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CHAPTER II

Consideration

Sec. 24. Presumption of consideration. – Every negotiable instrument is deemed prima facie to have been issued for
a valuable consideration; and every person whose signature appears thereon to have become a party thereto for
value.

Sec. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple contract. An antecedent
or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a
future time.

Sec. 26. What constitutes holder for value. – Where value has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who become such prior to that time.

Sec. 27. When lien on instrument constitutes holder for value. – Where the holder has a lien on the instrument,
arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a matter of defense as against any
person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.

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.

CHAPTER III
Negotiation

Sec. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred from one person to another
in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder completed by delivery.

Sec. 31. Indorsement; how made. – The indorsement must be written on the instrument itself or upon a paper
attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

Sec. 32. Indorsement must be of entire instrument. – The indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the
instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.

Sec. 33. Kinds of indorsement. – An indorsement may be either special or in blank; and it may also be either
restrictive or qualified, or conditional.

Sec. 34. Special indorsement; indorsement in blank. – A special indorsement specifies the person to whom, or to
whose order, the instrument is to be payable; and the indorsement of such indorsee is necessary to the further
negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is
payable to bearer, and may be negotiated by delivery.

Sec. 35. Blank indorsement; how changed to special indorsement. – The holder may convert a blank indorsement
into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the
character of the indorsement.

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Sec. 36. When indorsement restrictive. – An indorsement is restrictive; which either –

(a) Prohibits the further negotiation of the instrument; or

(b) Constitutes the indorsee the agent of the indorser; or

(c) Vests the title in the indorsee in trust for or to the use of some other persons.

But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

Sec. 37. Effect of restrictive indorsement; rights of indorsee. – A restrictive indorsement confers upon the indorsee
the right –

(a) To receive payment on the instrument;

(b) To bring any action thereon that the indorser could bring;

(c) To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.

But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

Sec. 38. Qualified indorsement. – A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar
import. Such an indorsement does not impair the negotiable character of the instrument.

Sec. 39. Conditional indorsement. – Where an indorsement is conditional, the party required to pay the instrument
may disregard the condition and make payment to the indorsee or his transferee whether the condition has been
fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds
thereof, subject to the rights of the person indorsing conditionally.

Sec. 40. Indorsement of instrument payable to bearer. – Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser
to only such holders as make title through his indorsement.

Sec. 41. Indorsement where payable to two or more persons. – Where an instrument is payable to the order of two or
more payees or indorsees who are not partners, all must indorse, unless the one indorsing has authority to indorse
for the others.

Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. – Where an instrument is drawn or indorsed
to a person as “cashier” or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the
bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or
corporation, or the indorsement of the officer.

Sec. 43. Indorsement where name is misspelled, and so forth. – Where the name of a payee or indorsee is wrongly
designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper
signature.

Sec. 44. Indorsement in representative capacity. – Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability.

Sec. 45. Time of indorsement; presumption. – Except where an indorsement bears date after the maturity of the
instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

Sec. 46. Place of indorsement. – Except where the contrary appears, every indorsement is presumed prima facie to
have been made at the place where the instrument is dated.

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Sec. 47. Continuation of negotiable character. – An instrument negotiable in its origin continues to be negotiable until
it has been restrictively indorsed or discharged by payment or otherwise.

Sec. 48. Striking out indorsement. – The holder may at any time strike out any indorsement which is not necessary to
his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from
liability on the instrument.

Sec. 49. Transfer without indorsement; effect of . – Where the holder of an instrument payable to his order transfers it
for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining
whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is
actually made.

Sec. 50. When prior party may negotiate instrument. – Where an instrument is negotiated back to a prior party, such
party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to
enforce payment thereof against any intervening party to whom he was personally liable.

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Pineda v De La Rama

FACTS:

This is a petition to review on certiorari a decision of the Court of Appeals which declared petitioner Jesus Pineda
liable on his promissory note for P9,300.00 and directed him to pay attorney's fees of P400.00 to private respondent,
Jose V. dela Rama.

Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making representations
with the chairman and general manager of the National Rice and Corn Administration (NARIC) to stop or delay the
institution of criminal charges against Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his
ricemill in Concepcion, Tarlac. The NARIC general manager was allegedly an intimate friend of Dela Rama.

According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in Mindoro and, therefore,
borrowed the P9,300.00 subject of his complaint for collection. In addition to filling the suit to collect the loan
evidenced by the matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees for legal
services rendered as Pineda's counsel in the case being investigated by NARIC.

The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The court believed
the evidence of Pineda that he signed the promissory note for P9,300.00 only because Dela Rama had told him that
this amount had already been advanced to grease the palms of the 'Chairman and General Manager of NARIC in
order to save Pineda from criminal prosecution.

The court stated:

xxx xxx xxx

... The Court, after hearing the testimonies of the witness and examining the exhibits in question, finds that Exhibit A
proves that the defendant himself did not receive the amount stated therein, because according to said exhibit that
amount was advanced by the plaintiff in connection with the defendant's case, entirely contradicting the testimony of
the plaintiff himself, who stated in open Court that he gave the amount in cash in two installments to the defendant.
The Court is more inclined to believe the contents of Exhibit A, than the testimony of the plaintiff. On this particular
matter, the defendant has established that the plaintiff made him believe that he was giving money to the authorities
of the NARIC to grease their palms to suspend the prosecution of the defendant, but the defendant, upon inquiry,
found out that none of the authorities has received that amount, and there was no case that was ever contemplated
to be filed against him. It clearly follows, therefore, that the amount involved in this Exhibit A was imaginary. It was
given to the defendant, not to somebody else. The purpose for which the amount was intended was illegal.

However, the Court believes that plaintiff was able to get from the defendant the amount of P3,000.00 on October 7,
as shown by the check issued by the defendant, Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per
plaintiff's wishes to show that defendant was indebted for P3,000.00 when, as a matter of fact, such amount was
produced in order to grease the palms of the NARIC officials for withholding an imaginary criminal case. Such amount
was never given to such officials nor was there any contemplated case against the defendant. The purpose for which
such amount was intended was indeed illegal.

The trial court rendered judgment as follows:

WHEREFORE, the Court finds by a preponderance of evidence that the amount of P9,300.00 evidenced by Exhibit A
was not received by the defendant, nor given to any party for the defendant's benefit.Consequently, the plaintiff has
no right to recover said amount. The amount of P3,000.00 was given by the defendant to grease the palms of the
NARIC officials. The purpose was illegal, null and void. Besides, it was not given at all, nor was it true that there was
a contemplated case against the defendant. Such amount should be returned to the defendant. The services
rendered by the plaintiff to the defendant is worth only P400.00, taking into consideration that the plaintiff received an
air-conditioner and six sacks of rice. The court orders that the plaintiff should return to the defendant the amount of
P3,000.00, minus P400.00 plus costs.

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The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a person of more than
average intelligence, astute in business, and wise in the ways of men would not "sign any document or paper with his
name unless he was fully aware of the contents and important thereof, knowing as he must have known that the
language and practices of business and of trade and commerce call to account every careless or thoughtless word or
deed."

The appellate court stated:

No rule is more fundamental and by men of honor and goodwill more dearly cherished, than that which declares that
obligations arising from contracts have the force of law between the contracting parties and should be complied with
in good faith. Corollary to and in furtherance of this principle, Section 24 of the Negotiable instruments Law (Act No.
2031) explicitly provides that every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration, and every person whose signature appears thereon to have become a party thereto for value.

We find this petition meritorious.

The Court of Appeals relied on the efficacy of the promissory note for its decision, citing Section 24 of the Negotiable
Instruments Law which reads:

SECTION 24. Presumption of consideration.—Every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose signature appears thereon to have become a party
thereto for value.

The Court of Appeals' reliance on the above provision is misplaced. The presumption that a negotiable instrument is
issued for a valuable consideration is only puma facie. It can be rebutted by proof to the contrary. (Bank of the
Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).

According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions five days apart -
first loan for P5,000.00 and second loan for P4,300.00, both given in cash. He also alleged that previously he loaned
P3,000.00 but Pineda paid this other loan two days afterward.

These allegations of Dela Rama are belied by the promissory note itself. The second sentence of the note reads -
"This represents the cash advances made by him in connection with my case for which he is my attorney-in- law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he
believed Dela Rama's story that these amounts had already been advanced by Dela Rama and given as gifts for
NARIC officials.

Dela Rama himself admits that Pineda engaged his services to delay by one month the filing of the NARIC case
against Pineda while the latter was trying to work out an amicable settlement. There is no question that Dela Rama
was indeed a close friend of then NARIC Administrator Jose Rodriquez having worked with him in the Philippine
consulate at Hongkong and that Dela Rama made what he calls "proper representations" with Rodriguez and with
other NARIC officials in connection with the investigation of the criminal charges against Pineda.

We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend money to his client
whom he had known for only three months, with no security for the loan and on interest. Dela Rama testified that he
did not even know what Pineda was going to do with the money he borrowed from him. The petitioner had just
purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares, and
had P60,000.00 deposits in three banks when he executed the note. It is more logical to believe that Pineda would
not borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer" and whom he had known for
only three months.

There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by Pineda's son and given to
Dela Rama although the latter claims he paid P1,250.00 for the unit when he received it. Pineda, however, alleged
that he gave the air-conditioning unit because Dela Rama told him that Dr. Rodriguez was asking for one air-
conditioning machine of 1.5 horsepower for the latter's NARIC office. Pineda further testified that six cavans of first
class rice also intended for the NARIC Chairman and General Manager, together with the airconditioning unit, never
reached Dr. Rodriguez but were kept by the lawyer.

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Considering the foregoing, we agree with the trial court that the promissory note was executed for an illegal
consideration. Articles 1409 and 1412 of the Civil Code in part, provide:

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order and public
policy;

xxx xxx xxx

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of
the contract, or demand the performance of the other's undertaking.

xxx xxx xxx

Whether or not the supposed cash advances reached their destination is of no moment. The consideration for the
promissory note - to influence public officers in the performance of their duties - is contrary to law and public policy.
Te promissory note is void ab initio and no cause of action for the collection cases can arise from it.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and the counterclaim in Civil Case
No. 45762 are both DISMISSED.

SO ORDERED.

DIGEST

FACTS:

Pineda was caught in a case against the NARIC for his alleged misappropriation of many cavans of
palay. He hired Atty. Dela Rama to delay the filing of the complaint against him, on alleged representation of the
lawyer that he is a friend of the NARIC administrator. Pineda then issued a promissory note in favor of dela Rama to
pay for the advances that the lawyer madeto the administrator to delay the filing of the complaint. Dela Rama on
the other hand contended that the promissory note was for the loan advanced to Pineda by him. Dela Rama filed
an action against Pineda for the collection of the amount of the note.

HELD:

The presumption that a negotiable instrument was issued for valuable consideration is a rebuttable
presumption. It can be rebutted by proof to the contrary. In the case at bar, the claims of dela Rama that the
promissory note was for a loan advanced to Pineda is unbelievable. The grant of a loan by a lawyer to a
moneyed client and whom he has known for only 3 months can not be relied on. Pineda had actually just purchased
numerous properties. It is highly illogical that he would loan from dela Rama P9500 for 5 days apart. Furthermore,
the note was void ab initio because the consideration given was to influence the administrator to delay
charges against Pineda. The consideration was void for being against law and public policy.

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Phil Bank of Commerce v Aruego

Facts:

Jose Aruego obtained a credit accommodation from the Philippine Bank of Commerce to facilitate the payment of
printing of “World Current Events”, the periodical he is publishing. Thus, for every printing of the periodical, 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. The Philippine Bank of Commerce instituted an action against
Aruego to recover the cost of printing of the latter’s periodical. Aruego however argues that he signed the supposed
bills of exchange only as an agent of the Philippine Education Foundation Company where he is president.

Issue:

Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange only as an
agent of Philippine Education Foundation Company.

Held:

Yes. Aruego did not disclose in any of the drafts that he accepted that he was signing as representative of the
Philippine Education Foundation Company. Aruego contends 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. 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.

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Clark v Sellner

ROMUALDEZ, J.:

The defendant, in conjunction with two other persons, signed the following note in favor of the plaintiff:

P12,000.00 MANILA, July 1, 1914.

Six months after date, for value received, we jointly and severally promise to pay to the order of R. N. Clark at his
office in the city of Manila, the sum of twelve thousand pesos, Philippine currency, with interest thereon in like
currency from date until paid at the rate of ten per cent per annum, payable quarterly.

If suit is necessary to collect this note, we hereby agree to pay as attorney's fees ten per centum of the amount found
due.

(Sgd.) W. H. CLARKE,

[INTERNAL REVENUE JOHN MAYE. STAMP.] By W. H. CLARKE, his attorney.

GEO. C. SELLNER."

The note matured, but its amount was not paid.

Counsel for the defendant allege that the latter did not receive in that transaction either the whole or any part of the
amount of the debt; that the instrument was not presented to the defendant for payment; and that the defendant,
being an accommodation party, is not liable unless the note is negotiated, which was not done, as shown by the
evidence.

With regard to the first point, the liability of the defendant, as one of the signers of the note, is not dependent on
whether he has, or has not, received any part of the amount of the debt. The defendant is really and expressly one of
the joint and several debtors on the note, and as such he is liable under the provisions of section 60 of Act No. 2031,
entitled The Negotiable Instruments Law, which provisions should be applied in this case in view of the character of
the instrument.

As to presentment for payment, such action is not necessary in order to charge the person primarily liable, as is the
defendant. (Sec. 70, Act No. 2031.)

And as to whether or not the defendant is an accommodation party, it should be taken into account that by putting his
signature to the note, he lent his name, not to the creditor, but to those who signed with him placing himself with
respect to the creditor in the same position and with the same liability as the said signers. It should be noted that the
phrase "without receiving value therefor," as used in section 29 of the aforesaid Act, means "without receiving value
by virtue of the instrument" and not, as it apparently is supposed to mean, "without receiving payment for lending his
name." If, as in the instant case, a sum of money was received by virtue of the note, it is immaterial, so far as the
creditor is concerned, whether one of the singers has, or has not, received anything in payment of the use of his

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name. In reality the legal situation of the defendant in this case may properly be regarded as that of a joint surety
rather than that of an accommodation party. The defendant, as a joint surety, may, upon the maturity of the note, pay
the debt, demand the collateral security and dispose of it to his benefit; but there is no proof whatever that this was
done. As to the plaintiff, he is the "holder for value," under the phrase of said section 29, for he had paid the money to
the signers at the time the note was executed and delivered to him. Who is the "holder" is defined in section 191 of
the said law thus:

"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

And as such holder, he has the right to demand payment of the debt from the signer of the note, even though he
knows that said person is merely an accommodation party (section 29 above cited), assuming the defendant to be
such, which, as has been stated, is not the case.

The trial judge took into account the fact that at the time of the maturity of the note, the collateral security given to
guarantee the payment was worth more than what was due on the note, but it depreciated to such an extent that, at
the time of the institution of this action, it was entirely valueless. And taking this circumstance, together with the fact
that this case was not commenced until after the lapse of four years from the date on which the payment fell due, and
with the further fact that the defendant had not received any part of the amount mentioned in the note, he was of the
opinion, and so decided, that the defendant could not be held liable. The theory of the judge a quo was that the
plaintiff's failure to enforce the guaranty for the payment of the debt, and his delay in instituting this action constitute
laches, which had the effect of extinguishing his right of action.

We see no sufficient ground for applying such a theory to the case before us. As stated, the defendant's position
being, as it is, that of a joint surety, he may, at any time after the maturity of the note, make payment, thus
subrogating 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. 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.)

We find that in the judgment appealed from there were committed the errors assigned, and that the defendant is
under obligation to pay the plaintiff the amount of the debt, as prayed for in the complaint.lawphil.net

The judgment appealed from must, therefore, be, as is hereby, reversed. Let an order be issued to the effect that the
plaintiff have and recover from the defendant the sum of twelve thousand pesos (P12,000), as principal debt, plus
one thousand two hundred pesos (P1,200), the sum agreed upon as attorney's fees, and 10 per cent interest on the

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principal debt from July 1, 1914, until it is fully paid, deducting therefrom the sum of three hundred pesos (P300)
already paid on account, as stated in the complaint.

This decision is rendered without special pronouncement as to costs. So ordered.

PNB v Maza

MALCOLM, J.:

The Philippine National Bank is suing Ramon Maza and Francisco Mecenas on five promissory notes of ten thousand
pesos (P10,000) each.

Maza and Mecenas executed two of the promissory notes on January 20, 1921, due three months after date. The
three other notes due four months after date. The three other notes due four months after date were executed by the
same parties on January 21, 1921. One of the above-mentioned notes, typical of the rest reads as follows:

P10,000 ILOILO, I.F. Jan. 20, 1921.

A los tres meses de la fecha, pagaremos mancomunada y solidariamente a la orden del Philippine National Bank,
Iloilo, Iloilo, I. F., la cantidad de diez mil (P10,000) pesos en el Philippine National Bank.

Iloilo, I. F.

Valor Recibido.

No. 340 Pagadero el 4/20/21

(Fdos.) RAMOS MAZA

FRANCISCO MECENAS

The notes were not taken up by Maza and Mecenas at maturity. The obligations with accumulated interest totaled
P65,207.73 on September 22, 1924.

To recover the amounts stated on the face of the notes with back interest, action was begun by the Philippine
National Bank in the court of first instance of Iloilo against Ramon Maza and Francisco Mecenas. The special
defense interposed by the defendants was that the promissory notes were sent in blank to them by Enrique Echaus
with the request that they sign them so that he, Echaus, might negotiate them with the Philippine National Bank in
case of need; that the defendants have not negotiated the promissory notes with the bank, nor have they received the
value thereof, or delivered them to the bank in payment of any preexisting debt; and that it was Enrique Echaus who
negotiated the noted with the bank and who is accordingly the real party in interest and the party liable for the
payment of the notes. Defendants also moved that Echaus be ordered included as one of the defendants. The trial
judge denied the motion. Judgment was rendered in favor of the plaintiff and against the defendants jointly and

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severally for a total of P65,207.73, with interest at 9 per cent on twenty thousand pesos (P5) a day, and with interest
at 9 per cent on thirty thousand pesos (P30,000) from September 23, 1924, or at the rate of P7.5 a day, and with
costs.

Four errors are assigned by the defendants on appeal. The first error relates to the order of the trial judge refusing to
require Enrique Echaus to become a party to the action. As the defendants failed to duly except to the order, they are
not now entitled to ask this court to review the ruling. Moreover, it is not evident that Echaus was an indispensable
party. The other three error go to the merits and rest on the same foundation as the special defense.

From the pleadings and the stipulation of facts, it is deduced that the defendants admit the genuineness and due
execution of the instruments sued on . Neither do the appellants point out any mistake in regard to the amount and
interest that the lower court sentenced them to pay to the plaintiff bank. Predicated on these premises, from whatever
point of view we look at the case, we arrive at the same conclusion — that the defendants are liable.

On the first assumption that Maza and Mecenas were the principals and Echaus the agent, as argued by counsel for
the appellee, the principals must fulfill their obligations. On another assumption, which is a fact, that the defendants
are exactly what they appear to be, the makers of the negotiable instruments, then they must keep their engagement
and must pay as promised. Their liability on the instruments is primary and unconditional.

The most plausible and reasonable stand for the defendants is that they are accommodation parties. but as
accommodation parties, the defendants having signed the instruments without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the instruments. The law now is that the
accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking, the same
as if he were himself financially interested in the transaction.lawph!1.net

The defense is made to the action that the defendants never received the value of the promissory notes. it is, of
course, fundamental that an instrument given without consideration does not create any obligation at law or in equity
in favor of the payee. However, to fasten liability upon an accommodation maker, it is not necessary that any
consideration should move to him. The consideration which supports the promise of the accommodation maker is that
parted with by the person taking the note and received by the person accommodated.

While perhaps unnecessary to this decision, it may properly be remarked that when the accommodation parties make
payment to the holder of the notes, they have the right to sue the accommodated party for reimbursement, since the
relation between them is in effect that of principal and sureties, the accommodation parties being the sureties.

11
Sadaya v Sevilla

FACTS:

March 28, 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the BPI,
or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand.

The P15,000.00 proceeds was received by Oscar Varona alone.

Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona.

June 15, 1950: outstanding balance is P4,850.00. No payment thereafter made.

Oct 16 1952: bank collected from Sadaya total of P5,416.12(w/ int)

Varona failed to reimburse Sadaya despite repeated demands. V

Victor Sevilla died Francisco Sevilla was named administrator.

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

June 5, 1957: Trial court order the administrator to pay

CA reversed.

ISSUE: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party when Verona as principal
debtor is not yet insolvent

HELD: NO. Affirmed

Varona is bound by the obligation to reimburse Sadaya

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

requisites before one accommodation maker can seek reimbursement from a co-accommodation maker.

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.

(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;

(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 -no judicial demand just voluntarily

(b) a principal debtor is insolvent. - Varona is not insolvent

12
United General Industries v Paler

ABAD SANTOS, J.:

This is an appeal from a decision of the Court of First Instance of Manila, Branch IX, in Civil Case No. 60418, United
General Industries, Inc. vs. Jose Paler and Jose de la Rama. Since the appeal death with a question of law only, We
reproduce the decision which reads as follows:

When this case was called for pre-trial today, neither the defendants, nor their counsel appeared, notwithstanding the
fact that said defendants were notified of the pre-trial. Upon motion of the plaintiff, said defendants were declared in
default. Likewise, upon motion of counsel for the plaintiff, this case was submitted for judgment on the pleadings.

Plaintiff's complaint alleges that on January 20, 1962, the defendant, Jose Paler and his wife Purificacion Paler,
purchased from the plaintiff (1) Zenith 23" TV set with serial No. 3493594 on installment basis; that to secure the
payment of the purchase price, the defendant, Jose Paler and his wife executed in favor of the plaintiff a promissory
note in the amount of P2,690.00; that, to consider the guarantee the payment of the aforementioned promissory on
defendant Jose Paler and his wife constituted a chattel mortgage over the above- described television set in favor of
the plaintiff which mortgage was duly registered in the chattel mortgage registry; that by virtue of the violation by
defendant Jose Paler and his wife of the terms and conditions of the chattel mortgage, the plaintiff filed a criminal
action against the above-named persons for estafa under Art. 319 of the Revised Penal Code with the City Fiscal's
Office of Pasay City; that to settle extra-judicially the criminal case aforementioned against the defendant, Jose Paler
and his wife, the said defendant Jose Paler and his co-defendant, Jose de la Rama, executed in favor of plaintiff a
promissory note dated April 11, 1964 in the amount of P3,083.58 (exhibit A); and that; notwithstanding repeated
demands, said defendants have failed to pay plaintiff the sum of P3,083.58 with 1% interest per month from April 11,
1964 until full payment is made, pursuant to the terms of the promissory note marked Exhibit A.

In their answer, the defendants admit the fact that they executed a promissory note dated April 11, 1964 in favor of
plaintiff in the amount of P3,083.58, with 12% interest per annum. They further admit the fact that said obligation has
not been paid the plaintiff notwithstanding repeated demands made.

Considering the admissions of the defendants in their answer, judgment on the pleadings, as prayed for may,
therefore, be rendered.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, sentencing said
defendants to pay to the plaintiff the sum of P3,083.58, with 12% interest thereon per annum from the date the
complaint was filed on October 14, 1965 until full payment is made and attorney's fees in the sum of P250.00. With
costs against the defendants. (Record on Appeal, pp. 20-22.)

The appellants, Paler and de la Rama, claim in their appeal that the complaint should have been dismissed because
"the obligation sought to be enforced by plaintiff-appellee against defendants-appellants arose or was incurred in
consideration for the compounding of a crime." Obviously, the appellants are referring to the portion of the decision
which states: " ... the plaintiff filed a criminal action against the above-named persons (Jose Paler and his wife) for
estafa under Art. 319 of the Revised Penal Code with the City Fiscal's Office of Pasay City; that to settle extra-
judicially the criminal case aforementioned against the defendant, Jose Paler and his wife, the said defendant Jose
Paler and his co-defendant, Jose de la Rama, executed in favor of plaintiff a promissory note dated April 11, 1964 in
the amount of P3,083.58 (Exhibit A)."

13
There is some merit in this contention. In Arroyo vs. Berwin, 36 Phil. 386 (1917), it was held that an agreement to
stifle the prosecution of a crime is manifestly contrary to public policy and due administration of justice and will not be
enforced in a court of law. See also Monterey vs. Gomez, et al., 104 Phil. 1059 (1958).

Under the law and jurisprudence, there can be no recovery against Jose de la Rama who incidentally appears to
have been an accommodation signer only of the promissory note which is vitiated by the illegality of the cause.

But it is different with Jose Paler who bought a television set from the appellee, did not pay for it and even sold the
set without the written consent of the mortgagee which accordingly brought about the filing of the estafa case. He has
an obligation to the appellee independently of the promissory note which was co-signed by Jose de la Rama. For
Paler to escape payment of a just obligation will result in an untrust enrichment at the expense of another. This we
cannot in conscience allow.

Article 19 of the Civil Code mandates "Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith." And Article 2208 of the same
Code states that attorney's fees and expenses of litigation, other than judicial costs, can be recovered "Where the
defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim." (Par. 5.) Here Paler wilfully refused to pay a debt which he clearly ought to have paid. He has even imposed a
burden on this Court by filing an unnecessary and frivolous appeal. The award of P250.00 in favor of the appellee
who had to file a printed brief is manifestly inadequate.

WHEREFORE, the judgment of the court a quo is modified to excluding Jose de la Rama therefrom and increasing
the award for attorney's fees to P1,000.00; it is affirmed in all other respects. Triple costs.

14
Prudencio v CA

FACTS:

Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel of land mortgaged to Philippine National
Bank (PNB) to guarantee a loan of P1,000.00 extended to Domingo Prudencio

1955: Concepcion & Tamayo Construction Company (Concepcion) had a pending contract with the Bureau of Public
Works (Bureau) for the construction of the municipal building in Puerto Princess, Palawan amounting to P36,800.00

In need of funds, Jose Toribio, Concepcions' relative, and attorney-in-fact of the Company, approached PNB to
mortgage their property to secure the loan of P10,000.00 w/ PNB.

The terms and conditions of the original mortgage for Pl,000.00 were made integral part of the new mortgage for
P10,000.00 and both documents were registered with the Register of Deeds

Dec 23 1955:

promissory note covering the loan of P10,000.00 dated Dec 29 1955, maturing on Apr 27 1956, was signed by Jose
Toribio, as attorney-in-fact of the Company, and by the Prudencios'

Deed of Assignment assigning all payments to be made by the Bureau to the Co. on account of the contract for the
construction in favor of the PNB.

PNB approved the Bureau's release of 3 payments directly to Concepcion for material and labor instead of paying the
same to the Bank on account of the contract price totalling P11,234.40 without the knowledge of the Prudencios'

PNB did not apply the initial and subsequent payments to the Prudencios' debt as provided for in the deed of
assignment

Jun 30 1956: Concepcion abandoned their work so Bureau rescinded the construction contract and assumed the
work of completing

Jun 27 1959: Concepcion filed to cancelled their mortgage

complaint was amended to exclude the Company as defendant, it having been shown that its life as a partnership
had already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo, partners of the defunct
Company, were impleaded in their private capacity as defendants.

CA affirmed RTC: Denied

no stipulation in the deed making it obligatory on the part of the PNB to notify the petitioners everytime it authorizes
payment to the Company

Prudencios' contend that as accommodation makers, the nature of their liability is only that of mere sureties instead of
solidary co-debtors such that "a material alteration in the principal contract, effected by the creditor without the
knowledge and consent of the sureties, completely discharges the sureties from all liability on the contract of
suretyship.

ISSUE:

W/N the Prudencios' as accomodating party are liable as solidary debtors so real estate mortgage executed by them
CANNOT be cancelled

W/N PNB was a holder in due course

15
HELD: Petition is Granted. CA reversed.

1. YES

Section 29 of the Negotiable Instrument Law

Liability of accommodation party. —An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.
Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.

Philippine Bank of Commerce v. Aruego: liability of the accommodation party remains not only primary but also
unconditional to a holder for value

remedy is a matter of concern exclusively between accommodation indorser and accommodated party

2. NO

payee PNB is an immediate party and, therefore, is NOT a holder in due course and stands on no better footing than
a mere assignee

holder in due course - payee either acquired the note from another holder or has not directly dealt with the maker
thereof

PNB, in effect, waived payments of the first three releases

PNB can not be regarded as having acted in good faith which is also one of the requisites of a holder in due course
under Section 52 of the Negotiable Instruments Law

It was only when the deed of assignment was shown to the spouses that they consented to the mortgage and signed
the promissory note in the Bank's favor.

16
Crisologo-Jose v CA

Facts: 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. Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued check against Traders Royal Bank, 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. The check 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 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. Since the compromise
agreement was not approved within the expected period of time, the aforesaid check was replaced by Atty. Benares.
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 with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. The petitioner filed an action against the corporation for accommodation party.

Issue: WON the corporation can be held liable as accommodation party?

Held: No. 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. This is because the issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee
with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon. By way of exception, an officer or agent of a corporation
shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation
of a third person only if specifically authorized to do so. 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.

17
Travel-On v CA

FACTS:

Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of airline
passengers and derived commissions therefrom. Miranda was sued by petitioner to collect on the six postdated
checks he issued which were all dishonored by the drawee banks. Miranda, 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 not for the purpose of encashment to pay his indebtedness but for purposes of accommodation,
as he had in the past accorded similar favors to petitioner. Petitioner however urges that the postdated checks are
per se evidence of liability on the part of private respondent and 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.

ISSUE:

Whether Miranda is liable on the postdated checks he issued even assuming that said checks were issued for
accommodation only.

RULING:

There was no accommodation transaction in the case at bar. 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. 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. 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. Miranda must be held
liable on the checks involved as petitioner is entitled to the benefit of the statutory presumption that it was a holder in
due course and that the checks were supported by valuable consideration.

**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. In the case at bar, Travel-On was the 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

18
Town Savings and Loan Bank v CA

This is a petition for review on certiorari to set aside the decision dated March 12, 1992, of the Court of Appeals in
CA-G.R. CV No. 29475 entitled, "Town Savings and Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia N.
Hipolito" reversing the decision dated September 14, 1990 of the Regional Trial Court of Bulacan which declared that
the Hipolitos were accommodation parties on the promissory note and holding them liable to pay Town Savings And
Loan Bank the sum of P1,392, 600.00.

On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan in the amount of P700,000.00 with
interest of 24% per annum for which they executed and delivered to Town Savings and Loan Bank (or TSLB) a
promissory note with a maturity period of three (3) years and an acceleration clause upon default in the payment of
any amortization, plus a penalty of 36% and 10% attorney's fees, if the note were referred to an attorney for
collection. For failure to keep current their monthly payments on the account, the obligors were deemed to have
defaulted on May 24, 1984. Notices of past due account and demands for payment were sent but ignored. At the time
of the institution of the action on March 12, 1986, the unpaid obligation amounted to P1,114,983.40.

The Hipolitos denied being personally liable on the P700,000.00 promissory note which they executed. The loan was
allegedly for the account of Pilarita H. Reyes, the sister of Miguel Hipolito. She was the real party-in-interest. The
Hipolitos, not having received any part of the loan, were mere guarantors for Pilarita. They allegedly signed the
promissory note because they were persuaded to do so by Joey Santos, President of TSLB. When they received the
demand letters, they confronted him but they were told that the Bank had to observe the formality of sending notices
and demand letters. The real purpose was only to pressure Pilarita to comply with her undertaking.

Insisting that they were mere guarantors, the Hipolitos vehemently protested against being dragged into the litigation
as principal parties. As a result of the unfounded suit, they allegedly incurred actual damages estimated at
P200,000.00 and attorney's fees of P30,000.00.

In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC of Malolos, Branch 18, held the
respondents (then defendants) spouses Miguel and Alicia Hipolito, liable as accommodation parties on the
promissory note.

The spouses appealed to the Court of Appeals. In a decision dated March 12, 1992, the Court of Appeals found that
the Hipolitos did not accommodate Pilarita but the TSLB, whose lending authority was restricted by the size of its loan
portfolio. The Hipolitos were relieved from any liability to TSLB.

Hence, this petition for review by TSLB.

The lone issue in this case is whether the Hipolitos are liable on the promissory note which they executed in favor of
the petitioner.

We hold for the petitioner.

An accommodation party is one who has signed the instrument as marker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an

19
accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540.)

In this case, there is no question that the private respondents signed the promissory note in order to enable Pilarita H.
Reyes, who is Miguel Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As observed by both the trial
court and the appellate court, the actual beneficiary of the loan was Pilarita H. Reyes and no other. The Hipolitos
accommodated her by signing a promissory note for half of the loan that she applied for because TSLB may not lend
any single borrower more than the authorized limit of its loan portfilio. Under Section 29 of the Negotiable Instruments
Law, the Hipolitos are liable to the bank on the promissory note that they signed to accommodate Pilarita.

Respondent appellate court erred in giving credence to Hipolito's allegation that it was the bank's president who
induced him to sign the promissory note so that the bank would not violate the Central Bank's regulation limiting the
amount that TSLB could lend out. Besides being self-serving, Hipolito's testimony was uncorroborated by any other
evidence on record, therefore, it should have been received with extreme caution. The Court is convinced that the
intention of respondents Hipolitos in signing the promissory note was not so much to enable the Bank to grant a loan
to Pilarita but for the latter to be able to obtain the full amount of the loan that she needed at the time.

It is not credible that a Bank would want so much to lend money to a borrower that it would go out of its way to
convince another person (respondent Miguel Hipolito) to accommodate the borrower (Pilarita H. Reyes). In the
ordinary course of things, the borrower, Pilarita, not the Bank, would have requested her brother Miguel to
accommodate her so she could have the P1.4 million that she wanted to borrow from the Bank.

The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the appellate court in reversing the decision of the trial
court, is not applicable to this case. In that case, the evidence showed that the indorser (the loan broker Serrano) in
making the indorsement to the lender, Maulini, was acting as agent for the latter or, as a mere vehicle for the
transference of the naked title from the borrower or maker of the note (Moreno). Furthermore, his indorsement was
wholly without consideration. We ruled that Serrano was not an accommodation indorser; he was not liable on the
note.

. . . Where, however, an indorsement is made as a favor to the indorsee, who requests it, not the better to secure
payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement
passes from the indorser to the indorsee, the situation does not present one creating an accommodation
indorsement, nor one where there is a consideration sufficient to sustain an action on the indorsement. (p. 644.)

Unlike the Maulini case, there was no agreement here, written or verbal, that in signing the promissory note, Miguel
and Alicia Hipolito were acting as agents for the money lender the Bank. The consideration of the note signed by the
Hipolitos was received by them through Pilarita. They acted as agents of Pilarita, not of the bank. They signed the
promissory note as favor to Pilarita, to help her raise the funds that she needed. It was Pilarita whom they
accommodated, not the bank, contrary to the erroneous finding of the appellate court.

WHEREFORE, the petition for review is GRANTED. The appealed decision of the Court of Appeals is hereby
REVERSED and that of the trial court is REINSTATED. Costs against the private respondents.

20
Claude P. Bautista v Auto Plus Traders

QUISUMBING, J.:

This petition for review on certiorari assails the Decision1 dated August 10, 2004 of the Court of Appeals in CA-G.R.
CR No. 28464 and the Resolution2 dated October 29, 2004, which denied petitioner's motion for reconsideration. The
Court of Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC),
Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03.

The antecedent facts are as follows:

Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport
Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two
postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then
executed an affidavit-complaint for violation of Batas Pambansa Blg. 223 against petitioner. Consequently, two
Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City
against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The
Informations4 read:

Criminal Case No. 102,004-B-2001:

The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as
follows:

That on or about December 15, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable
Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated
December 15, 2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was
presented to the drawee bank for encashment, the same was dishonored for the reason "DRAWN AGAINST
INSUFFICIENT FUNDS" and despite notice of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment to the damage and prejudice of herein complainant.

CONTRARY TO LAW.

Criminal Case No. 102,005-B-2001:

The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as
follows:

That on or about October 30, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable
Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated
October 30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was
presented to the drawee bank for encashment, the same was dishonored for the reason "DRAWN AGAINST

21
INSUFFICIENT FUNDS" and despite notice of dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment, to the damage and prejudice of herein complainant.

CONTRARY TO LAW.

Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's evidence,
petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus:

WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused.
Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of
P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed
from the time of the filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s]
and Transport Corporation, through the accused, to reimburse complainant the expense representing filing fees
amounting to P1,780.00 and costs of litigation which this Court hereby fixed at P5,000.00.

SO ORDERED.5

Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC.
On February 24, 2004, the trial court ruled:

WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows: Accused is directed
to pay and/or reimburse the complainant the following sums: (1) P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court,
until the account is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation.

SO ORDERED.6

Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case to the
Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC:

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of the Regional Trial
Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED.

SO ORDERED.7

Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTC's
ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the
value of the two checks.8

22
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation,
which has a separate personality from its officers, is solely liable for the value of the two checks.

Private respondent counters that petitioner should be held personally liable for both checks. Private respondent
alleged that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a
corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500.
According to private respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an
accommodation party. Under Section 299 of the Negotiable Instruments Law, an accommodation party is liable on
the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the
corporation check because instituting another civil action against the corporation would result in multiplicity of suits
and delay.

At the outset, we note that private respondent's allegation that petitioner issued a personal check disputes the factual
findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport Corporation
while the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in a petition
for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But,
considering that the findings of the MTCC and the RTC are at variance,10 we are compelled to settle this issue.

A perusal of the two check return slips11 in conjunction with the Current Account Statements12 would show that the
check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was
drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual
finding of the RTC.

Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable for the
value of the checks considering that petitioner was acquitted of the crime charged and that the debts are clearly
corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable.

Juridical entities have personalities separate and distinct from its officers and the persons composing it.13 Generally,
the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil
of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.14 These situations,
however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that
has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for the
corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks
issued in payment for the corporation's obligation in the total amount of P248,700.

Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation
party for Check No. 58832. Section 29 of the Negotiable Instruments Law 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.15 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.16 The first two elements are present here, however there is insufficient evidence presented in the
instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check
No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to
the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.17 There is
no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot

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just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered
as an accommodation party.

Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no
evidence that the debts covered by the subject checks have been paid.

WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29,
2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos. 52633-
03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file
the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks.

No pronouncement as to costs

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Eusebio Gonzales v PCIB

Facts:

Gonzales was a client of PCIB. He was granted a credit line by the bank through a Credit-On-Hand-Loan Agreement
(COHLA). He drew from the credit line through a check and said credit line was secured by a collateral in the form of
his accounts with PCIB which was a foreign currency deposit worth USD 8000.

He obtained below loans from PCIB:

1. obtained with his wife – P500K

2. obtained with spouses Panlilio – P1M, P300K

the above loans (total: 1.8M) were covered by 3 promissory notes and were secured by a real estage mortgage on a
land co owned by Gonzales and spouses Panlilio. the promissory notes states the solidary liability of Gonzales
andspouses Panlilio. However, it was the spouses Panlilio who received the proceeds of 1.8M. The monthly interest
dues were paid by the spouses Panlilio through auto debit from their PCIB account. however, they defaulted in the
payment because their PCIB account had insufficient deposits.

Gonzales issued a check to Rene Unson worth 250K drawn against his credit line but said check was subsequently
dishonored due to termination of gonzales’ credit line because of the unpaid period interest dues from the loans.
PCIB also froze the foreign currency deposit account of Gonzales.

Issue: W/N Gonzales is liable for the three promissory notes covering PHP1.8M loan he made with spouses Panlilio?

Held:

Yes. Gonzales was an accommodation party of the loan. An accommodation party is one who meets all the three
requisites according to Sec 29 of NIL:

1. he must be a party to the instrument, signing as a maker, drawer, acceptor, or indorser

2. he must not receive value therefor

3. he must sign for the purpose of lending his name or credit to some other person.

an accommodation party lends his name to enable the accommodated partyy to obtain credit or raise money. he
receives no part but assumed liability.

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the relation between an accommodation party is one of principal and surety, the AP being the surety. As such, he is
deemed an original promisor and debtor from the beginning. he is considered in law as the same party as the debtor
in relation to whatever is adjudged toruching the obligation of the latter since their liabilities are interwoven.

Lastly, the solidary nature of the loan was expressly stated in the promissory notes which state:

“…the undersigned JOINTLY AND SEVERALLY promise

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