I -A

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 16454 September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee,

vs.

THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant.

Ross and Lawrence for appellee.

STREET, J.:

At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the
president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine
Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff
apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board
of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year
1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to
his credit on the books of the company, and so remained until in October of the same year when an
unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New
York City.

In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber
and Produce Company, presented himself in the exchange department of the Philippine National Bank in
Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York
City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of
said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as
treasurer of the Philippine Fiber and Produce Company, thereupon drew and delivered a check for that
amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange
in payment of the transfer in question. As evidence of this transaction a document was made out and
delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This
memorandum receipt is in the following language:
October 9th, 1918.

CABLE TRANSFER BOUGHT FROM

PHILIPPINE NATIONAL BANK,

Manila, P.I. Stamp P18

Foreign Amount Rate

$45,000. 3/8 % P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50.
Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce
Company, Manila.

(Sgd.) Y LERMA,

Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the
following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE
NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in
reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to
accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank
acquiesced in this and on October 11 dispatched to its New York agency another message to withhold
the Kauffman payment as suggested.

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in
New York, advising him that $45,000 had been placed to his credit in the New York agency of the
Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the
Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time,
however, the message from the Philippine National Bank of October 11, directing the withholding of
payment had been received in New York, and payment was therefore refused.

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of
the city of Manila to recover said sum, with interest and costs; and judgment having been there entered
favorably to the plaintiff, the defendant appealed.

Among additional facts pertinent to the case we note the circumstance that at the time of the
transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit in the
Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in
payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft
in current account, and the check in question was charged as an overdraft against the Philippine Fiber
and Produce Company and has remained on the books of the bank as an interest-bearing item in the
account of said company.

It is furthermore noteworthy that no evidence has been introduced tending to show failure of
consideration with respect to the amount paid for said telegraphic order. It is true that in the
defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance
to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its
relations with the Philippine Fiber and Produce Company, whose credit was secured at the bank by
warehouse receipts on Philippine products; and it is alleged that after the exchange in question was sold
the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of
the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of
consideration, it must be assumed that the obligation of the bank was supported by adequate
consideration.

In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the
plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit, no
right of action can be vested in him for the breach thereof. "In this situation," — we here quote the
words of the appellant's brief, — "if there exists a cause of action against the defendant, it would not be
in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any contract
with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which contracted
in its own name with the defendant."

The question thus placed before us is one purely of law; and at the very threshold of the discussion it can
be stated that the provisions of the Negotiable Instruments Law can come into operation there must be
a document in existence of the character described in section 1 of the Law; and no rights properly
speaking arise in respect to said instrument until it is delivered. In the case before us there was an order,
it is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum
of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as
required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its
representative in New York City, there was no delivery in the sense intended in section 16 of the same
Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the
purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a
negotiable instrument, although it affords complete proof of the obligation actually assumed by the
bank.

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration
paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money
to be paid to the plaintiff in New York City; and the question is whether the plaintiff can maintain an
action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity
with the contract on the part of the plaintiff fatal to the maintenance of an action by him?

The only express provision of law that has been cited as bearing directly on this question is the second
paragraph of article 1257 of the Civil Code; and unless the present action can be maintained under the
provision, the plaintiff admittedly has no case. This provision states an exception to the more general
rule expressed in the first paragraph of the same article to the effect that contracts are productive of
effects only between the parties who execute them; and in harmony with this general rule are numerous
decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de Aldecoa vs. Hongkong and
Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compañia Trasatlantica and
Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)

The paragraph introducing the exception which we are now to consider is in these words:

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment,
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked. (Art. 1257, par. 2, Civ. Code.)

In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the
history and interpretation of the paragraph above quoted and so complete is the discussion contained in
that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice
Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the
right of the person for whose benefit a contract is made to maintain an action for the breach thereof in
the following words:

So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of
a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon
the intention of the parties as disclosed by their contract.

If a third person claims an enforcible interest in the contract, the question must be settled by
determining whether the contracting parties desired to tender him such an interest. Did they
deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such
third person? In resolving this question, of course, the ordinary rules of construction and interpretation
of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not
whether the stipulation is in the nature of a gift or whether there is an obligation owing from the
promise to the third person. That no such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and
Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear
enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the
plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted;
and the circumstances under which that promise was given disclose an evident intention on the part of
the contracting parties that the plaintiff should have the money upon demand in New York City. The
recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right
in him to maintain an action to recover it; and indeed if the provision in question were not applicable to
the facts now before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff
clearly signified his acceptance to the bank by demanding payment; and although the Philippine National
Bank had already directed its New York agency to withhold payment when this demand was made, the
rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by
the mutual consent of the contracting parties, or at least by direction of the party purchasing he
exchange.

In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130
N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is
held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a
simple contractual obligation, and cannot be considered as holding the money which was paid for the
transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method
of transmitting money by cable wherein the seller engages that he has the balance at the point on which
the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such
point will make payment to the beneficiary described in the cable. All these transaction are matters of
purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, wish is
merely that of the right of the beneficiary to maintain an action against the bank selling the transfer.

Upon the considerations already stated, we are of the opinion that the right of action exists, and the
judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed
as prescribed in section 510 of the Code of Civil Procedure.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

The Lawphil Project - Arellano Law Foundation

I-B

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

 vs.

COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

REGALADO , J.:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano
Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner Government
Service Insurance System (hereinafter referred to as GSIS) and subsequently, another deed of mortgage,
dated April 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00 and P
3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate of Title No. 38989 of the
Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security under the
aforesaid two deeds. 2 They also executed a 'promissory note" which states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to pay the
GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with
interest at the rate of six (6%) per centum compounded monthly payable in . . . (120)equal monthly
installments of . . . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage"
under which they obligated themselves to assume the aforesaid obligation to the GSIS and to secure the
release of the mortgage covering that portion of the land belonging to herein private respondents and
which was mortgaged to the GSIS. 4 This undertaking was not fulfilled. 5

Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment
of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged
property to be sold at public auction on December 3, 1962. 6

More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court of

First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and all
other documents executed in relation thereto in favor of the Government Service Insurance System" be
declared null and void. It was further prayed that they be allowed to recover said property, and/or the
GSIS be ordered to pay them the value thereof, and/or they be allowed to repurchase the land.
Additionally, they asked for actual and moral damages and attorney's fees.

In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not as
sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said
co-owners who were solely benefited by the loans from the GSIS.
The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish
a cause of action. 8

Said decision was reversed by the respondent Court of Appeals 9 which held that:

... although formally they are co-mortgagors, they are so only for accomodation (sic) in that the GSIS
required their consent to the mortgage of the entire parcel of land which was covered with only one
certificate of title, with full knowledge that the loans secured thereby were solely for the benefit of the
appellant (sic) spouses who alone applied for the loan.

xx xx

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for having foreclosed the
mortgage without having given sufficient notice to them as required either as to their delinquency in the
payment of amortization or as to the subsequent foreclosure of the mortgage by reason of any default in
such payment. The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant to
Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the application being made
for an extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and another one entered (1)
declaring the foreclosure of the mortgage void insofar as it affects the share of the appellants; (2)
directing the GSIS to reconvey to appellants their share of the mortgaged property, or the value thereof
if already sold to third party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca
and Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages, P 5,000.00 as
attorney's fees, and costs. 11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031,
otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one
who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor,
but is held liable on the instrument to a holder for value although the latter knew him to be only an
accommodation party.

This approach of both parties appears to be misdirected and their reliance misplaced. The promissory
note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth requisite to be considered as such under
Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to
a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on
mortgages.
As earlier indicated, the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with the latter having full
knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. 12 This
appears to be duly supported by sufficient evidence on record. Indeed, it would be unusual for the GSIS
to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of
Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an
army sergeant. Then there is also the undisputed fact, as already stated, that the Lagasca spouses
executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their
share of the mortgaged property from liability to the mortgagee. There is no intimation that the former
executed such instrument for a consideration, thus confirming that they did so pursuant to their original
agreement.

The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there
was no objection in the court below regarding the admissibility of the testimony and documents that
were presented to prove that the private respondents signed the mortgage papers just to accommodate
their co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the
exception to said rule, there being allegations in the complaint of private respondents in the court below
regarding the failure of the mortgage contracts to express the true agreement of the parties. 14

However, contrary to the holding of the respondent court, it cannot be said that private respondents are
without liability under the aforesaid mortgage contracts. The factual context of this case is precisely
what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private respondents' share in the property. In
consenting thereto, even assuming that private respondents may not be assuming personal liability for
the debt, their share in the property shall nevertheless secure and respond for the performance of the
principal obligation. The parties to the mortgage could not have intended that the same would apply
only to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the private
respondents would not have been required.

The supposed requirement of prior demand on the private respondents would not be in point here since
the mortgage contracts created obligations with specific terms for the compliance thereof. The facts
further show that the private respondents expressly bound themselves as solidary debtors in the
promissory note hereinbefore quoted.

Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of
respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale
impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that Act No.
3135, as amended, does not require personal notice on the mortgagor, quoting the requirement on
notice in such cases as follows:
Section 3. Notice shall be given by posting notices of sale for not less than twenty days in at least three
public places of the municipality where the property is situated, and if such property is worth more than
four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks
in a newspaper of general circulation in the municipality or city.

There is no showing that the foregoing requirement on notice was not complied with in the foreclosure
sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the value thereof
Indubitably, whether or not private respondents herein benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings were valid.

WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals
and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

III B-b

Republic of the Philippines

SUPREME COURT

Manila

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

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.

JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First
Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default, 1 and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant
were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are involved. 5

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No.
42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon from November
17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof
plus attorney's fees equivalent to 10% of the total amount due and costs. 6 The complaint filed by the
Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates covering the period from
August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered represents the cost of the printing
of "World Current Events," a periodical published by the defendant. To facilitate the payment of the
printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of
the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing
by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an
added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the
plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein
said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the
promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On
December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the hearing
on December 16, 1959. 10 At the hearing, the court denied defendant's motion for extension.
Whereupon, the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground
that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance,
the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo
Engraving), without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is
an accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the
event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the
defendant on December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon
the motion for reconsideration filed by the plaintiff, the trial court set aside its order dismissing the
complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order
setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00 o'clock in
the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the
ground that there having been no answer as yet, the issues had not yet been joined. 15 On the same
date, the defendant filed his answer to the complaint interposing the following defenses: That he signed
the document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the
ground that the defendant should have filed his answer on March 11, 1960. He contends that by filing his
answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court declared
the defendant in default. 18 The defendant learned of the order declaring him in default on March 21,
1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in the
afternoon, it could not have been reasonably expected of the defendant to file his answer on the last day
of the reglementary period, March 11, 1960, within office hours, especially because the order of the
court dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12,
1960. The defendant also alleged that he has a good and substantial defense. Attached to the motion are
the affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7,
1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that
he has a good and substantial defense. 19 The trial court denied the defendant's motion on March 25,
1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the
plaintiff the sum of P35,444.35 representing the total amount of his obligation to the said plaintiff under
the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the sum of
P10,000.00 as attorney's fees. 21

On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his
motion to set aside the order declaring him in default, an appeal bond in the amount of P60.00, and his
record on appeal. The plaintiff filed his opposition to the approval of defendant's record on appeal on
May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendant's appeal from the
order dated March 25, 1960 denying his motion to set aside the order of default. 22 On May 19, 1960,
the defendant filed a motion for reconsideration of the trial court's order dismissing his appeal. 23 The
plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order dismissing
appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal and
approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal
filed ed by the defendant was forwarded to the Clerk of Court of Appeals. 26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the order of
default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the court denying his motion to set aside
the judgment by default, his appeal bond, and his record on appeal. The defendant's record on appeal
was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the
Court of Appeals: (1) Appeal from the order of the lower court denying his motion to set aside the order
of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside
the judgment by default docketed as CA-G.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.

II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT AND
FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31

It has been held that to entitle a party to relief from a judgment taken against him through his mistake,
inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious
defense. 32 In other words, in order to set aside the order of default, the defendant must not only show
that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he
has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion
to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23,
1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the
order was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the
affidavit of the deputy sheriff; and that on the following day, March 12, 1960, the defendant filed his
answer to the complaint.

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order
setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his answer on that same day because the courts then held
office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his answer on
the following day.

However, while the defendant successfully proved that his failure to answer was due to excusable
negligence, he has failed to show that he has a meritorious defense. The defendant does not have a good
and substantial defense.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a
representative capacity, as the then President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal," printed by Encal Press and Photo-
Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or
additional party obligor, to add to the security of said plaintiff bank. The reason for this statement is that
unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon
acceptance of the same by the drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although these documents are labelled bills of
exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the
drawee who received the face value thereof, with the defendant as only additional security of the same.
33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does not exempt him from personal
liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was
signing as a representative of the Philippine Education Foundation Company. 34 He merely signed as
follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such,
should be made liable only after a showing that the drawer is incapable of paying. This contention is also
without merit.

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of
the instrument knew him to be only an accommodation party.35 In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to
enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he
should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for
the drafts.
 The defendant also contends that the drafts signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments were made before acceptance. This is also
without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writting addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer. 36 As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill of exchange or not.

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will
result in a new trial which will serve no purpose and will just waste the time of the courts as well as of
the parties because the defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila
denying the petition for relief from the judgment rendered in said case is hereby affirmed, without
pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., concur.