The Philippine Bank of Commerce vs Aruego the instrument but assumes liability to the other parties

thereto because he wants to accommodate another. In

G.R. Nos. L-25836-37 January 31, 1981 the instant case, the defendant signed as a
Facts: drawee/acceptor. Under the Negotiable Instrument Law,
a drawee is primarily liable. Thus, if the defendant who is
The Philippine Bank of Commerce filed a complaint a lawyer, he should not have signed as an
against Aruego for the recovery of money. It was alleged acceptor/drawee. In doing so, he became primarily and
that Aruego obtained a credit accommodation from the personally liable for the drafts.
bank in order to pay the printing cost of his periodical. It
was further alleged that the printing company collected “Quickie” PHILIPPINE BANK OF COMMERCE V. ARUEGO
the cost by drawing a draft against the plaintiff and said 102 SCRA 530
draft being sent later to the defendant for acceptance. FACTS: Aruego, on behalf of World Current Events,
Aruego received a copy of the complaint together with entered into a Credit Agreement with PBCom, for the
the summons; however, the latter filed an urgent motion publication of the company’s periodicals. At every
for extension only on December 14, 1959. The court printing endeavor by the printing press, a bill of
denied the motion. Thereafter, Aruego filed a motion to exchange is drawn against PBCom. The instruments are
dismiss the complaint on the ground that the complaint signed by Aruego, without any indication that he is an
did not state a cause of action because he was just an agent of World Current Events. When he was being held
accommodating party only for the drawer, the printing liable by PBCom, he averred that he only signed the
company and will only be liable in the event that the instrument in the capacity of agent of the company.
drawer fails to pay its obligation to the bank. The
complaint was dismissed by the court. The bank filed for HELD: An inspection of the drafts accepted by the
a motion for reconsideration and on March 7, 1960, the defendant would show nowhere that he has disclosed
court dismissed its earlier decision and set the case for that he was signing in representation of the Philippine
hearing on March 15, 1960. The court declared Aruego in Education Foundation Company. He merely signed his
default for his failure to file his answer on time. Aruego name. For failure to disclose his principal, Aruego was
filed a motion for reconsideration but the same was personally liable for the drafts he accepted.
denied. The trial court rendered a decision ordering
Aruego to pay the bank. On appeal, the CA denied
Aruego’s petition. Hence, this present petition. TOWN SAVINGS AND LOAN BANK, INC., petitioner,
vs.
Issue: WON Aruego is primary liable for the drafts he had THE COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND
accepted. ALICIA N. HIPOLITO, respondents.

Ruling: FACTS:
 On or about May 4, 1983, the Hipolitos applied for,
Section 20 of the NIL provides that where the instrument and were granted, a loan in the amount of
P700,000.00 with interest of 24% per annum for
contains or a person adds to his signature words
which they executed and delivered to Town Savings
indicating that he signs for or on behalf of a principal or and Loan Bank (or TSLB) a promissory note with a
in a representative capacity, he is not liable on the maturity period of three (3) years and an acceleration
instrument if he was duly authorized; but the mere clause upon default in the payment of any
amortization, plus a penalty of 36% and 10%
addition of words describing him as an agent or as filing a
attorney's fees, if the note were referred to an
representative character, without disclosing his principal, attorney for collection. For failure to keep current
does not exempt him from personal liability. their monthly payments on the account, the obligors
were deemed to have defaulted on May 24, 1984.
In the case at, an inspection of the drafts accepted by
Aruego revealed that he had accepted the drafts without  Notices of past due account and demands for
payment were sent but ignored. At the time of the
disclosing his principal, thus, Aruego is personally liable institution of the action on March 12, 1986, the
for the drafts he accepted. Furthermore, in lending his unpaid obligation amounted to P1,114,983.40.
name to the accommodated party, the accommodation
party is in effect a surety for the latter. He lends his name  The Hipolitos denied being personally liable on the
P700,000.00 promissory note which they executed.
to enable the accommodated party to obtain credit or to The loan was allegedly for the account of Pilarita H.
raise money. He receives no part of the consideration for Reyes, the sister of Miguel Hipolito. She was the real
 party-in-interest. The Hipolitos, not having received The spouses denied having any liability. They stated that
any part of the loan, were mere guarantors for the real party-in-interest is the sister of the husband,
Pilarita. They allegedly signed the promissory note
because they were persuaded to do so by Joey Santos, Pilarita Reyes. The spouses, not having received part
President of TSLB. When they received the demand of the loan, were mere guarantors of Reyes. As such,
letters, they confronted him but they were told that they protested against being dragged into the litigation.
the Bank had to observe the formality of sending
notices and demand letters. The real purpose was The trial court held that they were liable as
only to pressure Pilarita to comply with her
accommodation parties to the promissory note. This was
undertaking.
reversed by the Court of Appeals.
ISSUE:
Whether the Hipolitos are liable on the promissory note which HELD: An accommodation party is one who has signed
they executed in favor of the petitioner. the instrument as maker, drawer, indorser, without
receiving value therefore and for the purpose of lending
HELD:
his name to some other person. Such person is
YES, the Hipolitos are liable on the promissory note which liable on the instrument to a holder for value,
they executed in favor of the petitioner. notwithstanding such holder, at the time of the taking of
the instrument knew him to be an accommodation party.
An accommodation party is one who has
signed the instrument as marker, drawer, In lending his name to the accommodated party, the
indorser, without receiving value therefor accommodation party is in effect a surety for the
and for the purpose of lending his name to latter. He lends his name to enable the
some other person. Such person is liable on
accommodated party to obtain credit or to raise
the instrument to a holder for value,
notwithstanding such holder, at the time of money. He receives no part of the consideration for
the taking of the instrument knew him to be the instrument but assumes liability to the other
only an accommodation party. In lending his parties thereto because he wants to accommodate
name to the accommodated party, the
another.
accommodation party is in effect a surety for
the latter. He lends his name to enable the
accommodated party to obtain credit or to In the case at bar, it is indisputable that the spouses
raise money. He receives no part of the signed the promissory note to enable Reyes to secure a
consideration for the instrument but assumes loan from the bank. She was the actual beneficiary of the
liability to the other parties thereto because
loan and the spouses accommodated her by signing the
he wants to accommodate another. (The Phil.
Bank of Commerce vs. Aruego, 102 SCRA 530, note.
539, 540.)

In this case, there is no question that the private respondents

signed the promissory note in order to enable Pilarita H. Reyes, Ang Tiong vs. Ting
who is Miguel Hipolito's sister, to borrow the total sum of P1.4
million from TSLB. As observed by both the trial court and the 22 SCRA 713
appellate court, the actual beneficiary of the loan was Pilarita
H. Reyes and no other. The Hipolitos accommodated her by Facts: On 15 August 1960 Lorenzo Ting issued Philippine
signing a promissory note for half of the loan that she applied Bank of Communications check payable to "cash or
for because TSLB may not lend any single borrower more than
the authorized limit of its loan portfilio. Under Section 29 of
bearer". With Felipe Ang's signature at the back thereof,
the Negotiable Instruments Law, the Hipolitos are liable to the the instrument was received by Ang Tiong who
bank on the promissory note that they signed to accommodate thereafter presented it to the drawee bank for payment.
Pilarita. The bank dishonored it. Ang Tiong then made written
demands on both Lorenzo Ting and Felipe Ang that they
|”Quickie”
make good the amount represented by the check. These
TOWN SAVINGS AND LOAN BANK V. CA- Accommodation demands went unheeded; so he filed for collection of the
Party sum of money. Felipe Ang then elevated the case to the
Court of Appeals contending that he is a mere
223 SCRA 459 accommodation party.
FACTS: Spouses Hipolito applied for and was granted Issue: Whether Felipe Ang is liable as an
a loan by the bank, which was secured by a accommodation party
promissory note. For failure to pay their monthly
payments, they were declared in default. Held: Yes.
Nothing in the check in question indicates that Felipe Ang instrument by a holder in due course and for value, can
is not a general indorser within the purview of section 63 escape liability on his indorsement by the convenient
of the Negotiable Instruments Law which makes "a expedient of interposing the defense that he is a mere
person placing his signature upon an instrument accommodation indorser.
otherwise than as maker, drawer or acceptor" a general
indorser, "unless he clearly indicates by appropriate “Quickie”
words his intention to be bound in some other capacity," ANG TIONG V. TING
which he did not do.
FACTS: Ting issued a PBCom check payable to cash or
Section 66 ordains that "every indorser who indorses bearer. This was indorsed by Ang at the back and it was
without qualifications, warrants to all subsequent holders received by plaintiff. Upon encashment of the check, the
in due course" (a) that the instrument is genuine and in same was dishonored. Plaintiff moved that the two
all respects what it purports to be; (b) that he has a good make good the value of the check but despite
title to it; (c) that all prior parties have capacity to demands, he was unheeded, prompting him to file a
contract; and (d) that the instrument is at the time of his complaint. The trial court decided in his favor.
indorsement valid and subsisting. In addition, "he
engages that on due presentment, it shall be accepted or HELD: Even on the assumption that the appellant
paid, or both, as the case may be, and that if it be was an accommodation indorser, as he professes to be,
dishonored, he will pay the amount thereof to the he is nevertheless by the clear mandate of section 29,
holder." liable on the instrument to a holder for value,
notwithstanding that such holder at the time of taking
Even on the assumption that Felipe Ang is a mere the instrument knew him to be an accommodation party.
accommodation party, as he professes to be, he is And assuming that he was an accommodation party,
nevertheless, by the clear mandate of section 29 of the he may obtain security from the maker to protect
Negotiable Instruments Law, yet "liable on the himself against the danger of insolvency of the latter but
instrument to a holder for value, notwithstanding that this doesn't affect his liability to the appellee, as the said
such holder at the time of taking the instrument knew remedy is a matter of recourse between him and the
him to be only an accommodation party." The maker.
accommodation party is liable to a holder for value as if
the contract was not for accommodation. It is not a valid “Quickie 2”
defense that the accommodation party did not receive
Ang Tiong v. Ting [G.R. No. L-26767. February 22, 1968]
any valuable consideration when he executed the
instrument. Nor is it correct to say that the holder for FACTS Defendant Ting issued a check payable to “cash or
value is not a holder in due course merely because at the bearer”. appellant Ang indorsed the check to plaintiff-
time he acquired the instrument he knew that the appellee Ang Tiong. The check was dishonored.
indorser was only an accommodation party.
ISSUE Whether or not appellant Ang may be considered
That Felipe Ang, again assuming him to be an as a general indorser.
accommodation indorser, may obtain security from the
maker to protect himself against the danger of insolvency RULING YES. Nothing in the check in question indicates
of the latter, cannot in any manner affect his liability to that the appellant is not a general indorser within the
Ang Tiong, as the said remedy is a matter of concern purview of section 63 of the Negotiable Instruments Law
exclusively between accommodation indorser and which makes “a person placing his signature upon an
accommodated party. So that the fact that Felipe Ang instrument otherwise than as maker, drawer or acceptor”
stands only as a surety in relation to the maker, granting a general indorser, — “unless he clearly indicates plaintiff
this to be true for the sake of argument, is immaterial to appropriate words his intention to be bound in some
the claim of Ang Tiong, and does not a whit diminish nor other capacity,” which he did not do.
defeat the rights of the latter who is a holder for value.
The liability of Felipe Ang remains primary and
unconditional. To sanction Felipe Ang's theory is to give
unwarranted legal recognition to the patent absurdity of
a situation where an indorser, when sued on an
ANG VS ASSOCIATED BANK, ETAL (532 SCRA 244) accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the
Ang vs Associated Bank, etal instrument, knew him or her to be merely an accommodation
532 SCRA 244 [G.R. No. 146511 September 5, 2007] party, as if the contract was not for accommodation.

Facts: On August 28, 1990, respondent Associated Bank As petitioner acknowledged it to be, the relation between an
(formerly Associated Banking Corporation and now known as accommodation party and the accommodated party is one of
United Overseas Bank Philippines) filed a collection suit against principal and surety – the accommodation party being the
Antonio Ang Eng Liong and petitioner Tomas Ang for the two surety. from the beginning; As such, he is deemed an original
(2) promissory notes that they executed as principal debtor promisor and debtor he is considered in law as the same party
and co-maker, respectively. In the Complaint, respondent Bank as the debtor in relation to whatever is adjudged touching the
alleged that on October 3 and 9, 1978, the defendants obligation of the latter since their liabilities are interwoven as
obtained a loan of P evidenced by a promissory note bearing to be inseparable. Although a contract of suretyship is in
PN-No. DVO-78-382, and P 50,000, 30,000, evidenced by a essence accessory or collateral to a valid principal obligation,
promissory note bearing PNNo. DVO-78-390. As agreed, the the surety’s liability to the creditor is immediate, primary and
loan would be payable, jointly and severally, on January 31, absolute; he is directly and equally bound with the principal. As
1979 and December 8, 1978, respectively. In addition, an equivalent of a regular party to the undertaking, a surety
subsequent amendments to the promissory notes as well as becomes liable to the debt and duty of the principal obligor
the disclosure statements6 stipulated that the loan would earn even without possessing a direct or personal interest in the
14% interest rate per annum, 2% service charge per annum, 1% obligations nor does he receive any benefit therefrom.
penalty charge per month from due date until fully paid, and
attorney’s fees equivalent to 20% of the outstanding In the instant case, petitioner agreed to be “jointly and
obligation. Despite repeated demands for payment, the latest severally” liable under the two promissory notes that he co-
of which were on September 13, 1988 and September 9, 1986, signed with Antonio Ang Eng Liong as the principal debtor. This
on Antonio Ang Eng Liong and Tomas Ang, respectively, being so, it is completely immaterial if the bank would opt to
respondent Bank claimed that the defendants failed and proceed only against petitioner or Antonio Ang Eng Liong or
refused to settle their obligation, resulting in a total both of them since the law confers upon the creditor the
indebtedness of P 539,638.96 as of July 31, 1990. In his prerogative to choose whether to enforce the entire obligation
Answer, Antonio Ang Eng Liong only admitted to have secured against any one, some or all of the debtors. Nonetheless,
a loan amounting to P 80,000. He pleaded though that the petitioner, as an accommodation party, may seek
bank “be ordered to submit a more reasonable computation” reimbursement from Antonio Ang Eng Liong, being the party
considering that there had been “no correct and reasonable accommodated.
statement of account” sent to him by the bank, which was
allegedly collecting excessive interest, penalty charges, and Consequently, in issuing the two promissory notes, petitioner
attorney’s fees despite knowledge that his business was as accommodating party warranted to the holder in due course
destroyed by fire, hence, he had no source of income for that he would pay the same according to its tenor. value
several years. For his part, petitioner Tomas Ang filed an therefore It is no defense to state on his part that he did not
Answer with Counterclaim and Cross-claim. He interposed the receive any because the phrase “without receiving value
affirmative defenses that: the bank is not the real party in therefor” used in Sec. 29 of the NIL means “without receiving
interest as it is not the holder of the promissory notes, much value by virtue of the instrument” and not as it is apparently
less a holder for value or a holder in due course; the bank knew supposed to mean, “without receiving payment for lending his
that he did not receive any valuable consideration for affixing name.” Stated differently, when a third person advances the
his signatures on the notes but merely lent his name as an face value of the note to the accommodated party at the time
accommodation party; he accepted the promissory notes in of its creation, the consideration for the note as regards its
blank, with only the printed provisions and the signature of maker is the money advanced to the accommodated party. It is
Antonio Ang Eng Liong appearing therein. enough that value was given for the note at the time of its
creation. As in the instant case, a sum of money was received
Issue: Whether or not Petitioner is liable to the obligation by virtue of the notes, hence, it is immaterial so far as the bank
despite being a mere co-maker and accommodation party. is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the
Held: Yes. Notably, Section 29 of the NIL defines an use of his name.
accommodation party as a person “who has signed the
instrument as maker, drawer, acceptor, or indorser, without Furthermore, since the liability of an accommodation party
receiving value therefor, and for the purpose of lending his remains not only primary but also unconditional to a holder for
name to some other person.” As gleaned from the text, an value, even if the accommodated party receives an extension
accommodation party is one who meets all the three of the period for payment without the consent of the
requisites, viz: (1) he must be a party to the instrument, signing accommodation party, the latter is still liable for the whole
as maker, drawer, acceptor, or indorser; (2) he must not obligation and such extension does not release him because as
receive value therefor; and (3) he must sign for the purpose of far as a holder for value is concerned, he is a solidary co-
lending his name or credit to some other person. An debtor.
accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. The
“Quickie” receives an extension of the period for payment without
the consent of the accommodation party, the latter is still
Tomas Ang v. Associated Bank and Antonio Ang Eng liable for the whole obligation and such extension does
Liong not release him because as far as a holder for value is
Facts: • Tomas Ang and Antonio Ang Eng Liong concerned, he is a solidary co-debtor.
obtained a loan of P50,000 and P30,000 on October 3 and Ernestina Crisologo-Jose vs. CA and Ricardo S. Santos, JR.
9,1978 respectively evidenced by 2 promissory notes and in his own behalf and as VP for Sales Of Mover
was agreed that the loan would be payable, jointly and Enterprises
severally on January 31, 1979 and December 8, 1978 GR No. 80599
respectively. September 15, 1989.

• Despite repeated demands for payment, the FACTS:

defendants failed and refused to settle their obligation. Mover Enterprises [Corporation]: 1980
Vice President: Ricardo S. Santos
• Petitioner Tomas Ang contends the bank knew President: Atty. Oscar Z. Benares
that he did not receive any valuable consideration for
April 30, 1980: Atty. Benares, in accommodation of his
affixing his signatures on the notes but merely lent his
clients, spouses Jaime and Clarita Ong, issued Check No.
name as an accommodation party and thus should not be 093553 drawn against Traders Royal Bank, dated June 14,
held liable. 1980, in the amount of P45,000 payable to Ernestina
Crisologo-Jose. The check was under the account of
Issue: Whether the bank could proceed against Tomas Mover Enterprises, Inc., and thus, it was supposed to be
Ang for the payment of the loan. signed by the President and Treasurer. Since the
treasurer was not available, the check was signed by
Ruling: Yes. The accommodation party is liable on the Ricardo Santos instead, and by Atty. Benares.
instrument to a holder for value even though the holder,
at the time of taking the instrument, knew him or her to The check was replaced by Atty. Benares with another
be merely an accommodation party, as if the contract Traders Royal Bank check bearing No. 379299 dated Aug.
was not for accommodation. 10, 1980, in the same amount of P45,000 also payable to
Crisologo-Jose. The check was also signed by Benares and
In the instant case, petitioner agreed to be "jointly and Santos.
severally" liable under the two promissory notes that he
When it was deposited at Family Savings Bank, Mayon
co-signed with Antonio Ang Eng Liong as the principal
Branch, the check was dishonored for insufficiency of
debtor. This being so, it is completely immaterial if the funds. A subsequent redepositing of the said check was
bank would opt to proceed only against petitioner or likewise dishonored by the bank for the same reason.
Antonio Ang Eng Liong or both of them since the law Hence, a criminal complaint for violation of BP 22 was
confers upon the creditor the prerogative to choose filed against Benares and Santos.
whether to enforce the entire obligation against any one,
some or all of the debtors. Nonetheless, petitioner, as an ISSUE:
WON Mover Enterprises can be held liable as an
accommodation party, may seek reimbursement from
accommodation party.
Antonio Ang Eng Liong, being the party accommodated.
HELD/RATIO: No.
Consequently, in issuing the two promissory notes,
The issue or indorsement of negotiable paper by a
petitioner as accommodating party warranted to the corporation without consideration and for the
holder in due course that he would pay the same accommodation of another is ultra vires. Hence, one who
according to its tenor. It is no defense to state on his part has taken the instrument with knowledge of the
that he did not receive any value therefor because the accommodation nature thereof cannot recover against a
phrase "without receiving value therefor" used in Sec. 29 corporation where it is only an accommodation party. IF
the form of the instrument or the nature of the
of the NIL means "without receiving value by virtue of the
transaction is such as to charge the indorsee with
instrument" and not as it is apparently supposed to knowledge that the issue or indorsement of the
mean, "without receiving payment for lending his name." instrument by the corporation is for accommodation of
another, he cannot recover against the corporation
Furthermore, since the liability of an accommodation thereon.
party remains not only primary but also unconditional to
a holder for value, even if the accommodated party
However, an officer or agent of the corporation shall corporation itself. But assuming arguendo that the
have the power to execute or indorse a negotiable paper corporation is the accommodation party, it cannot be
in the name of a corporation for the accommodation of a held liable to the check issued in favor of petitioner.
third person only if specifically authorized to do so. The rule on accommodation party
Corporate officers, such as Pres and VP, have no power doesn't include or apply to corporations which are
to execute for mere accommodation a NI of the accommodation parties. This is because the issue or
corporation for their individual debts or transactions indorsement of another is ultra vires. Hence, one who
arising from or in relation to matters which the has taken the instrument with knowledge of the
corporation has no legitimate concern. Since it cannot be accommodation nature thereof cannot recover against
enforced against the corporation, the inescapable a corporation where it is only an accommodation
conclusion in law and in logic is that the signatories party. If the form of the instrument, or the nature of the
thereof shall be personally liable therefore, as well as the transaction, is such as to charge the indorsee with the
consequences arising from their acts in connection knowledge that the issue or indorsement of the
therewith. instrument by the corporation is for the
accommodation of another, he cannot recover against
Sec. 29. Liability of accommodation party – An the corporation thereon.
accommodation party is one who has signed the
instrument as maker, drawer, acceptor or indorser, By way of exception, an officer or agent of a
without receiving value therefore, and for the purpose of corporation shall have the power to execute or
lending his name to some other person. Such a person is indorse a negotiable paper in the name of the
liable on the instrument to a holder for value, corporation for the accommodation of a third party
notwithstanding such holder, at the time of taking the only is specifically authorized to do so. Corollarily,
instrument, knew him to be only an accommodation corporate officers have no power to execute for
party. mere accommodation a negotiable instrument of
the corporation for their individual debts and
Requisites: transactions arising from or in relation to matters in
a. A person must be a party to the instrument which the corporation has no legitimate concern.
signing as maker, drawer, acceptor or indorser Since such accommodation paper cannot be
b. Not receive value therefore enforced against the corporation, the signatories
c. And sign for the purpose of lending his name for thereof shall be personally liable therefore, as well as the
the credit of some other person. consequences arising from their acts in connection
therewith.\
“Quickie”
CRISOLOGO JOSE V. CA - Accommodation Party
Gonzales vs PCIB
FACTS: The president of Movers Enterprises, to
accommodate its clients Spouses Ong, issued a check Facts:
in favor of petitioner Crisologo-Jose. This was in
consideration of a quitclaim by petitioner over a parcel of Gonzales was a client of PCIB. He was granted a
land, which the GSIS agreed to sell to spouses Ong,
credit line by the bank through a Credit-On-Hand-
with the understanding that upon approval of the
compromise agreement, the check will be encashed
Loan Agreement (COHLA). He drew from the credit
accordingly. As the compromise agreement wasn't line through a check and said credit line was secured
approved during the expected period of time, the by a collateral in the form of his accounts with PCIB
aforesaid check was replaced with another one for the which was a foreign currency deposit worth USD
same value. Upon deposit though of the checks by 8000.
petitioner, it was dishonored. This prompted the
petitioner to file a case against Atty. Bernares and He obtained below loans from PCIB:
Santos for violation of BP22. Meanwhile, during the 1. obtained with his wife – P500K
preliminary investigation, Santos tried to tender a 2. obtained with spouses Panlilio – P1M, P300K
cashier’s check for the value of the dishonored check
but petitioner refused to accept such. This was consigned the above loans (total: 1.8M) were covered by 3
by Santos with the clerk of court and he instituted
promissory notes and were secured by a real estage
charges against petitioner. The trial court held that
consignation wasn't applicable to the case at bar but was
mortgage on a land co owned by Gonzales and
reversed by the CA. spouses Panlilio. the promissory notes states the
solidary liability of Gonzales andspouses Panlilio.
HELD: Petitioner averred that it is not Santos who is the However, it was the spouses Panlilio who received
accommodation party to the instrument but the the proceeds of 1.8M. The monthly interest dues
were paid by the spouses Panlilio through auto debit G.R. No. L-34539 July 14, 1986
from their PCIB account. however, they defaulted in PRUDENCIO v. COURT OF APPEALS
the payment because their PCIB account had Plaintiffs: EULALIO PRUDENCIO and ELISA T. PRUDENCIO
insufficient deposits. Defendant:
• THE HONORABLE COURT OF APPEALS, THE
PHILIPPINE
Gonzales issued a check to Rene Unson worth 250K
NATIONAL BANK, RAMON C. CONCEPCION and MANUEL
drawn against his credit line but said check was M.
subsequently dishonored due to termination of TAMAYO, partners of the defunct partnership
gonzales’ credit line because of the unpaid period Concepcion & Tamayo Construction Company
interest dues from the loans. PCIB also froze the • JOSE TORIBIO, Atty-in-Fact of Concepcion
foreign currency deposit account of Gonzales. & Tamayo
Construction Company (relative of plaintiffs)
Issue: W/N Gonzales is liable for the three • THE DISTRICT ENGINEER, Puerto Princesa,
promissory notes covering PHP1.8M loan he made Palawan
with spouses Panlilio? BACKGROUND:
• Plaintiffs are registered owners of a land in
Held: Sampaloc, Manila.
• October 7, 1954 ^ this property was mortgaged
by the appellants to PNB to guarantee a loan of
Yes. Gonzales was an accommodation party of the
P1,000.00 extended to one Domingo Prudencio.
loan. An accommodation party is one who meets all • 1955 ^ Concepcion & Tamayo Construction
the three requisites according to Sec 29 of NIL: Company had a pending project with the Bureau of Public
Works amounting to P36,800, and they needed funds.
1. he must be a party to the instrument, signing as a o Jose Toribio approached plaintiffs asking them to
maker, drawer, acceptor, or indorser mortgage their property to secure the loan of P10,000.00
which the Company was negotiating with the PNB.
2. he must not receive value therefor • December 23, 1955
o Appellants signed the Amendment of Real Estate
3. he must sign for the purpose of lending his name Mortgage', mortgaging their said property to the PNB to
or credit to some other person. guaranty the loan of P10,000.00 extended to the
Company. The terms and conditions of the original
mortgage for Pl,000.00 were made integral part of the
an accommodation party lends his name to enable
new mortgage for P10,000.00
the accommodated partyy to obtain credit or raise
o Jose Toribio also executed the 'Deed of Assignment'
money. he receives no part but assumed liability. assigning all payments to be made by the Bureau to the
Company on account of the building contract to be made
the relation between an accommodation party is to PNB.
one of principal and surety, the AP being the surety. • December 29, 1955 ^ Appellants also signed the
As such, he is deemed an original promisor and promissory note indicating that they are requesting PNB
debtor from the beginning. he is considered in law to issue the check constituting the loan to the Company.
as the same party as the debtor in relation to • Notwithstanding the assignment of credit
whatever is adjudged toruching the obligation of the executed in December 23, the Bureau (with approval of
latter since their liabilities are interwoven. PNB) made three payments (totalling P11,234.40) for
labor and materials TO THE COMPANY.
• June 20, 1956 ^ the Bureau's last request for
Lastly, the solidary nature of the loan was expressly
payment of P5,000 was denied by PNB for the reason
stated in the promissory notes which state:
that that since the loan was already overdue as of April
“…the undersigned JOINTLY AND SEVERALLY 28, 1956, the remaining balance of the contract price
promise should be applied to the loan.
• June 30, 1956 ^ The Bureau rescinded the
to pay xx”. contract after the Company abandoned the work.
• November 14, 1958 ^ appellants wrote the PNB
contending that since the PNB authorized payments to
the Company, instead of applying such payments to the
loan as agreed upon, there was a change in the
conditions of the contract without the knowledge of
appellants, which entitled the latter to a cancellation of
their mortgage contract.
• Trial Court: Petition denied obligation was temporarily deferred by PNB without their
o The petitioners were ordered to pay jointly and knowledge and consent. There has to be another basis
severally with their co-makers Ramon C. Concepcion and for their claim of having been freed from their obligation.
Manuel M. Tamayo. The decision also provided that if the ISSUE 2 ^ Whether or not PNB was a holder in due course
judgment was not satisfied within 90 days from its ^ NO. PNB was in bad faith.
receipt, the mortgaged properties together with all the Major Point 1: PNB lacked the requisite of good faith
improvements thereon belonging to the petitioners under Section 52
would be sold at public auction • Not only was PNB an immediate party or in
• Court of Appeals: affirmed the trial court's privy to the
decision in toto. promissory note, that is, it had dealt directly with the
o As accommodation makers, the petitioners' liability is petitioners knowing fully well that the latter only signed
that of solidary co-makers. The appellate court further as accommodation makers but more important, it was
held that PNB had no obligation whatsoever to notify the Deed of Assignment executed by the Construction
the petitioners of its authorizing the three payments in Company in favor of PNB which principally moved the
favor of the Company because aside from the fact that petitioners to sign the promissory note also in favor of
the petitioners were not parties to the deed of PNB. Petitioners were made to believe and on that belief
assignment, there was no stipulation in said deed making entered into the agreement that no other conditions
it obligatory on the part of the PNB to notify the would alter the terms thereof and yet, PNB altered the
petitioners everytime it authorizes payment to the same.
Company. • This, notwithstanding, PNB approved the
Bureau's release of three payments directly to the
ISSUES TO BE RESOLVED: Company instead of paying the same to the Bank. This
1. Whether or not petitioners should be held as approval was in violation of the Deed of Assignment and
solidary co¬debtors instead of as merely sureties. without any notice to the petitioners who stood to lose
2. Whether or not PNB was a holder in due course their property once the promissory note falls due
without the same having been paid because the PNB, in
RESOLUTIONS AND ARGUMENTS effect, waived payments of the first three releases.
ISSUE 1 ^ Whether or not petitioners should be held as • PNB in authorizing the third payment to the
solidary co¬debtors instead of as merely sureties ^ YES. Company after the promissory note became due, in
Petitioners are solidary co¬debtors by virtue of being effect, extended the term of the payment of the note
accommodation makers. without the consent of the accommodation makers who
Major Point 1: Accommodation parties gratuitously stand as sureties to the accommodated party and to all
guarantee debt of another, and is liable for the whole other parties who are not holders in due course or who
value. do not derive their right from the same, including PNB.
• Section 29 of the Negotiable Instrument Law: • When the Bank violated the deed of assignment,
Liability of accommodation party. - An accommodation it prejudiced itself because its very violation was the
party is one who has signed the instrument as maker, reason why it was not paid on time in its capacity as
drawer, acceptor, or indorser, without receiving value creditor in the promissory note. It would be unfair to
therefor, and for the purpose of lending his name to make the petitioners now answer for the debt or to
some other person. Such a person is liable on the foreclose on their property.
instrument to a holder for value, notwithstanding such • Neither can PNB justify its acts on the ground
holder, at the time of taking the instrument, knew him to that the Bureau of Public Works approved the deed of
be only an accommodation party. assignment with the condition that the wages of laborers
• Philippine Bank of Commerce v. Aruego ^in and materials needed in the construction work must take
lending his name to the accommodated party, the precedence over the payment of the promissory note.
accommodation party is in effect a surety. However, Wages and materials constitute a lien only on the
unlike in a contract of suretyship, the liability of the constructed building but do not enjoy preference over
accommodation party remains not only primary but also the loan unless there is a liquidation proceeding such as
unconditional to a holder for value such that even if the in insolvency or settlement of estate.
accommodated party receives an extension of the period
for payment without the consent of the accommodation FINAL VERDICT: Petitioners are absolved from liability,
party, the latter is still liable for the whole obligation and and PNB is ordered to release the property from its
such extension does not release him because as far as a mortgage contact.
holder for value is concerned, he is a solidary co- debtor. NO SEPARATE OPINIONS
• The petitioners cannot claim to have been
released from their
obligation simply because the time of payment of such
“Quickie” sureties, completely discharges the sureties from all
Negotiable Instruments Case Digest: Prudencio V. CA liability on the contract of suretyship.
(1986)
Lessons Applicable: Consideration and Accomodation ISSUE: W/N the Prudencios' as accomodating party are
Party; Holder in Due Course (Negotiable Instruments) liable as solidary debtors so real estate mortgage
executed by them CANNOT be cancelled
FACTS: Oct 7 1954: Eulalio and Elisa Prudencios, W/N PNB was a holder in due course
registered owners of a parcel of land mortgaged to
Philippine National Bank (PNB) to guarantee a loan of HELD: Petition is Granted. CA reversed.
P1,000.00 extended to Domingo Prudencio 1. YES , Section 29 of the Negotiable Instrument Law
1955: Concepcion & Tamayo Construction Company Liability of accommodation party. —An accommodation
(Concepcion) had a pending contract with the Bureau of party is one who has signed the instrument as maker,
Public Works (Bureau) for the construction of the drawer, acceptor, or indorser, without receiving value
municipal building in Puerto Princess, Palawan therefor, and for the purpose of lending his name to some
amounting to P36,800.00 other person. Such a person is liable on the instrument to
In need of funds, Jose Toribio, Concepcions' relative, and a holder for value, notwithstanding such holder at the
attorney-in-fact of the Company, approached PNB to time of taking the instrument knew him to be only an
mortgage their property to secure the loan of P10,000.00 accommodation party.
w/ PNB. Philippine Bank of Commerce v. Aruego: liability of the
The terms and conditions of the original mortgage for accommodation party remains not only primary but also
Pl,000.00 were made integral part of the new mortgage unconditional to a holder for value
for P10,000.00 and both documents were registered with remedy is a matter of concern exclusively between
the Register of Deeds accommodation indorser and accommodated party
Dec 23 1955: 2. NO , payee PNB is an immediate party and, therefore,
promissory note covering the loan of P10,000.00 dated is NOT a holder in due course and stands on no better
Dec 29 1955, maturing on Apr 27 1956, was signed by footing than a mere assignee
Jose Toribio, as attorney-in-fact of the Company, and by holder in due course - payee either acquired the note
the Prudencios' from another holder or has not directly dealt with the
Deed of Assignment assigning all payments to be made maker thereof
by the Bureau to the Co. on account of the contract for PNB, in effect, waived payments of the first three releases
the construction in favor of the PNB. PNB can not be regarded as having acted in good faith
PNB approved the Bureau's release of 3 payments directly which is also one of the requisites of a holder in due
to Concepcion for material and labor instead of paying course under Section 52 of the Negotiable Instruments
the same to the Bank on account of the contract price Law
totalling P11,234.40 without the knowledge of the It was only when the deed of assignment was shown to
Prudencios' the spouses that they consented to the mortgage and
PNB did not apply the initial and subsequent payments to signed the promissory note in the Bank's favor.
the Prudencios' debt as provided for in the deed of G.R. No. L-30205 March 15, 1982
assignment
Jun 30 1956: Concepcion abandoned their work so Bureau UNITED GENERAL INDUSTRIES, INC., plaintiff-appellee,
rescinded the construction contract and assumed the vs.
work of completing JOSE PALER and JOSE DE LA RAMA, defendants-
Jun 27 1959: Concepcion filed to cancelled their mortgage appellants
complaint was amended to exclude the Company as
defendant, it having been shown that its life as a
partnership had already expired and, in lieu thereof, ABAD SANTOS, J.:
Ramon Concepcion and Manuel M. Tamayo, partners of
the defunct Company, were impleaded in their private This is an appeal from a decision of the Court of First
capacity as defendants. Instance of Manila, Branch IX, in Civil Case No. 60418,
CA affirmed RTC: Denied United General Industries, Inc. vs. Jose Paler and Jose de
no stipulation in the deed making it obligatory on the part la Rama. Since the appeal death with a question of law
of the PNB to notify the petitioners everytime it only, We reproduce the decision which reads as follows:
authorizes payment to the Company
Prudencios' contend that as accommodation makers, the When this case was called for pre-trial today, neither the
nature of their liability is only that of mere sureties defendants, nor their counsel appeared, notwithstanding
instead of solidary co-debtors such that "a material the fact that said defendants were notified of the pre-
alteration in the principal contract, effected by the trial. Upon motion of the plaintiff, said defendants were
creditor without the knowledge and consent of the declared in default. Likewise, upon motion of counsel for
the plaintiff, this case was submitted for judgment on the Paler and his wife) for estafa under Art. 319 of the
pleadings. Revised Penal Code with the City Fiscal's Office of Pasay
City; that to settle extra-judicially the criminal case
Plaintiff's complaint alleges that on January 20, 1962, the aforementioned against the defendant, Jose Paler and his
defendant, Jose Paler and his wife Purificacion Paler, wife, the said defendant Jose Paler and his co-defendant,
purchased from the plaintiff (1) Zenith 23" TV set with Jose de la Rama, executed in favor of plaintiff a
serial No. 3493594 on installment basis; that to secure promissory note dated April 11, 1964 in the amount of
the payment of the purchase price, the defendant, Jose P3,083.58 (Exhibit A)."
Paler and his wife executed in favor of the plaintiff a
promissory note in the amount of P2,690.00; that, to There is some merit in this contention. In Arroyo vs.
consider the guarantee the payment of the Berwin, 36 Phil. 386 (1917), it was held that an
aforementioned promissory on defendant Jose Paler and agreement to stifle the prosecution of a crime is
his wife constituted a chattel mortgage over the above- manifestly contrary to public policy and due
described television set in favor of the plaintiff which administration of justice and will not be enforced in a
mortgage was duly registered in the chattel mortgage court of law. See also Monterey vs. Gomez, et al., 104
registry; that by virtue of the violation by defendant Jose Phil. 1059 (1958).
Paler and his wife of the terms and conditions of the
chattel mortgage, the plaintiff filed a criminal action Under the law and jurisprudence, there can be no
against the above-named persons for estafa under Art. recovery against Jose de la Rama who incidentally
319 of the Revised Penal Code with the City Fiscal's Office appears to have been an accommodation signer only of
of Pasay City; that to settle extra-judicially the criminal the promissory note which is vitiated by the illegality of
case aforementioned against the defendant, Jose Paler the cause.
and his wife, the said defendant Jose Paler and his co-
defendant, Jose de la Rama, executed in favor of plaintiff But it is different with Jose Paler who bought a television
a promissory note dated April 11, 1964 in the amount of set from the appellee, did not pay for it and even sold the
P3,083.58 (exhibit A); and that; notwithstanding set without the written consent of the mortgagee which
repeated demands, said defendants have failed to pay accordingly brought about the filing of the estafa case.
plaintiff the sum of P3,083.58 with 1% interest per month He has an obligation to the appellee independently of the
from April 11, 1964 until full payment is made, pursuant promissory note which was co-signed by Jose de la Rama.
to the terms of the promissory note marked Exhibit A. For Paler to escape payment of a just obligation will
result in an untrust enrichment at the expense of
In their answer, the defendants admit the fact that they another. This we cannot in conscience allow.
executed a promissory note dated April 11, 1964 in favor
of plaintiff in the amount of P3,083.58, with 12% interest Article 19 of the Civil Code mandates "Every person must,
per annum. They further admit the fact that said in the exercise of his rights and in the performance of his
obligation has not been paid the plaintiff notwithstanding duties, act with justice, give everyone his due, and
repeated demands made. observe honesty and good faith." And Article 2208 of the
same Code states that attorney's fees and expenses of
Considering the admissions of the defendants in their litigation, other than judicial costs, can be recovered
answer, judgment on the pleadings, as prayed for may, "Where the defendant acted in gross and evident bad
therefore, be rendered. faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim." (Par. 5.) Here Paler wilfully
WHEREFORE, judgment is hereby rendered in favor of the refused to pay a debt which he clearly ought to have
plaintiff and against the defendants, sentencing said paid. He has even imposed a burden on this Court by
defendants to pay to the plaintiff the sum of P3,083.58, filing an unnecessary and frivolous appeal. The award of
with 12% interest thereon per annum from the date the P250.00 in favor of the appellee who had to file a printed
complaint was filed on October 14, 1965 until full brief is manifestly inadequate.
payment is made and attorney's fees in the sum of
P250.00. With costs against the defendants. (Record on WHEREFORE, the judgment of the court a quo is modified
Appeal, pp. 20-22.) to excluding Jose de la Rama therefrom and increasing
the award for attorney's fees to P1,000.00; it is affirmed
The appellants, Paler and de la Rama, claim in their in all other respects. Triple costs.
appeal that the complaint should have been dismissed
because "the obligation sought to be enforced by SO ORDERED.
plaintiff-appellee against defendants-appellants arose or
was incurred in consideration for the compounding of a
crime." Obviously, the appellants are referring to the
portion of the decision which states: " ... the plaintiff filed
a criminal action against the above-named persons (Jose
PNB V. MAZA AND MECENAS RULING YES. As accommodation parties, the defendants
48 PHIL 207 having signed the instruments without receiving value
therefor and for the purpose of lending their names to
FACTS:
some other person, are still liable on the instruments. The
Maza and Macenas executed a total of five promissory
notes. These were not paid at maturity. And to recover law now is that the accommodation party can claim no
the amounts stated on the face of the promissory notes, benefit as such, but he is liable according to the face of
PNB initiated an action against the two. The special his undertaking, the same as if he were himself financially
defense posed by the two is that the promissory interested in the transaction
notes were delivered to
them in blank by a certain Enchaus and were made
to sign the notes so that the latter could secure a loan
from the bank. They also alleged that they never Caneda Jr. V. CA (1990)
negotiated the notes with the bank nor have they
received any value thereof. They also prayed that G.R. No. 81322 February 5, 1990
Enchaus be impleaded in the
complaint but such was denied. The trial court then Lessons Applicable: Consideration and Accommodation
held in favor of the bank. Party (Negotiable Instruments Law)

HELD: FACTS:
The defendants attested to the genuineness of the November 8, 1977: Buenaventura Gueson for value
instruments sued on. Neither did they point out any received, executed a promissory note for P18,960 in
mistake in regard to the amount and interest that favor of Gregorio Caneda, Jr. promising to pay a monthly
the lower court sentenced them to pay. Given such, installment of P 790 for 24 months with 14%
the defendants are liable. They appear as the makers of interest/annum
the promissory notes
and as such, they must keep their engagement and pay Gueson executed a chattel mortgage and used a Toyota
as promised. Jiffy jeep as a collateral

And assuming that they are accommodation parties, the expressly stipulated in the promissory note and chattel
defendants having signed the instruments without mortgage that default in the payment of any installment
receiving value thereof, for the purpose of lending their will make the entire obligation due and demandable
names to some other person, are still liable for the
promissory notes. The law now is such that an promissory note and chattel mortgage was assigned by
accommodation party cannot claim no benefit as such, Gregorio Caneda in favor of Investors Finance
but he is liable according to the face of his Corporation (FNCB).
undertaking, the same as he himself financially interest in
the transaction. It is also no defense to say that they September 24, 1980: Gueson defaulted in his obligation
didn't receive the value of the notes. To fasten
liability however to an accommodation maker, it is not December, 1980: FNCB filed a complaint for replevin
necessary that any consideration should move to him. and/or sum of money against Gueson and John Doe. As
The accommodation which supports the promise of the relief, FNCB prayed for the seizure of the Toyota Jiffy
accommodation maker is that parted with by the jeep. In the alternative FNCB also prayed for the payment
person taking the note and received by the person
accommodated. Gueson: he did not receive any value for the promissory
note he executed as he merely accommodated the real
“Quickie” debtor Gregorio Caneda, Jr.; that as the accommodated
Philippine National Bank v. Maza and Mecenas [G.R. party Caneda, Jr. executed a deed of sale in Gueson's
No. L-24224. November 3, 1925] favor covering the Jiffy jeep subject matter of the chattel
mortgage and he also executed a counter deed of sale in
FACTS Appellants claim that they executed a promissory favor of Caneda, Jr.; that with the consent of FNCB,
note sent to them in blank by a certain Enrique Echaus, Caneda Jr. executed an "undertaking" whereby he bound
himself to pay and assume the obligation stipulated in
which they neither did negotiate nor have received the
the promissory note and chattel mortgage; that FNCB is
value thereof. not a holder in due course of the promissory note nor an
assignee in good faith
ISSUe Whether or not appellants are liable as
accommodation parties.
Trial Court:

Gueson was merely an accommodation party for the CANEDA V. CA- Accommodation Party
benefit of Caneda, Jr. 181 SCRA 762
FACTS:
"With recourse to Buenaventura Gueson in case of Gueson for value received, executed a promissory note in
default" found in the undertaking was inserted only after favor of Caneda, promising to pay monthly installments
Caneda and FNCB had already signed the undertaking with interest per annum. That to secure the
and without the knowledge of B. Gueson and that obligation, he executed a chattel mortgage and used a
Caneda was in bad faith Toyota Jiffy jeep as collateral; that it is expressly
provided for in the promissory note that in case of
ISSUES: default in any installment would deem that whole
W/N notice was duly served in Caneda Jr.'s office obligation demandable. This promissory note was later
assigned to FNCB. Gueson then defaulted in his
W/N Caneda Jr. can be held liable even if Gueson is an obligation and had an outstanding balance. Despite
accommodation party (surety) demands on Gueson, he failed and refused to pay. This
prompted FNCB to file an action for replevin and sum
HELD: of money, and in the alternative, prayed for the
1. YES payment of the outstanding balance plus interest.
Received by Boy Reyes (neighbor)
Gueson in his answer alleged that he was just an
The statutory requirements of substituted service must accommodation party in favor of Caneda. This was
be followed strictly, faithfully and fully and any denied by Caneda.
substituted service other than that authorized by statute
is considered ineffective (Filmerco Commercial Co., Inc. v. The trial court held that Gueson was indeed an
IAC, 149 SCRA 194-196 [1987]). accommodation party in favor of Caneda; that there was
a novation in the form of substitution of debtors when
Well-settled is the rule that remanding of a case for the Caneda executed the undertaking assuming the
reception of evidence is not necessary if the Supreme liability of Gueson in favor of FNCB; that the phrase “with
Court could resolve the dispute based on the records recourse to Gueson in case of default” found in the
before it undertaking was inserted only after Caneda and FNCB
had already signed the undertaking and without the
procedural steps can be dispensed with, which would not knowledge of Gueson and that Caneda was in bad faith
anyway affect substantially the merits of their respective when it tried to evade payment of a justly-secured legal
claims obligation.

2. YES HELD:
No novation As to the merits of the case, it is undisputed that
CaNeda became a surety as accommodation party Gueson executed a promissory note in favor of
Caneda, secured by a chattel mortgage on a Toyota
In resume, FNCB can go against both Caneda, the Jiffy jeep as collateral; which promissory note and chattel
principal debtor and Gueson as the surety or either of mortgage was assigned by Caneda in favor of FNCB
them evidently to secure his obligation with said company,
with the knowledge and consent of Gueson. The
But the lower court erred in dismissing the claim against records also clearly established that FNCB tried to
Gueson collect from Gueson, Caneda consented and affixed his
signature in an undertaking thereby acknowledging
By not appealing the decision of the lower court, FNCB indebtedness in favor of FNCB.
merely opted to recover its credit from Caneda and
waived its right to recover from Gueson As between Gueson and Caneda, it is obvious that
whether private agreement between them is binding on
"with recourse to Buenaventura Gueson in case of them alone and not on FNCB whose only concern in the
default" is immaterial insofar as the liability of Caneda is whole transaction is the repayment of the loan it has
concerned extended.

merely confirms the fact that Gueson is merely an As regards FNCB, Caneda is the real debtor of the
accommodation party and will not absolve Caneda, the company and Gueson is only an accommodation party
principal debtor, from payment of the indebtedness with of Caneda. The trial court held that there was
FNCB. novation as there was substitution of debtors when
Caneda executed the undertaking. But the CA is Reasons why the complaint of Montinola cannot prosper:
correct, by saying that there was no 1. The insertion of the words "Agent, Phil. National
novation. Novation is never presumed. It must be Bank" which converts the bank from a mere drawee to a
explicitly stated. Caneda merely confirmed that he drawer and therefore changes its liability, constitutes a
was the real debtor of FNCB in the undertaking material alteration of the instrument without the consent
signed, while Gueson merely accommodated Caneda in of the parties liable thereon, and so discharges the
signing the promissory note and executing the chattel instrument.
mortgage. Thus, it has been 2. The check was not legally negotiated within the
ruled that one who signs as maker, drawer, acceptor or meaning of the Negotiable Instruments Law. Section 32
indorser, without receiving value therefore, and for the of the same law provides that "the indorsement must be
purpose of lending his name to some other person is an indorsement of the entire instrument. An
liable to the instrument to a holder for value, indorsement which purports to transfer to the indorsee a
notwithstanding the fact that such holder at the time part only of the amount payable, . . . (as in this case) does
of the taking the instrument knew him to be only an not operate as a negotiation of the instrument."
accommodation party. Nonetheless, after paying the Montinola may therefore not be regarded as an indorsee.
holder, he is entitled to obtain reimbursement from At most he may be regarded as a mere assignee.
the party accommodated. 3. Neither can Montinola be considered as a holder
in due course because section 52 of said law defines a
Likewise, it is no defense to state that Caneda and holder in due course as a holder who has taken the
Gueson didn't receive any value for the promissory instrument under certain conditions, one of which is that
note executed, both claiming to be accommodation he became the holder before it was overdue. When
parties. A third person advances the face value of Montinola received the check, it was long overdue.
the note to the accommodated party at the time of 4. And, Montinola is not even a holder because
the creation of the note, section 191 of the same law defines holder as the payee
the consideration for the note as regards the maker is the or indorsee of a bill or note and Montinola is not a payee.
money advanced to the accommodated party, and it Neither is he an indorsee for as already stated, at most
cannot be said that the note is lacking in consideration he can be considered only as assignee. Neither could it be
as to the accommodating party just becaue he said that he took it in good faith. As already stated, he
himself received some of the money. It is enough that the has not paid the full amount of P90,000 for which Ramos
value given for the note sold him P30,000 of the value of the check.
at the time of its creation. 5. Also, he should have known that a check for such
a large amount of P100,000 could not have been issued
to Ramos in his private capacity but rather in his capacity
Montinola v. PNB (1951) as disbursing officer of the USAFFE, and that at the time
Concept: Effect of Negligence of Drawer that Ramos sold a part of the check to him, Ramos was
Instrument: Check no longer connected with the USAFFE but already a
Parties: civilian who needed the money only for himself and his
Maker: Ubaldo Laya family.
Drawer: Ubaldo Laya
Drawee: PNB DISPOSITIVE: PNB may not be held liable through its
Payee: Mariano Ramos agent, Laya. When the latter drew the check, he did so
Indorser: Ramos as provincial treasurer and not as PNB’s agent. The
Indorsee: Enrique Montinola addition of these words is a material alteration, and
since it was made without the assent of Laya and
FACTS: PNB, the instrument is avoided.
Laya was the Provincial Treasurer of Misamis and an ex
officio agent of PNB. In his capacity as treasurer, he
issued for USAFFE Php400,000 in emergency notes and a MONTINOLA V. PNB
PNB check for P100,000. The check was payable to 88 PHIL 178
Ramos, an assistant agent. Ramos later indorsed the FACTS:
check to Montinola before having been incarcerated as a Ramos, as a disbursing officer of an army division of the
prisoner of war. Montinola claims that this was because USAFE, made cash advancements w/ the Provincial
at that time, Ramos needed foodstuffs and medicine. Treasurer of Lanao. In exchange, the Prov’l Treasurer
Ramos claims that it was only up to the value of of Lanao gave him a P500,000 check. Thereafter, Ramos
Php30,000. PNB came into the picture as the photostatic presented the check to Laya for encashment. Laya in
copy had the words, “Agent, Phil. National Bank” under his capacity as Provincial Treasurer of Misamis
Laya’s signature. Montinola sued PNB for the value of the Oriental as drawer, issued a check to Ramos in the
check, 2 and a half years overdue. sum of P100000, on the Philippines National Bank as
ISSUE: WON PNB is liable to Montinola? NO
drawee; the P400000 value of the check was paid in afternoon of the Dec. 15, 1961, the insurance company
military notes. shall make good all such loss or damage in an amount not
exceeding P100k. Plastic Era failed to pay its premium
Ramos was unable to encash the said check for he and instead executed an acknowledgment receipt
was captured by the Japanese. But after his release, he promising to pay 30 days after date.
sold P30000 of the check to Montinola for P90000 On Jan.8,1961, Plastic Era delivered a check as partial
Japanese Military notes, of which only P45000 was paid payment of the insurance premium worth 1k. However, it
by the latter. The writing made by Ramos at the back was dishonored by the Bank of America for lack of funds
of the check was to the effect that he was assigning on Feb.20, 1961. Records revealed that Plastic Era had a
only P30000 of the value of the document with an balance of P1,193.41 as early as Jan.19, 1961. (Note:
instruction to the bank to pay P30000 to Montinola and premium due date was on Jan.16,1961)
to deposit the balance to Ramos's credit. This writing Not unexpectedly, the property insured by Plastic Era
was, however, mysteriously obliterated and in its place, was destroyed by fire on Jan.18, 1961 (that’s 2 days after
a supposed indorsement appearing on the back of the the premium became due). Plastic Era filed a claim for
check was made for the whole amount of the check. At indemnity. Capital Insurance wanted to become part of
the time of the transfer of this check to Montinola, Philippine Jurisprudence so it denied the claim on the
the check was long overdue by about 2-1/2 years. ground that the premium was not paid.
Pissed, Plastic Era then filed a case in the lower court
Montinola instituted an action against the PNB and the which renderred judgment in its favor. The appelate
Provincial Treasurer of Misamis Oriental to collect the court affirmed it and so the issue is brought before the
sum of P100,000, the amount of the aforesaid check. SC.
There now appears on the face of said check the words in Issue: W/N a contract of insurance has been duly
parenthesis "Agent, Phil. National Bank" under the perfected between the petitioner, Capital Insurance, and
signature of Laya purportedly showing that Laya issued respondent Plastic Era.
the check as agent of the Philippine National Bank.
Ruling: Yup, it has been perfected.
The Insurnace Policy states that: “THE COMPANY HEREBY
HELD: AGREES with the Insured but subject to the terms and
The words "Agent, Phil. National Bank" now appearing on conditions endorsed or otherwise expressed hereon,
the face of the check were added or placed in the which are to be taken as part of this Policy), that if the
instrument after it was issued by the Provincial Property described, or any part thereof, shall be
Treasurer Laya to Ramos. The check was issued by destroyed or damaged by Fire or Lightning after payment
only as Provincial Treasurer and as an official of the of the Premiums, at anytime between...xxx”
Government, which was under obligation to provide the
USAFE with advance funds, and not as agent of the In clear and unequivocal terms the insurance policy
bank, which had no such obligation. The addition of provides that it is only upon payment of the premiums by
those words was made after the check had been Plastic Era that Capital Insurance agrees to insure the
transferred by Ramos to Montinola. The insertion of properties of the former against loss or damage in an
the words "Agent, Phil. National Bank," which amount not exceeding P100,000.00. It appears on record
converts the bank from a mere drawee to a drawer and that on the day the insurance policy was delivered,
therefore changes its liability, constitutes a material Plastic Era did not pay the Capital Insurance, but instead
alteration of the instrument without the consent of executed an acknowledgment receipt.
the parties liable thereon, and so discharges the
instrument Q:Could not this have been considered a valid payment
of the insurance premium?
Article 1249 NCC:
Case: THE CAPITAL INSURANCE & SURETY CO., INC vs. The delivery of promissory notes payable to order, or bills
PLASTIC ERA CO., INC., AND COURT OF APPEALS of exchange or other mercantile documents shall
Digested by: marccarillo produce the effect of payment only when they have been
Facts: On Dec. 7, 1960, Capital Insurance & Surety Co., cashed, or when through the fault of the creditor they
Inc (Capital Insurance) delivered to Plastic Era have been impaired.
Manufacturing Co., Inc (Plastic Era) its Open Fire Policy Under this provision the mere delivery of a bill of
No.22760 wherein the former undertook to insure the exchange in payment of a debt does not immediately
latter’s building, equipments, raw materials, products effect payment. It simply suspends the action arising
and accessories located at Sheridan Street, from the original obligation in satisfaction of which it was
Mandaluyong, Rizal. The policy expressly provides that if delivered, until payment is accomplished either actually
the property insured would be destroyed or damaged by or presumptively. But wait...
fire after the payment of the premiums, at anytime
between the Dec. 15 1960 and one o'clock in the
 was also insured to Philamgen Insurance Company for
Acceptance by Capital Insurance considered as waiver P200K.
Capital Insurance refused Plastic Era's claim for failing to
Significantly, in the case before Us the Capital Insurance pay the insurance premium
accepted the promise of Plastic Era to pay the insurance CFI: favored Capital Insurance
premium within thirty (30) days from the effective date CA: affirmed
of policy. By so doing, it has implicitly agreed to modify ISSUE: W/N there was a valid insurance contract because
the tenor of the insurance policy and in effect, waived there was an extention of credit despite failing to encash
the provision therein that it would only pay for the loss the check payment
or damage in case the same occurs after the payment of
the premium. Considering that the insurance policy is HELD: YES. Affirmed
silent as to the mode of payment, Capital Insurance is
deemed to have accepted the promissory note in Article 1249 of the New Civil Code
payment of the premium. The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
Citing a US Case, our Supreme Court sad that “that the effect of payment only when they have been cashed,
although one of conditions of an insurance policy is that or when through the fault of the creditor they have been
"it shall not be valid or binding until the first premium is impaired
paid", if it is silent as to the mode of payment, Capital Insurance accepted the promise of Plastic Era to
promissory notes received by the company must be pay the insurance premium within 30 days from the
deemed to have been accepted in payment of the effective date of policy. Considering that the insurance
premium. In other words, a requirement for the payment policy is silent as to the mode of payment, Capital
of the first or initial premium in advance or actual cash Insurance is deemed to have accepted the promissory
may be waived by acceptance of a promissory note ...” note in payment of the premium. This rendered the policy
immediately operative on the date it was delivered.
The fact that the check issued by Plastic Era in partial By accepting its promise to pay the insurance premium
payment of the promissory note was later on dishonored within thirty (30) days from the effectivity date of the
did not in any way operate as a forfeiture of its rights policy — December 17, 1960 Capital Insurance had in
under the policy, there being no express stipulation effect extended credit to Plastic Era.
therein to that effect. Where credit is given by an insurance company for the
This is how the story ends. :D payment of the premium it has no right to cancel the
policy for nonpayment except by putting the insured in
default and giving him personal notice
Insurance Case Digest: Capital Insurance & Surety Co. Having held the check for such an unreasonable period of
Inc. V. Plastic Era Co. Inc (1975) time, Capital Insurance was estopped from claiming a
forfeiture of its policy for non-payment even if the check
G.R.No. L-22375 July 18, 1975 had been dishonored later.
Lessons Applicable: Estoppel and credit extension
(Insurance)
Laws Applicable: Article 1249 of the New Civil Code

FACTS:

December 17, 1960: Capital Insurance & Surety Co., Inc.

delivered to the respondent Plastic Era Manufacturing
Co., Inc. its open Fire Policy insuring its building,
equipments, raw materials, products and accessories
located at Sheridan Street, Mandaluyong, Rizal between
December 15, 1960 1 pm - December 15, 1961 1 pm up to
P100,000 but Plastic Era did not pay the premium
January 8, 1961: Plastic Era delivered to Capital Insurance
its partial payment through check P1,000 postdated
January 16, 1961
February 20, 1961: Capital Insurance tried to deposit the
check but it was dishonored due to lack of funds.
According to the records, on January 19, 1961 Plastic Era
has had a bank balance of P1,193.41
January 18, 1961: Plastic Era's properties were destroyed
by fire amounting to a loss of P283,875. The property