

DECISION

AZCUNA, J.:

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the
October 9, 2000 Decision[1] and December 26, 2000 Resolution[2] of the Court of Appeals in
CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision[3] of the
Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the
complaint filed by respondents for collection of a sum of money.

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,[4] respondent Bank alleged that on October 3 and 9, 1978, the defendants
obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO-78-382, and
P30,000, evidenced by a promissory note bearing PN-No. 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[5] to the promissory notes as well as the disclosure
statements[6] 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 attorneys 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 P539,638.96 as of July 31, 1990, broken down as follows:

PN-No. DVO-78-382
PN-No. DVO-78-390
Outstanding Balance
P50,000.00
P30,000.00
Add
Past due charges for 4,199 days (from 01-31-79 to 07-31-90)
Past due charges for 4,253 days (from 12-8-78 to 07-31-90)
14% Interest
P203,538.98
P125,334.41
2% Service Charge
P11,663.89
P7,088.34
12% Overdue Charge
P69,983.34
P42,530.00
Total
P285,186.21
P174,952.75
Less: Charges paid
P500.00
None
Amount Due
P334,686.21
P204,952.75

In his Answer,[7] Antonio Ang Eng Liong only admitted to have secured a loan amounting to
P80,000. 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 attorneys 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.[8] 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; it was
the bank which completed the notes upon the orders, instructions, or representations of his co-
defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by
him to his co-defendant who represented that he would only borrow P30,000 from the bank; his
signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant
claimed that his first loan did not push through; the promissory notes did not indicate in what
capacity he was intended to be bound; the bank granted his co-defendant successive extensions of
time within which to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new
and additional stipulations on interest, penalties, services charges and attorneys fees more onerous
than the terms of the notes, without his knowledge and consent, in the absence of legal and factual
basis and in violation of the Usury Law; the bank caused the inclusion in the promissory notes of
stipulations such as waiver of presentment for payment and notice of dishonor which are against
public policy; and the notes had been impaired since they were never presented for payment and
demands were made only several years after they fell due when his co-defendant could no longer
pay them.

Regarding his counterclaim, Tomas Ang argued that by reason of the banks acts or omissions, it
should be held liable for the amount of P50,000 for attorneys fees and expenses of litigation.
Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be
reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus
P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorneys fees, respectively.

In its Reply,[9] respondent Bank countered that it is the real party in interest and is the holder of
the notes since the Associated Banking Corporation and Associated Citizens Bank are its
predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of
the two (2) loans and that such was known to the bank are immaterial because, as an
accommodation maker, he is considered as a solidary debtor who is primarily liable for the
payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the
bank posited that absence or failure of consideration is not a matter of defense; neither is the fact
that the holder knew him to be only an accommodation party.

Respondent Bank likewise retorted that the promissory notes were completely filled up at the time
of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank
has the prima facie authority to complete the blank form. Moreover, it is presumed that one who
has signed as a maker acted with care and had signed the document with full knowledge of its
content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been
engaged in the auto parts business for several years, hence, certainly he is not so nave as to sign
the notes without knowing or bothering to verify the amounts of the loans covered by them.
Further, he is already in estoppel since despite receipt of several demand letters there was not a
single protest raised by him that he signed for only one note in the amount of P30,000.

It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang
Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang
from liability as he would still be liable for the whole obligation less the share of his co-debtor
who received the extended term.

The bank also asserted that there were no additional or new stipulations imposed other than those
agreed upon. The penalty charge, service charge, and attorneys fees were reflected in the
amendments to the promissory notes and disclosure statements. Reference to the Usury Law was
misplaced as usury is legally non-existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.

Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor
were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to
Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a
solidary debtor he is absolutely required to pay and primarily liable on both promissory notes.

On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to
submit their respective pre-trial guide.[10] When Antonio Ang Eng Liong failed to submit his
brief, the bank filed an ex-parte motion to declare him in default.[11] Per Order of November 23,
1990, the court granted the motion and set the ex-parte hearing for the presentation of the banks
evidence.[12] Despite Tomas Angs motion[13] to modify the Order so as to exclude or cancel the
ex-parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of
the Revised Rules on Civil Procedure), the hearing nonetheless proceeded.[14]

Eventually, a decision[15] was rendered by the trial court on February 21, 1991. For his supposed
bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong
was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service
charge per annum. The overdue penalty charge and attorneys fees were, however, reduced for
being excessive, thus:

WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of
plaintiff, ordering the former to pay the latter:

On the first cause of action:

1) the amount of P50,000.00 representing the principal obligation with 14% interest per
annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum
until fully paid;

2) P11,663.89 as accrued service charge; and

3) P34,991.67 as accrued overdue penalty charge.

On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with 14% interest
from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully
paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorneys fees; and
5) the amount of P620.00 as litigation expenses and to pay the costs.

SO ORDERED.[16]

The decision became final and executory as no appeal was taken therefrom. Upon the banks ex-
parte motion, the court accordingly issued a writ of execution on April 5, 1991.[17]

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas
Ang,[18] who, in turn, filed a Motion to Dismiss[19] on the ground of lack of jurisdiction over the
case in view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4,
Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of whom
is declared in default. Moreover, in his Supplemental Motion to Dismiss,[20] Tomas Ang
maintained that he is released from his obligation as a solidary guarantor and accommodation
party because, by the banks actions, he is now precluded from asserting his cross-claim against
Antonio Ang Eng Liong, upon whom a final and executory judgment had already been issued.

The court denied the motion as well as the motion for reconsideration thereon.[21] Tomas Ang
subsequently filed a petition for certiorari and prohibition before this Court, which, however,
resolved to refer the same to the Court of Appeals.[22] In accordance with the prayer of Tomas
Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332,
which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-
parte presentation of the banks evidence against Antonio Ang Eng Liong, the Decision dated
February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued
on April 5, 1991.[23]

Trial then ensued between the bank and Tomas Ang. Upon the latters motion during the pre-trial
conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the
cross-claim within the reglementary period.[24]

When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of
Documents,[25] reasoning:

xxx

2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him
to examine original records in the custody and possession of plaintiff, viz:

a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-78-390;
e. Statement or Record of Account with the Associated Banking Corporation or its
successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips,
notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA No.
470;
f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos.
DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by Antonio Ang Eng Liong
relative to his loan application vis--vis PN. Nos. DVO-78-382 and DVO-78-390 such as financial
statements, income tax returns, etc. as required by the Central Bank or bank rules and regulations.

3. That the above matters are very material to the defenses of defendant Tomas Ang, viz:

- the bank is not a holder in due course when it accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.
- That the PAYEE not being a holder in due course and knowing that defendant Tomas
Ang is merely an accommodation party, the latter may raise against such payee or holder or
successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD
in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of
the Civil Code, NEGLIGENCE in delaying collection despite Eng Liongs OVERDRAFT in C.A.
No. 470, etc.[26]

In its Order dated May 16, 1994,[27] the court denied the motion stating that the promissory notes
and the disclosure statements have already been shown to and inspected by Tomas Ang during the
trial, as in fact he has already copies of the same; the Statements or Records of Account of
Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to
the previous ruling of the court, he is being sued for the notes and not for the overdraft which is
personal to Antonio Ang Eng Liong; and besides its non-existence in the banks records, there
would be legal obstacle for the production and inspection of the income tax return of Antonio Ang
Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a
petition for certiorari and prohibition with application for preliminary injunction and restraining
order before the Court of Appeals docketed as CA G.R. SP No. 34840.[28] On August 17, 1994,
however, the Court of Appeals denied the issuance of a Temporary Restraining Order.[29]

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his
right to present evidence for failure to appear during the pendency of his petition before the Court
of Appeals, the trial court decided to continue with the hearing of the case.[30]

After the trial, Tomas Ang offered in evidence several documents, which included a copy of the
Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as
certified by the notary public, and news clippings from the Manila Bulletin dated May 18, 1994
and May 30, 1994.[31] All the documentary exhibits were admitted for failure of the bank to
submit its comment to the formal offer.[32] Thereafter, Tomas Ang elected to withdraw his
petition in CA G.R. SP No. 34840 before the Court of Appeals, which was then granted.[33]

On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint
for lack of cause of action.[34] It held that:

Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows
that: the Associated Bank as of June 30, 1986 is one of DBPs or Development Bank of the
[Philippines] non-performing accounts for transfer; on February 27, 1987 through Deeds of
Transfer executed by and between the Philippine National Bank and Development Bank of the
Philippines and the National Government, both financial institutions assigned, transferred and
conveyed their non-performing assets to the National Government; the National Government in
turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset
Privatization Trust said non-performing assets, [which] took title to and possession of, [to]
conserve, provisionally manage and dispose[,] of said assets identified for privatization or
disposition; one of the powers and duties of the APT with respect to trust properties consisting of
receivables is to handle the administration, collection and enforcement of the receivables; to bring
suit to enforce payment of the obligations or any installment thereof or to settle or compromise
any of such obligations, or any other claim or demand which the government may have against
any person or persons[.]

The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. 9-A, 9-B, 9-C,
and 9-D, show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the
rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan included the
financial assistance for the bank by the Philippine Deposit Insurance Corporation (PDIC) by way
of the purchase of AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10
year period. The PDIC had approved of the rehab scheme, which included the purchase of ABs
bad loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year period plus
a yield comparable to the prevailing market rates x x x.

Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at
the time this suit for Sum of Money was filed which was on August [28], 1990, the notes were
held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement,
which was empowered to bring suit to enforce payment of the obligations. Consequently,
defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was filed was
not the holder of the notes to warrant the dismissal of the complaint.[35]

Respondent Bank then elevated the case to the Court of Appeals. In the appellants brief captioned,
ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and TOMAS
ANG, Defendants, TOMAS ANG, Defendant-Appellee, the following errors were alleged:

I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG
LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-
APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTERS DOCUMENTARY
EXHIBITS PROVING THE SAID OBLIGATIONS.

II.

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANTS COMPLAINT

ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN
CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.[36]

The bank stressed that it has established the causes of action outlined in its Complaint by a
preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended
that the same were never authenticated by any witness in the course of the trial; the Agreement,
which was not even legible, did not mention the promissory notes subject of the Complaint; the
bank is not a party to the Agreement, which showed that it was between the Government of the
Philippines, acting through the Committee on Privatization represented by the Secretary of
Finance as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation
No. 50; and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank
averred that the news items appearing in the Manila Bulletin could not be the subject of judicial
notice since they were completely hearsay in character.[37]

On October 9, 2000, the Court of Appeals reversed and set aside the trial courts ruling. The
dispositive portion of the Decision[38] reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City,
Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one
entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the
following:

1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382
plus 14% interest thereon per annum computed from January 31, 1979 until the full amount
thereof is paid;

2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390
plus 14% interest thereon per annum computed from December 8, 1978 until the full amount
thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-
appellees counterclaim is likewise DISMISSED for lack of legal and factual bases.

No pronouncement as to costs.

SO ORDERED.[39]
The appellate court disregarded the banks first assigned error for being irrelevant in the final
determination of the case and found its second assigned error as not meritorious. Instead, it posed
for resolution the issue of whether the trial court erred in dismissing the complaint for collection
of sum of money for lack of cause of action as the bank was said to be not the holder of the notes
at the time the collection case was filed.

In answering the lone issue, the Court of Appeals held that the bank is a holder under Sec. 191 of
the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the
Asset Privatization Trust cannot be declared as the holder of the subject promissory notes for the
reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer
of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes
to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust
Agreement and that the notes continued to remain with the bank until the institution of the
collection suit.

With the bank as the holder of the promissory notes, the Court of Appeals held that Tomas Ang is
accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is
liable to the bank in spite of the latters knowledge, at the time of taking the notes, that he is only
an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on
the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any
consideration therefor as the fact that the loan was granted to the principal debtor already
constitutes a sufficient consideration.

Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business
rendered it implausible that he would just sign the promissory notes as a co-maker without even
checking the real amount of the debt to be incurred, or that he merely acted on the belief that the
first loan application was cancelled. According to the appellate court, it is apparent that he was
negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to
exonerate him from his responsibility under the notes.

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue
charges as well as attorneys fees on the ground that the promissory notes made no mention of such
charges/fees.

In his motion for reconsideration,[40] Tomas Ang raised for the first time the assigned errors as
follows:

xxx

2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently
discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional rule
laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of compounded
interest at 14% per annum, service charges at 2% per annum and overdue penalty charges at 12%
per annum in the prayer of the complaint as of the time of its filing, paying a total of only
P640.00(!!!) as filing and court docket fees although the total sum involved as of that time was
P647,566.75 including 20% attorneys fees. In fact, the stated interest in the body of the complaint
alone amount to P328,373.39 (which is actually compounded and capitalized) in both causes of
action and the total service and overdue penalties and charges and attorneys fees further amount to
P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the complaint.
Significantly, appellant fraudulently misled the Court, describing the 14% imposition as interest,
when in fact the same was capitalized as principal by appellant bank every month to earn more
interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over the
case and the same may not be now corrected by the filing of deficiency fees because the causes of
action had already prescribed and more importantly, the jurisdiction of the Municipal Trial Court
had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant to SC
Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987 Administrative
Code. In other words, as of today, jurisdiction over the subject falls within the exclusive
jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest.

3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE

ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT
OUT TOMAS ANGS CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED
THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG
LIONG. Accordingly, Tomas Angs right of subrogation against Ang Eng Liong, expressed in his
cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant
bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to serve notice of
appeal and appellants brief upon him. Accordingly, appellee Tomas Ang should be released from
his suretyship obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues
above-stated.

4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of
appellant bank which defrauded the judiciary by the payment of deficient docket fees.[41]

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the
motion in its Resolution dated December 26, 2000.[42]
Petitioner now submits the following issues for resolution:

1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as
accommodation maker or surety because of the failure of [private] respondent bank to serve its
notice of appeal upon the principal debtor, respondent Eng Liong?

2. Did the trial court have jurisdiction over the case at all?

3. Did the Court of Appeals [commit] error in assigning its own error and raising its
own issue?

4. Are petitioners other real and personal defenses such as successive extensions
coupled with fraudulent collusion to hide Eng Liongs default, the payees grant of additional
burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but
delivered instrument, meritorious?[43]

Petitioner allegedly learned after the promulgation of the Court of Appeals decision that, pursuant
to the parties agreement on the compounding of interest with the principal amount (per month in
case of default), the interest on the promissory notes as of July 31, 1990 should have been only
P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33 for PN No. DVO-
78-390 (instead of P125,334.41) while the principal debt as of said date should increase to
P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the
fact by describing the amounts as interest instead of being part of either the principal or penalty in
order to pay a lesser amount of docket fees. According to him, the total fees that should have been
paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00
or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because
the last demand letter sent to him was dated September 9, 1986, or more than twenty years have
elapsed such that prescription had already set in. Consequently, the banks claim must be dismissed
as the trial court loses jurisdiction over the case.

Petitioner also argues that the Court of Appeals should not have assigned its own error and raised
it as an issue of the case, contending that no question should be entertained on appeal unless it has
been advanced in the court below or is within the issues made by the parties in the pleadings. At
any rate, he opines that the appellate courts decision that the bank is the real party in interest
because it is the payee named in the note or the holder thereof is too simplistic since: (1) the
power and control of Asset Privatization Trust over the bank are clear from the explicit terms of
the duly certified trust documents and deeds of transfer and are confirmed by the newspaper
clippings; (2) even under P.D. No. 902-A or the General Banking Act, where a corporation or a
bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator,
receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank
was held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the
payee who has not indorsed the notes in all cases is the real party in interest because the rights of
the payee may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of
the Civil Code.

Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellants
brief only on him, it rendered the judgment of the trial court final and executory with respect to
Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all
liability under the promissory notes and, thereby, foreclosed petitioners cross-claims. By such act,
the bank, even if it be the holder of the promissory notes, allegedly discharged a simple contract
for the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like
petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and
impaired the notes, producing the effect of payment (Article 1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper
under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v.
Bautista,[44] this Court recognized the broad discretionary power of an appellate court to waive
the lack of proper assignment of errors and to consider errors not assigned, thus:

As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for
its consideration. Higher courts are precluded from entertaining matters neither alleged in the
pleadings nor raised during the proceedings below, but ventilated for the first time only in a
motion for reconsideration or on appeal.

However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules
recognize the broad discretionary power of an appellate court to waive the lack of proper
assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of
Court provides:

SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over the
subject matter or the validity of the judgment appealed from or the proceedings therein will be
considered, unless stated in the assignment of errors, or closely related to or dependent on an
assigned error and properly argued in the brief, save as the court may pass upon plain errors and
clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings even if they are not
assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but affecting
jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently
plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal
but consideration of which is necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not
specifically assigned as errors on appeal but raised in the trial court and are matters of record
having some bearing on the issue submitted which the parties failed to raise or which the lower
court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned;
and (f) matters not assigned as errors on appeal but upon which the determination of a question
properly assigned is dependent. (Citations omitted)[45]

To the Courts mind, even if the Court of Appeals regarded petitioners two assigned errors as
irrelevant and not meritorious, the issue of whether the trial court erred in dismissing the
complaint for collection of sum of money for lack of cause of action (on the ground that the bank
was not the holder of the notes at the time of the filing of the action) is in reality closely related to
and determinant of the resolution of whether the lower court correctly ruled in not holding
Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite
documentary exhibits allegedly proving their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point.

Now, the more relevant question is: who is the real party in interest at the time of the institution of
the complaint, is it the bank or the Asset Privatization Trust?

To answer the query, a brief history on the creation of the Asset Privatization Trust is proper.
Taking into account the imperative need of formally launching a program for the rationalization of
the government corporate sector, then President Corazon C. Aquino issued Proclamation No.
50[46] on December 8, 1986. As one of the twin cornerstones of the program was to establish the
privatization of a good number of government corporations, the proclamation created the Asset
Privatization Trust, which would, for the benefit of the National Government, take title to and
possession of, conserve, provisionally manage and dispose of transferred assets that were
identified for privatization or disposition.[47]

In accordance with the provisions of Section 23[48] of the proclamation, then President Aquino
subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the
identification of and transfer to the National Government of certain assets (consisting of loans,
equity investments, accrued interest receivables, acquired assets and other assets) and liabilities
(consisting of deposits, borrowings, other liabilities and contingent guarantees) of the
Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The
transfer of assets was implemented through a Deed of Transfer executed on February 27, 1987
between the National Government, on one hand, and the DBP and PNB, on the other. In turn, the
National Government designated the Asset Privatization Trust to act as its trustee through a Trust
Agreement, whereby the non-performing accounts of DBP and PNB, including, among others, the
DBPs equity with respondent Bank, were entrusted to the Asset Privatization Trust.[49] As
provided for in the Agreement, among the powers and duties of the Asset Privatization Trust with
respect to the trust properties consisting of receivables was to handle their administration and
collection by bringing suit to enforce payment of the obligations or any installment thereof or
settling or compromising any of such obligations or any other claim or demand which the
Government may have against any person or persons, and to do all acts, institute all proceedings,
and to exercise all other rights, powers, and privileges of ownership that an absolute owner of the
properties would otherwise have the right to do.[50]

Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from
the date of issuance of Proclamation No. 50.[51] However, its original term was extended from
December 8, 1991 up to August 31, 1992,[52] and again from December 31, 1993 until June 30,
1995,[53] and then from July 1, 1995 up to December 31, 1999,[54] and further from January 1,
2000 until December 31, 2000.[55] Thenceforth, the Privatization and Management Office was
established and took over, among others, the powers, duties and functions of the Asset
Privatization Trust under the proclamation.[56]

Based on the above backdrop, respondent Bank does not appear to be the real party in interest
when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and
petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its claims against both debtors. In fact,
during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it
was under the trusteeship of the Asset Privatization Trust.[57] The Asset Privatization Trust, which
should have been represented by the Office of the Government Corporate Counsel, had the
authority to file and prosecute the case.

The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioners
insistence that the case must be dismissed. Significantly, it stands without refute, both in the
pleadings as well as in the evidence presented during the trial and up to the time this case reached
the Court, that the issue had been rendered moot with the occurrence of a supervening event the
buy-back of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still pending in the lower court,
the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could
rightfully qualify as a holder[58] thereof under the NIL.

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.[59] 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.[60] 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.[61]

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.[62]
As such, he is deemed an original promisor and debtor from the beginning;[63] 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.[64] 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.[65] 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.[66]

Contrary to petitioners adamant stand, however, Article 2080[67] of the Civil Code does not apply
in a contract of suretyship.[68] Art. 2047 of the Civil Code states that if a person binds himself
solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the
Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and
solidary obligations) shall govern the relationship of petitioner with the bank.

The case of Inciong, Jr. v. CA[69] is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and
against Pantanosas, his co-maker, constituted a release of his obligation, especially because the
dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites
as basis for his argument, Article 2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their obligation whenever by
come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the
latter."

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and
not as a guarantor. This is patent even from the first sentence of the promissory note which states
as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to
pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de
Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency,
together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid."

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article
2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such a case the contract is called a suretyship." (Italics
supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor
is different from that of a solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the
liability he assumes to pay the debt before the property of the principal debtor has been exhausted,
retains all the other rights, actions and benefits which pertain to him by reason of rights of the
fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4,
Chapter 3, title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same
obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarily liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of them may be proceeded against for the
entire obligation. The choice is left to the solidary creditor to determine against whom he will
enforce collection. (Citations omitted)[70]

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.[71]

It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of
appeal and appellants brief to Antonio Ang Eng Liong, the trial courts judgment, in effect, became
final and executory as against the latter and, thereby, bars his (petitioners) cross-claims against
him: First, although no notice of appeal and appellants brief were served to Antonio Ang Eng
Liong, he was nonetheless impleaded in the case since his name appeared in the caption of both
the notice and the brief as one of the defendants-appellees;[72] Second, despite including in the
caption of the appellees brief his co-debtor as one of the defendants-appellees, petitioner did not
also serve him a copy thereof;[73] Third, in the caption of the Court of Appeals decision, Antonio
Ang Eng Liong was expressly named as one of the defendants-appellees;[74] and Fourth, it was
only in his motion for reconsideration from the adverse judgment of the Court of Appeals that
petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee.[75]

Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his special appearance
through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over
his person or over the subject matter relating to him because he was not a party in CA-G.R. CV
No. 53413. Stress must be laid of the fact that he had twice put himself in default one, in not filing
a pre-trial brief and another, in not filing his answer to petitioners cross-claims. As a matter of
course, Antonio Ang Eng Liong, being a party declared in default, already waived his right to take
part in the trial proceedings and had to contend with the judgment rendered by the court based on
the evidence presented by the bank and petitioner. Moreover, even without considering these
default judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan
totaling P80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded
that the bank be ordered to submit a more reasonable computation instead of collecting excessive
interest, penalty charges, and attorneys fees. For failing to tender an issue and in not denying the
material allegations stated in the complaint, a judgment on the pleadings[76] would have also been
proper since not a single issue was generated by the Answer he filed.

As the promissory notes were not discharged or impaired through any act or omission of the bank,
Sections 119 (d)[77] and 122[78] of the NIL as well as Art. 1249[79] of the Civil Code would
necessarily find no application. Again, neither was petitioners right of reimbursement barred nor
was the banks right to proceed against Antonio Ang Eng Liong expressly renounced by the
omission to serve notice of appeal and appellants brief to a party already declared in default.
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.[80] It is no defense
to state on his part that he did not receive any value therefor[81] 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."[82] 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.[83] 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.[84]

Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral
security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the
place of the creditor with the right to enforce the guaranty against the other signers of the note for
the reimbursement of what he is entitled to recover from them.[85] Regrettably, none of these
were prudently done by petitioner. When he was first notified by the bank sometime in 1982
regarding his accountabilities under the promissory notes, he lackadaisically relied on Antonio
Ang Eng Liong, who represented that he would take care of the matter, instead of directly
communicating with the bank for its settlement.[86] Thus, petitioner cannot now claim that he was
prejudiced by the supposed extension of time given by the bank to his co-debtor.

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.[87] In Clark v. Sellner,[88] this Court held:

x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his
action against the defendant. It should not be lost sight of that the defendant's signature on the note
is an assurance to the creditor that the collateral guaranty will remain good, and that otherwise, he,
the defendant, will be personally responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was impaired in its value, or
discharged, such an act would have wholly or partially released the surety; but it must be born in
mind that it is a recognized doctrine in the matter of suretyship that with respect to the surety, the
creditor is under no obligation to display any diligence in the enforcement of his rights as a
creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the principal
debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as
were available, constitute no defense at all for the surety, unless the contract expressly requires
diligence and promptness on the part of the creditor, which is not the case in the present action.
There is in some decisions a tendency toward holding that the creditor's laches may discharge the
surety, meaning by laches a negligent forbearance. This theory, however, is not generally accepted
and the courts almost universally consider it essentially inconsistent with the relation of the parties
to the note. (21 R.C.L., 1032-1034)[89]

Neither can petitioner benefit from the alleged insolvency of Antonio Ang Eng Liong for want of
clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise
diligence in demanding security to protect himself from the danger thereof in the event that he
(petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not
obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank;
the said remedy is a matter of concern exclusively between themselves as accommodation party
and accommodated party. The fact that petitioner stands only as a surety in relation to Antonio
Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the
rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal
recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by
a holder in due course and for value, can escape liability by the convenient expedient of
interposing the defense that he is a merely an accommodation party.[90]

In sum, as regards the other issues and errors alleged in this petition, the Court notes that these
were the very same questions of fact raised on appeal before the Court of Appeals, although at
times couched in different terms and explained more lengthily in the petition. Suffice it to say that
the same, being factual, have been satisfactorily passed upon and considered both by the trial and
appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court
in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent
and compelling reason, it is not our function under the rule to examine, evaluate or weigh the
probative value of the evidence presented by the parties all over again.[91]

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit.No
costs. SO ORDERED.

THIRD DIVISION

FAR EAST BANK & TRUST COMPANY,

Petitioner,

- versus -

GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and Kho
Soon Huat,
Respondent.
G.R. No. 168274

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:

August 20, 2008

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

For the review of the Court through a Rule 45 petition are the following issuances of the Court of
Appeals (CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005 Decision[1] which reversed the
trial courts ruling, and (2) the May 26, 2005 Resolution[2] which denied the motion for
reconsideration of the said CA decision.

The instant controversy traces its roots to a transaction consummated sometime in June 1998,
when a foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace
Jewellery Co.s (Gold Palaces) store at SM-North EDSA several pieces of jewelry valued at
P258,000.00.[3] In payment of the same, he offered Foreign Draft No. M-069670 issued by the
United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to
the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company for
P380,000.00.[4]

Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace,
inquired from petitioner Far East Bank & Trust Companys (Far Easts) SM North EDSA Branch,
its neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar
to a managers check, but advised her not to release the pieces of jewelry until the draft had been
cleared.[5] Following the banks advice, Yang issued Cash Invoice No. 1609[6] to the foreigner,
asked him to come back, and informed him that the pieces of jewelry would be released when the
draft had already been cleared.[7] Respondent Julie Yang-Go, the manager of Gold Palace,
consequently deposited the draft in the companys account with the aforementioned Far East
branch on June 2, 1998.[8]

When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the
latter cleared the same[9]UOBs account with LBP was debited,[10] and Gold Palaces account
with Far East was credited with the amount stated in the draft.[11]

The foreigner eventually returned to respondents store on June 6, 1998 to claim the purchased
goods. After ascertaining that the draft had been cleared, respondent Yang released the pieces of
jewelry to Samuel Tagoe; and because the amount in the draft was more than the value of the
goods purchased, she issued, as his change, Far East Check No. 1730881[12] for P122,000.00.[13]
This check was later presented for encashment and was, in fact, paid by the said bank.[14]

On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign
Draft No. M-069670 had been materially altered from P300.00 to P380,000.00 and that it was
returning the same. Attached to its official correspondence were Special Clearing Receipt No.
002593 and the duly notarized and consul-authenticated affidavit of a corporate officer of the
drawer, UOB.[15] It is noted at this point that the material alteration was discovered by UOB after
LBP had informed it that its funds were being depleted following the encashment of the subject
draft.[16] Intending to debit the amount from respondents account, Far East subsequently refunded
the P380,000.00 earlier paid by LBP.

Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998,
as the outstanding balance of its account was already inadequate, Far East was able to debit only
P168,053.36,[17] but this was done without a prior written notice to the account holder.[18] Far
East only notified by phone the representatives of the respondent company.[19]

On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the
difference between the amount in the materially altered draft and the amount debited from the
respondent companys account.[20] Because Gold Palace did not heed the demand, Far East
consequently instituted Civil Case No. 99-296 for sum of money and damages before the Regional
Trial Court (RTC), Branch 64 of Makati City.[21]

In their Answer, respondents specifically denied the material allegations in the complaint and
interposed as a defense that the complaint states no cause of actionthe subject foreign draft having
been cleared and the respondent not being the party who made the material alteration.
Respondents further counterclaimed for actual damages, moral and exemplary damages, and
attorneys fees considering, among others, that the petitioner had confiscated without basis Gold
Palaces balance in its account resulting in operational loss, and had maliciously imputed to the
latter the act of alteration.[22]

After trial on the merits, the RTC rendered its July 30, 2001 Decision[23] in favor of Far East,
ordering Gold Palace to pay the former P211,946.64 as actual damages and P50,000.00 as
attorneys fees.[24] The trial court ruled that, on the basis of its warranties as a general indorser,
Gold Palace was liable to Far East.[25]

On appeal, the CA, in the assailed March 15, 2005 Decision,[26] reversed the ruling of the trial
court and awarded respondents counterclaim. It ruled in the main that Far East failed to undergo
the proceedings on the protest of the foreign draft or to notify Gold Palace of the drafts dishonor;
thus, Far East could not charge Gold Palace on its secondary liability as an indorser.[27] The
appellate court further ruled that the drawee bank had cleared the check, and its remedy should be
against the party responsible for the alteration. Considering that, in this case, Gold Palace neither
altered the draft nor knew of the alteration, it could not be held liable.[28] The dispositive portion
of the CA decision reads:

WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision dated 30
July 2001 of the Regional Trial Court of Makati City, Branch 64 is hereby REVERSED and SET
ASIDE; the Complaint dated January 1999 is DISMISSED; and appellee Far East Bank and Trust
Company is hereby ordered to pay appellant Gold Palace Jewellery Company the amount of
Php168,053.36 for actual damages plus legal interest of 12% per annum from 20 July 1998,
Php50,000.00 for exemplary damages, and Php50,000.00 for attorneys fees. Costs against appellee
Far East Bank and Trust Company.[29]

The appellate court, in the further challenged May 26, 2005 Resolution,[30] denied petitioners
Motion for Reconsideration,[31] which prompted the petitioner to institute before the Court the
instant Petition for Review on Certiorari.[32]

We deny the petition.

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance.[33]
This provision applies with equal force in case the drawee pays a bill without having previously
accepted it. His actual payment of the amount in the check implies not only his assent to the order
of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum,
but also, his clear compliance with that obligation.[34] Actual payment by the drawee is greater
than his acceptance, which is merely a promise in writing to pay. The payment of a check includes
its acceptance.[35]

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and
forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palaces
account the payment it received. Following the plain language of the law, the drawee, by the said
payment, recognized and complied with its obligation to pay in accordance with the tenor of his
acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when the
drawee accepts.[36] Stated simply, LBP was liable on its payment of the check according to the
tenor of the check at the time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a
due course holder. We note at this point that Gold Palace was not a participant in the alteration of
the draft, was not negligent, and was a holder in due courseit received the draft complete and
regular on its face, before it became overdue and without notice of any dishonor, in good faith and
for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the
person negotiating it.[37] Having relied on the drawee banks clearance and payment of the draft
and not being negligent (it delivered the purchased jewelry only when the draft was cleared and
paid), respondent is amply protected by the said Section 62. Commercial policy favors the
protection of any one who, in due course, changes his position on the faith of the drawee banks
clearance and payment of a check or draft.[38]

This construction and application of the law gives effect to the plain language of the NIL[39] and
is in line with the sound principle that where one of two innocent parties must suffer a loss, the
law will leave the loss where it finds it.[40] It further reasserts the usefulness, stability and
currency of negotiable paper without seriously endangering accepted banking practices. Indeed,
banking institutions can readily protect themselves against liability on altered instruments either
by qualifying their acceptance or certification, or by relying on forgery insurance and special
paper which will make alterations obvious.[41] This is not to mention, but we state nevertheless
for emphasis, that the drawee bank, in most cases, is in a better position, compared to the holder,
to verify with the drawer the matters stated in the instrument. As we have observed in this case,
were it not for LBPs communication with the drawer that its account in the Philippines was being
depleted after the subject foreign draft had been encashed, then, the alteration would not have
been discovered. What we cannot understand is why LBP, having the most convenient means to
correspond with UOB, did not first verify the amount of the draft before it cleared and paid the
same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia,
the true amount in the draft. It was left with no option but to rely on the representations of LBP
that the draft was good.

In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in
common law jurisdictions that a drawee bank, having paid to an innocent holder the amount of an
uncertified, altered check in good faith and without negligence which contributed to the loss,
could recover from the person to whom payment was made as for money paid by mistake.[42]
However, given the foregoing discussion, we find no compelling reason to apply the principle to
the instant case.

The Court is also aware that under the Uniform Commercial Code in the United States of
America, if an unaccepted draft is presented to a drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of
presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee
making payment or accepting the draft in good faith that the draft has not been altered.[43]
Nonetheless, absent any similar provision in our law, we cannot extend the same preferential
treatment to the paying bank.

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its
collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent companys account. When Gold Palace deposited the check with Far East, the latter,
under the terms of the deposit and the provisions of the NIL, became an agent of the former for the
collection of the amount in the draft.[44] The subsequent payment by the drawee bank and the
collection of the amount by the collecting bank closed the transaction insofar as the drawee and
the holder of the check or his agent are concerned, converted the check into a mere voucher,[45]
and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure
of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay
and annoyance will arise if a bank at some future time will call on the payee for the return of the
money paid to him on the check.[46]

As the transaction in this case had been closed and the principal-agent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the drawee
bank was already acting on its own and should now be responsible for its own actions. Neither can
petitioner be considered to have acted as the representative of the drawee bank when it debited
respondents account, because, as already explained, the drawee bank had no right to recover what
it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely because the
said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a
restrictive indorsement.[47] It did not in any way transfer the title of the instrument to the
collecting bank. Far East did not own the draft, it merely presented it for payment. Considering
that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a
transfer of title and are available only to holders in due course,[48] these warranties did not attach
to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal
right to do so, the collecting bank, therefore, could not debit respondents account for the amount it
refunded to the drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East
could not debit the account of Gold Palace, and for doing so, it must return what it had
erroneously taken. Far Easts remedy under the law is not against Gold Palace but against the
drawee-bank or the person responsible for the alteration. That, however, is another issue which we
do not find necessary to discuss in this case.

However, we delete the exemplary damages awarded by the appellate court. Respondents have not
shown that they are entitled to moral, temperate or compensatory damages.[49] Neither was
petitioner impelled by malice or bad faith in debiting the account of the respondent company and
in pursuing its cause.[50] On the contrary, petitioner was honestly convinced of the propriety of
the debit. We also delete the award of attorneys fees for, in a plethora of cases, we have ruled that
it is not a sound public policy to place a premium on the right to litigate. No damages can be
charged to those who exercise such precious right in good faith, even if done erroneously.[51]

WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 71858 are AFFIRMED WITH THE
MODIFICATION that the award of exemplary damages and attorneys fees is DELETED.
SO ORDERED.

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:

Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is
the decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of
Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the
Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for declaration
of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay respondent Octavio
Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture
under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-
concerts and shows related to basketball. Petitioner was already then a decorated professional
basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses
of Slam Dunk. Although signed, these checks had no payee’s name, date or amount. The blank
checks were entrusted to Gutierrez with the specific instruction not to fill them out without
previous notification to and approval by the petitioner. According to petitioner, the arrangement
was made so that he could verify the validity of the payment and make the proper arrangements to
fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan (the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on
the excuse that the petitioner needed the money for the construction of his house. In addition to the
payment of the principal, Gutierrez assured Marasigan that he would be paid an interest of 5% per
month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and
Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in
February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount
of "₱200,000.00". The upper right portion of the check corresponding to the date was also filled
out with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had been
closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters
to the petitioner asking for the payment of ₱200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as
Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint
for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the check’s negotiation, and asserted that
he was not privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22,
1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing
the pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with
specific instructions to Gutierrez not to negotiate or issue the check without his approval. While
under Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he deliberately violated
petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay
Marasigan the face value of the check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a
holder in due course. He contended that when Marasigan received the check, he knew that the
same was without a date, and hence, incomplete. He also alleged that the loan was actually
between Marasigan and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual
findings. After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in
due course as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with
the petitioner’s authority. It held that the loan may not be nullified since it is grounded on an
obligation arising from law and ruled that the petitioner is still liable to pay Marasigan the sum of
₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed
the present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never
authorized the borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878
of the Civil Code, a special power of attorney is necessary for an individual to make a loan or
borrow money in behalf of another; (3) the loan transaction was between Gutierrez and
Marasigan, with his check being used only as a security; (4) the check had not been completely
and strictly filled out in accordance with his authority since the condition that the subject check
can only be used provided there is prior approval from him, was not complied with; (5) even if the
check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim
the check’s value as he was not a holder in due course; and (6) by reason of the bad faith in the
dealings between the respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The
main point of inquiry of whether the contract of loan may be nullified, hinges on the very
existence of the contract of loan – a question that, as presented, is essentially, one of fact. Whether
the petitioner authorized the borrowing; whether Gutierrez completely filled out the subject check
strictly under the petitioner’s authority; and whether Marasigan is a holder in due course are also
questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for
review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no
exceptions. One notable exception is when the findings off act of both the trial court and the CA
are conflicting, making their review necessary.5 In the present case, the tribunals below arrived at
two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the complaint
for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly
requires a written authority when the loan is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held liable for the face value of the check
because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds
himself to render some service or to do something in representation or on behalf of another, with
the consent or authority of the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest therein through an
agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before
an agent can loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation
of the things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et
al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the
authorization and not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of the party claiming that
such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form.
The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680)
stated that such a mandate may be either oral or written, the one vital thing being that it shall be
express. And more recently, We stated that, if the special authority is not written, then it must be
duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the Court has
every reason to expect that, if not in writing, the same be duly established by evidence other than
the self-serving assertion of counsel himself that such authority was verbally given him.(Home
Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs.
Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for
Being Void; Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in
behalf of the petitioner.1âwphi1 Records do not show that the petitioner executed any special
power of attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he
never authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow
money in his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing
authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing
them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out
and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of
the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa
secured by real estate mortgages in the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is no basis to hold the corporation liable,
to wit:
The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his
death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf
of respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that the amount was received by Lilian "in
behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and
not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf
of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus,
the petitioner is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of agency
and the special fiduciary relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of agency, but also its nature
and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery
of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did
not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to beno
contract of agency between Yambao and Andan so as to bind the latter for the acts of the former.
Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both parties is essential,
the principal consents that the other party, the agent, shall act on his behalf, and the agent consents
so to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has
the burden of proof to show, not only the fact of its existence, but also its nature and extent. This is
more imperative when it is considered that the transaction dealt with involves checks, which are
not legal tender, and the creditor may validly refuse the same as payment of obligation.(at p. 630).
(emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy
of the SPA in favor of the latter and without verifying from the petitioner whether he had
authorized the borrowing of money or release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent
Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any
other contract, is subject to the rules governing the requisites and validity of contracts in
general.13 Article 1318 of the Civil Code14 enumerates the essential requisites for a valid
contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential
element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have
the petitioner’s written/verbal authority to enter into a contract of loan. While there may be a
meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the petitioner
whose consent was not obtained and who was not privy to the loan agreement. Hence, only
Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the
hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money in
his behalf and neither should it be construed as petitioner’s grant of consent to the parties’ loan
agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in the
check cannot be taken, even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a purported contract, such contract
could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be
made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument operates as a prima facie authority to
fill it up as such for any amount. In order, however, that any such instrument when completed may
be enforced against any person who became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person other than the drawer or maker and
from such possession, together with the fact that the instrument is wanting in a material particular,
the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had not been filled up strictly in accordance
with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of
authority.17
In the present case, the petitioner contends that there is no legal basis to hold him liable both under
the contract and loan and under the check because: first, the subject check was not completely
filled out strictly under the authority he has given and second, Marasigan was not a holder in due
course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in
good faith and for value." It also provides in Section 52(d) that in order that one may be a holder
in due course, it is necessary that at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could beset up against a prior holder of the instrument.18 It means that he does not have any
knowledge of fact which would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact
fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show
that the defendant had notice that there was something wrong about his assignor's acquisition of
title, although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way
tainted with fraud. It is not necessary that he should know the particulars or even the nature of the
fraud, since all that is required is knowledge of such facts that his action in taking the note
amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan department
provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad
faith may be inferred. The circumstances thrust the duty upon the defendants to make further
inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis
supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith. The following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew,
there were several visitors that included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap niya si…
hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya
yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang
tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you
want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N.,
Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly
noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was
not a party to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already
totally barred from recovery. The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument.22 The only disadvantage of a holder who is
not in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of
the authority he gave. He points to his instruction not to use the check without his prior approval
and argues that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the
blanks and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be
used in their business provided that he could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the
operation of their business, and on the condition that the petitioner’s prior approval be first
secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is
completed. In other words, only the authority to complete the check is presumed. Further, the law
used the term "prima facie" to underscore the fact that the authority which the law accords to a
holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23,
1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only
xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded
the authority when he used the check to pay the loan he supposedly contracted for the construction
of petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for
the expenses of Slam Dunk. It cannot therefore be validly concluded that the check was completed
strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the
personal defense that the blanks were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner
Alvin Patrimonio's petition for review on certiorari. The appealed Decision dated September 24,
2008 and the Resolution dated April 30, 2009 of the Court of Appeals are consequently
ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
G.R. No. 96160 June 17, 1992
STELCO MARKETING CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES,
INC., respondent.

NARVASA, c.J.:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural
steel bars. 1 On seven (7) different occasions in September and October, 1980, it sold to RYL
Construction, Inc. quantities of steels bars of various sizes and rolls of G.I. wire. These bars and
wire were delivered at different places at the indication of RYL Construction, Inc. The aggregate
price for the purchases was P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL pay "COD" (cash on
delivery), the latter made no payments for the construction materials thus ordered and delivered
despite insistent demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong, Industries — described by STELCO as its "sister
corporation" and "manufacturing arm" 2 — a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated April 4, 1981. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter
Rafael Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL.
Romeo Lim had asked Limson, for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, "only as guaranty but not to pay for anything." 3 Why the
check was made out in the amount of P126,129.86 is not explained. Anyway, the check was
actually issued in said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries, 4 in payment of an obligation. When the latter deposited the check at its
bank, it was dishonored because "drawn against insufficient funds." 5 When so deposited, the
check bore two(2) endorsements, that of "RYL Construction," followed by that of "Armstrong
Industries." 6
On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional
Trial Court of Manila with a violation of Batas Pambansa Bilang 22. 7 They were acquitted in a
decision rendered on June 28, 1984 "on the ground that the check in question was not issued by
the drawer "to apply on account for value," it being merely for accommodation purposes. 8 The
judgment however conditioned the acquittal with the following pronouncement:
This is not however to release Steelweld Corporation from its liability under Sec. 29 of the
Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim.
Eleven months or so later — and some four (4) years after issuance of the check in question — in
May, 1985, STELCO filed with the Regional Trial Court at Caloocan City a civil complaint 9
against both RYL and STEELWELD for the recovery of the valued of the steel bars and wire sold
to and delivered to RYL (as already narrated) in the amount of P126,129.86, "plus 18% interest
from August 20, 1980 . . . (and) 25% of the total amount sought to be recovered as and by way of
attorney's fees . . . ." 10 Among the allegations of its complaint was that Metrobank Check No.
765380 above mentioned had been given to it in payment of RYL's indebtedness, duly indorsed by
R.Y. Lim. 11 A preliminary attachment was issued by the trial court on the basis of the averments
of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD.
RYL could no longer be located and could not be served with
summons. 12 It never appeared. Only STEELWELD filed an answer, under date of July 16, 1985.
13 In said pleading, it specifically denied the facts alleged in the complaint, the truth, according to
Steelweld, being basically that —
1) STELCO "is a complete stranger to it;" it had "not entered into any transaction or business
dealing of any kind" with STELCO, the transactions described in the complaint having been solely
and exclusively between the plaintiff and RYL Construction;
2) the check in question was "only given to a certain R. Lim to be used as collateral for another
obligation . . . (but) in breach of his agreement (Lim) utilized and negotiated the check for another
purpose. . . .;
3) nevertheless, the check "is wholly inoperative since . . . Steelweld
. . . did not issue it for any valuable consideration either to R. Lim or to the plaintiff not to mention
also the fact that the said plaintiff failed to comply with the requirements of the law to hold the
said defendant (STEELWELD) liable
. . ."
Trial ensued upon these issues, after which judgment was rendered on June 26, 1986. 14 The
judgment sentenced "the defendant Steelweld Corporation to pay to . . . (Stelco Marketing
Corporation) the amount of P126,129.86 with legal rate of interest from May 9, 1985, when this
case was instituted until fully paid, plus another sum equivalent to 25% of the total amount due as
and for attorney's fees . . . 15 That disposition was justified in the judgment as follows:16
There is no question, then, that as far as any commercial transaction is concerned between plaintiff
and defendant Steelweld no such transaction ever occurred. Ordinarily, under civil law rules, there
having been no transaction between them involving the purchase of certain merchandise there
would be no privity of contract between them, and plaintiff will have no right to sue the defendant
for payment of said merchandise for the simple reason that the defendant did not order them, such
less receive them.
But we have here a case where the defendant Steelweld thru its President Peter Rafael Limson
admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the
President of RYL Construction by way of accommodation. Under the Negotiable Instruments Law
an accommodation party is liable.
Sec. 29. Liability of an 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.
From this adverse judgment STEELWELD appealed to the Court of Appeals 17 and there
succeeded in reversing the judgment. By Decision promulgated on May 29, 1990, 18 the Court of
Appeals 19 ordered "the complaint against appellant (STEELWELD) DISMISSED; (and the
appellee, STELCO) to pay appellant the sum of P15,000.00 as attorney's fees and cost of
litigation, the suit . . . (being) a baseless one that dragged appellant in court and caused it to incur
attorney's fees and expense of litigation.
STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated
November 13, 1990. 20 The Court stressed that —
. . . as far as Steelweld is concerned, there was no commercial transaction between said appellant
and appellee. Moreover, there is no evidence that appellee Stelco Marketing became a holder for
value. Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof. Finally, appellee's complaint is for the collection of the unpaid accounts for
delivery of steels bars and construction materials. It having been established that appellee had no
commercial transaction with appellant Stelco, appellee had no cause of action against said
appellant.
STELCO appealed to this Court in accordance with Rule 45 of the Rules of Court. In this Court it
seeks to make the following points in connection with its plea for the overthrow of the Appellate
Tribunal's aforesaid decision, viz.:
1) said decision is "not in accord with law and jurisprudence;"
2) "STELCO is a "holder" within the meaning of the Negotiable Instruments Law;"
3) "STELCO is a holder in due course of Metrobank Check No. 765380 . . . (and hence) holds
the same free from personal or equitable defense;" and
4) "Negotiation in breach of faith is a personal defense . . . (and hence) not effective as against a
holder in due course."
The points are not well taken.
The crucial question is whether or not STELCO ever became a holder in due course of Check No.
765380, a bearer instrument, within the contemplation of the Negotiable Instruments Law. It never
did.
STELCO evidently places much reliance on the pronouncement of the Regional Trial Court in
Criminal Case No. 66571, 21 that the acquittal of the two (2) accused (Limson and Torres) did not
operate "to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable
Instruments Law for having issued . . . (the check) for the accommodation of Romeo Lim." The
cited provision reads as follows:
Sec. 29. Liability of accommodation party. — An accommodation party is one who has singed
the instrument as maker, drawer, acceptor, or indorser, without receiving valued 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.
It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did
not specify to whom STEELWELD, as accommodation party, is supposed to be liable; and certain
it is that neither said pronouncement nor any other part of the judgment of acquittal declared it
liable to STELCO.
"A holder in due course," says the law, 22 "is a holder who has taken the instrument under the
following conditions:
(a) That is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the persons negotiating it.
To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e.,
lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it, has
no application. This is because Section 29 of the law above quoted preserves the right of recourse
of a "holder for value" against the accommodation party notwithstanding that "such holder, at the
time of taking the instrument, knew him to be only an accommodation
party." 23
Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check
No. 765380 because the record shows it to have been in "actual possession" thereof; otherwise, it
"could not have presented, marked and introduced (said check) in evidence . . . before the court a
quo." "Besides," it adds, the check in question was presented by STELCO to the drawee bank for
payment through Armstrong Industries, the manufacturing arm of STELCO and its sister
company." 24
The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380
ever dated back to nay time before the instrument's presentment and dishonor. There is no
evidence whatsoever that the check was ever given to it, or indorsed to it in any manner or form in
payment of an obligation or as security for an obligation, or for any other purpose before it was
presented for payment. On the contrary, the factual finding of the Court of Appeals, which by
traditional precept is normally conclusive on this Court, is that STELCO never became a holder
for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as
payee, indorsee or depositor thereof." 25
What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral
for another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after
indorsing it; (5) the check was dishonored. The record does not show any intervention or
participation by STELCO in any manner of form whatsoever in these transactions, or any
communication of any sort between STEELWELD and STELCO, or between either of them and
Armstrong Industries, at any time before the dishonor of the check.
The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it
in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson
and Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a
holder for value within the meaning of the law; it gives rise to no liability on the part of the maker
or drawer and indorsers.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check
for value. It does not meet two of the essential requisites prescribed by the statute. It did not
become "the holder of it before it was overdue, and without notice that it had been previously
dishonored," and it did not take the check "in good faith and for value." 26
Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated
the check accepted the instrument and attempted to encash it in behalf, and as agent of STELCO.
On the contrary, the indications are that Armstrong was really the intended payee of the check and
was the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or reversal of the
challenged judgment of the Court of Appeals which, on the contrary, appears to be entirely in
accord with the facts and the applicable law.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 13418 is AFFIRMED in toto. Costs against petitioner.
SO ORDERED.

G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.
JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of
First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the
order declaring him in default, 1 and from the order of said court in the same case denying his
motion to set aside the judgment rendered after he was declared in default. 2 These two appeals of
the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file
one consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil
Case No. 42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon
from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30)
days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and costs. 6
The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of
action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on
different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to
be recovered represents the cost of the printing of "World Current Events," a periodical published
by the defendant. To facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World Current Events," the
printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against
the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for
the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn
over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all
obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On
December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the
hearing on December 16, 1959. 10 At the hearing, the court denied defendant's motion for
extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17,
1959 on the ground that the complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for
acceptance, the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press
and Photo Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee
is an accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be
liable in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff.
11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received
by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting
upon the motion for reconsideration filed by the plaintiff, the trial court set aside its order
dismissing the complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning.
14 A copy of the order setting aside the order of dismissal was received by the defendant on March
11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila,
Mamerto de la Cruz. On the following day, March 12, 1960, the defendant filed a motion to
postpone the trial of the case on the ground that there having been no answer as yet, the issues had
not yet been joined. 15 On the same date, the defendant filed his answer to the complaint
interposing the following defenses: That he signed the document upon which the plaintiff sues in
his capacity as President of the Philippine Education Foundation; that his liability is only
secondary; and that he believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the
ground that the defendant should have filed his answer on March 11, 1960. He contends that by
filing his answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial
court declared the defendant in default. 18 The defendant learned of the order declaring him in
default on March 21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order
of default alleging that although the order of the court dated March 7, 1960 was received on
March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the
defendant to file his answer on the last day of the reglementary period, March 11, 1960, within
office hours, especially because the order of the court dated March 7, 1960 was brought to the
attention of counsel only in the early hours of March 12, 1960. The defendant also alleged that he
has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960,
at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20 On
May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the
sum of P35,444.35 representing the total amount of his obligation to the said plaintiff under the
twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the sum of
P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961
denying his motion to set aside the order declaring him in default, an appeal bond in the amount of
P60.00, and his record on appeal. The plaintiff filed his opposition to the approval of defendant's
record on appeal on May 13, 1960. The following day, May 14, 1960, the lower court dismissed
defendant's appeal from the order dated March 25, 1960 denying his motion to set aside the order
of default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the trial
court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's
motion for reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court
reconsidered its previous order dismissing the appeal and approved the defendant's record on
appeal. 25 On May 30, 1960, the defendant received a copy of a notice from the Clerk of Court
dated May 26, 1960, informing the defendant that the record on appeal filed ed by the defendant
was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the
order of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied
the defendant's motion to set aside the judgment by default in an order of June 11, 1960. 29 On
June 20, 1960, the defendant filed his notice of appeal from the order of the court denying his
motion to set aside the judgment by default, his appeal bond, and his record on appeal. The
defendant's record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the lower court
denying his motion to set aside the order of default docketed as CA-G.R. NO. 27734-R; (2)
Appeal from the order denying his motion to set aside the judgment by default docketed as CA-
G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE
AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF
ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him through his
mistake, inadvertence, surprise or excusable neglect, he must show to the court that he has a
meritorious defense. 32 In other words, in order to set aside the order of default, the defendant
must not only show that his failure to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a
motion to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on
January 23, 1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting
upon the motion for reconsideration, the trial court issued an order setting aside the order of
dismissal; that a copy of the order was received by the defendant on March 11, 1960 at 5:00
o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following
day, March 12, 1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The
order setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It
was therefore impossible for him to have filed his answer on that same day because the courts then
held office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his
answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable
negligence, he has failed to show that he has a meritorious defense. The defendant does not have a
good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a
representative capacity, as the then President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal," printed by Encal Press and Photo-
Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation
or additional party obligor, to add to the security of said plaintiff bank. The reason for this
statement is that unlike real bills of exchange, where payment of the face value is advanced to the
drawer only upon acceptance of the same by the drawee, in the case in question, payment for the
supposed bills of exchange were made before acceptance; so that in effect, although these
documents are labelled bills of exchange, legally they are not bills of exchange but mere
instruments evidencing indebtedness of the drawee who received the face value thereof, with the
defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an agent of
the Philippine Education Foundation Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a person adds to his signature
words indicating that he signs for or on behalf of a principal or in a representative capacity, he is
not liable on the instrument if he was duly authorized; but the mere addition of words describing
him as an agent or as filing a representative character, without disclosing his principal, does not
exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he
was signing as a representative of the Philippine Education Foundation Company. 34 He merely
signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose
his principal, Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as
such, should be made liable only after a showing that the drawer is incapable of paying. This
contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such
person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of
the taking of the instrument knew him to be only an accommodation party.35 In lending his name
to the accommodated party, the accommodation party is in effect a surety for the latter. He lends
his name to enable the accommodated party to obtain credit or to raise money. He receives no part
of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor.
Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a
lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.
The defendant also contends that the drafts signed by him were not really bills of exchange but
mere pieces of evidence of indebtedness because payments were made before acceptance. This is
also without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional
order in writting addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer. 36 As long as a commercial paper conforms with the
definition of a bill of exchange, that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will
result in a new trial which will serve no purpose and will just waste the time of the courts as well
as of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of
Manila denying the petition for relief from the judgment rendered in said case is hereby affirmed,
without pronouncement as to costs.
SO ORDERED.

G. R. No. 116320. November 29, 1999]

ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY COMMERCIAL &

CONSTRUCTION CORPORATION AND JAIME C. ONG, respondents.
DECISION
GONZAGA_REYES, J.:
Assailed in this petition for review on certiorari is the decision[1] of the Court of Appeals
affirming the decision[2] rendered by Branch 168 of the Regional Trial Court of Pasig in Civil
Case No. 35231 in favor of private respondents.

The controversy before this Court finds its origins in a Land Development and Construction
Contract which was entered into on June 23, 1977 by A. Francisco Realty & Development
Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the president, and
private respondent Herby Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Jaime C. Ong (Ong), pursuant to a housing
project of AFRDC at San Jose del Monte, Bulacan, financed by the Government Service Insurance
System (GSIS). Under the contract, HCCC agreed to undertake the construction of 35 housing
units and the development of 35 hectares of land. The payment of HCCC for its services was on a
turn-key basis, that is, HCCC was to be paid on the basis of the completed houses and developed
lands delivered to and accepted by AFRDC and the GSIS. To facilitate payment, AFRDC executed
a Deed of Assignment in favor of HCCC to enable the latter to collect payments directly from the
GSIS. Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the
Insular Bank of Asia & America (IBAA) in the amount of P4,000,000.00 from which checks
would be issued and co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz
(Diaz).
On February 10, 1978, HCCC filed a complaint[3] with the Regional Trial Court of Quezon City
against Francisco, AFRDC and the GSIS for the collection of the unpaid balance under the Land
Development and Construction Contract in the amount of P515,493.89 for completed and
delivered housing units and land development. However, the parties eventually arrived at an
amicable settlement of their differences, which was embodied in a Memorandum Agreement
executed by HCCC and AFRDC on July 21, 1978. Under the agreement, the parties stipulated that
HCCC had turned over 83 housing units which have been accepted and paid for by the GSIS. The
GSIS acknowledged that it still owed HCCC P520,177.50 representing incomplete construction of
housing units, incomplete land development and 5% retention, which amount will be discharged
when the defects and deficiencies are finally completed by HCCC. It was also provided that
HCCC was indebted to AFRDC in the amount of P180,234.91 which the former agreed would be
paid out of the proceeds from the 40 housing units still to be turned over by HCCC or from any
amount due to HCCC from the GSIS. Consequently, the trial court dismissed the case upon the
filing by the parties of a joint motion to dismiss.

Sometime in 1979, after an examination of the records of the GSIS, Ong discovered that Diaz and
Francisco had executed and signed seven checks[4], of various dates and amounts, drawn against
the IBAA and payable to HCCC for completed and delivered work under the contract. Ong,
however, claims that these checks were never delivered to HCCC. Upon inquiry with Diaz, Ong
learned that the GSIS gave Francisco custody of the checks since she promised that she would
deliver the same to HCCC. Instead, Francisco forged the signature of Ong, without his knowledge
or consent, at the dorsal portion of the said checks to make it appear that HCCC had indorsed the
checks; Francisco then indorsed the checks for a second time by signing her name at the back of
the checks and deposited the checks in her IBAA savings account. IBAA credited Franciscos
account with the amount of the checks and the latter withdrew the amount so credited.

On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon City, charging
Francisco with estafa thru falsification of commercial documents. Francisco denied having forged
Ongs signature on the checks, claiming that Ong himself indorsed the seven checks in behalf of
HCCC and delivered the same to Francisco in payment of the loans extended by Francisco to
HCCC. According to Francisco, she agreed to grant HCCC the loans in the total amount of
P585,000.00 and covered by eighteen promissory notes in order to obviate the risk of the non-
completion of the project. As a means of repayment, Ong allegedly issued a Certification
authorizing Francisco to collect HCCCs receivables from the GSIS. Assistant City Fiscal Ramon
M. Gerona gave credence to Franciscos claims and accordingly, dismissed the complaints, which
dismissal was affirmed by the Minister of Justice in a resolution issued on June 5, 1981.

The present case was brought by private respondents on November 19, 1979 against Francisco and
IBAA for the recovery of P370,475.00, representing the total value of the seven checks, and for
damages, attorneys fees, expenses of litigation and costs. After trial on the merits, the trial court
rendered its decision in favor of private respondents, the dispositive portion of which provides -

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY. ADALIA
FRANCISCO, to jointly and severally pay the plaintiffs the amount of P370.475.00 plus interest
thereon at the rate of 12% per annum from the date of the filing of the complaint until the full
amount is paid; moral damages to plaintiff Jaime Ong in the sum of P50,000.00; exemplary
damages of P50,000.00; litigation expenses of P5,000.00; and attorneys fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia
Francisco, the latter is ordered to reimburse the former for the sums that the Bank shall pay to the
plaintiff on the forged checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI),
the trial court held that Francisco had indeed forged the signature of Ong to make it appear that he
had indorsed the checks. Also, the court ruled that there were no loans extended, reasoning that it
was unbelievable that HCCC was experiencing financial difficulties so as to compel it to obtain
the loans from AFRDC in view of the fact that the GSIS had issued checks in favor of HCCC at
about the same time that the alleged advances were made. The trial court stated that it was
plausible that Francisco concealed the fact of issuance of the checks from private respondents in
order to make it appear as if she were accommodating private respondents, when in truth she was
lending HCCC its own money.

With regards to the Memorandum Agreement entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the trial court held that the same did not make any mention of the forged
checks since private respondents were as of yet unaware of their existence, that fact having been
effectively concealed by Francisco, until private respondents acquired knowledge of Franciscos
misdeeds in 1979.

IBAA was held liable to private respondents for having honored the checks despite such obvious
irregularities as the lack of initials to validate the alterations made on the check, the absence of the
signature of a co-signatory in the corporate checks of HCCC and the deposit of the checks on a
second indorsement in the savings account of Francisco. However, the trial court allowed IBAA
recourse against Francisco, who was ordered to reimburse the IBAA for any sums it shall have to
pay to private respondents.[5]

Both Francisco and IBAA appealed the trial courts decision, but the Court of Appeals dismissed
IBAAs appeal for its failure to file its brief within the 45-day extension granted by the appellate
court. IBAAs motion for reconsideration and petition for review on certiorari filed with this Court
were also similarly denied. On November 21, 1989, IBAA and HCCC entered into a Compromise
Agreement which was approved by the trial court, wherein HCCC acknowledged receipt of the
amount of P370,475.00 in full satisfaction of its claims against IBAA, without prejudice to the
right of the latter to pursue its claims against Francisco.

On June 29, 1992, the Court of Appeals affirmed the trial courts ruling, hence this petition for
review on certiorari filed by petitioner, assigning the following errors to the appealed decision

1. The respondent Court of Appeals erred in concluding that private respondents did not owe
Petitioner the sum covered by the Promissory Notes Exh.2-2-A-2-P (FRANCISCO). Such
conclusion was based mainly on conjectures, surmises and speculation contrary to the unrebutted
pleadings and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified the signature of
private respondent ONG on the checks in question without any authority therefor which is patently
contradictory to the unrebutted pleading and evidence that petitioner was expressly authorized by
respondent HERBY thru ONG to collect all receivables of HERBY from GSIS to pay the loans
extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks in question were not
taken up in the liquidation and reconciliation of all outstanding account between AFRDC and
HERBY as acknowledged by the parties in Memorandum Agreement (Exh. 5) is a pure conjecture,
surmise and speculation contrary to the unrebutted evidence presented by petitioners. It is an
inference made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the lower court and
dismissing the appeal.[6]
The pivotal issue in this case is whether or not Francisco forged the signature of Ong on the seven
checks. In this connection, we uphold the lower courts finding that the subject matter of the
present case, specifically the seven checks, drawn by GSIS and AFRDC, dated between October
to November 1977, in the total amount of P370,475.00 and payable to HCCC, was not included in
the Memorandum Agreement executed by HCCC and AFRDC in Civil Case No. Q-24628. As
observed by the trial court, aside from there being absolutely no mention of the checks in the said
agreement, the amounts represented by said checks could not have been included in the
Memorandum Agreement executed in 1978 because private respondents only discovered
Franciscos acts of forgery in 1979. The lower courts found that Francisco was able to easily
conceal from private respondents even the fact of the issuance of the checks since she was a co-
signatory thereof.[7] We also note that Francisco had custody of the checks, as proven by the
check vouchers bearing her uncontested signature,[8] by which she, in effect, acknowledged
having received the checks intended for HCCC. This contradicts Franciscos claims that the checks
were issued to Ong who delivered them to Francisco already indorsed.[9]

As regards the forgery, we concur with the lower courts finding that Francisco forged the signature
of Ong on the checks to make it appear as if Ong had indorsed said checks and that, after
indorsing the checks for a second time by signing her name at the back of the checks, Francisco
deposited said checks in her savings account with IBAA. The forgery was satisfactorily
established in the trial court upon the strength of the findings of the NBI handwriting expert.[10]
Other than petitioners self-serving denials, there is nothing in the records to rebut the NBIs
findings. Well-entrenched is the rule that findings of trial courts which are factual in nature,
especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the
Supreme Court, provided it is supported by substantial evidence on record,[11] as it is in the case
at bench.

Petitioner claims that she was, in any event, authorized to sign Ongs name on the checks by virtue
of the Certification executed by Ong in her favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including the questioned checks.[12] Petitioners alternative
defense must similarly fail. The Negotiable Instruments Law provides that where any person is
under obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability.[13] An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his principal; otherwise he shall
be held personally liable.[14] Even assuming that Francisco was authorized by HCCC to sign
Ongs name, still, Francisco did not indorse the instrument in accordance with law. Instead of
signing Ongs name, Francisco should have signed her own name and expressly indicated that she
was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate
her act of forgery.

Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.[15] Due to her forgery of Ongs signature which enabled her to
deposit the checks in her own account, Francisco deprived HCCC of the money due it from the
GSIS pursuant to the Land Development and Construction Contract. Thus, we affirm respondent
courts award of compensatory damages in the amount of P370,475.00, but with a modification as
to the interest rate which shall be six percent (6%) per annum, to be computed from the date of the
filing of the complaint since the amount of damages was alleged in the complaint;[16] however,
the rate of interest shall be twelve percent (12%) per annum from the time the judgment in this
case becomes final and executory until its satisfaction and the basis for the computation of this
twelve percent (12%) rate of interest shall be the amount of P370,475.00. This is in accordance
with the doctrine enunciated in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al.,[17] which
was reiterated in Philippine National Bank vs. Court of Appeals,[18] Philippine Airlines, Inc. vs.
Court of Appeals[19]and in Keng Hua Paper Products Co., Inc. vs. Court of Appeals,[20] which
provides that -

1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of six
percent (6%) per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be twelve
percent (12%) per annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.

We also sustain the award of exemplary damages in the amount of P50,000.00. Under Article 2229
of the Civil Code, exemplary damages are imposed by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory damages. Considering
petitioners fraudulent act, we hold that an award of P50,000.00 would be adequate, fair and
reasonable. The grant of exemplary damages justifies the award of attorneys fees in the amount of
P50,000.00, and the award of P5,000.00 for litigation expenses.[21]

The appellate courts award of P50,000.00 in moral damages is warranted. Under Article 2217 of
the Civil Code, moral damages may be granted upon proof of physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury.[22] Ong testitified that he suffered sleepless nights, embarrassment,
humiliation and anxiety upon discovering that the checks due his company were forged by
petitioner and that petitioner had filed baseless criminal complaints against him before the fiscals
office of Quezon City which disrupted HCCCs business operations.[23]

WHEREFORE, we AFFIRM the respondent courts decision promulgated on June 29, 1992,
upholding the February 16, 1988 decision of the trial court in favor of private respondents, with
the modification that the interest upon the actual damages awarded shall be at six percent (6%) per
annum, which interest rate shall be computed from the time of the filing of the complaint on
November 19, 1979. However, the interest rate shall be twelve percent (12%) per annum from the
time the judgment in this case becomes final and executory and until such amount is fully paid.
The basis for computation of the six percent and twelve percent rates of interest shall be the
amount of P370,475.00. No pronouncement as to costs.

SO ORDERED.