Nego Consideration

G.R. No.
L-56169 June 26, 1992

TRAVEL-ON,INC., petitioner,
vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in
behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with
petitioner. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks
issued by private respondent with a total face amount of P115,000.00. The complaint, with a prayer for the
issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January
1970, petitioner sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to
settle said account, private respondent paid various amounts in cash and in kind, and thereafter issued six (6)
postdated checks amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On further
alleged that in March 1972, private respondent made another payment of P10,000.00 reducing his indebtedness to
P105,000.00. The writ of attachment was granted by the court a quo.
In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in
the complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his
obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks for
purposes of accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings,
private respondent contested several tickets alleged to have been erroneously debited to his account. He claimed
reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by
reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private respondent testified that he bad
issued the checks in the name of Travel-On in order that its General Manager, Elita Montilla, could show to TravelOn's Board of Directors that the accounts receivable of the company were still good. He further stated that Elita
Montilla tried to encash the same, but that these were dishonored and were subsequently returned to him after
the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On
by private respondent related to situations where one or more of its passengers needed money in Hongkong, and
upon request of Travel-On respondent would contact his friends in Hongkong to advance Hongkong money to the
passenger. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by
Travel-On to respondent's running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of
P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00 for the wrongful
issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the
suit.
The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and
that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but to
accommodate the General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On
was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then
increased the award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages
to P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without success.
In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part
of private respondent. Petitioner further argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the
various statements of account prepared by petitioner did not show that Private respondent had an outstanding
balance of P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various
exhibits of petitioner showed various accountabilities of private respondent, they did not satisfactorily establish
the amount of the outstanding indebtedness of private respondent. The appellate court made much of the fact
that the figures representing private respondent's unpaid accounts found in the "Schedule of Outstanding
Account" dated 31 January 1970 did not tally with the figures found in the statement which showed private
respondent's transactions with petitioner for the years 1969 and 1970; that there was no satisfactory explanation
as to why the total outstanding amount of P278,432.74 was still used as basis in the accounting of 7 April 1972
considering that according to the table of transactions for the year 1969 and 1970, the total unpaid account of
private respondent amounted to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not
been updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and from it deduct
P38,638.17 which represents some of the payments subsequently made by private respondent, the figure
P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures, simply did not mean that
private respondent had no more financial obligations to petitioner. It must be stressed that private respondent's
account with petitioner was a running or open one, which explains the varying figures in each of the statements
rendered as of a given date.
The appellate court erred in considering only the statements of account in determining whether private
respondent was indebted to petitioner under the checks. By doing so, it failed to give due importance to the most
telling piece of evidence of private respondent's indebtedness the checks themselves which he had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of
petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that
private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed to have become a party
1
thereto for value. Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the
plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given
or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent
2
evidence.
In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the
existence of valuable consideration upon petitioner. This cannot be countenanced; it was up to private respondent
to show that he had indeed issued the checks without sufficient consideration. The Court considers that Private
respondent was unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were
issued immediately after a letter demanding payment had been sent to private respondent by petitioner TravelOn.
The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter
would lead to no other conclusion than that these checks were intended for encashment. There is nothing in the
checks themselves (or in any other document for that matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for
"accommodation" and that accordingly private respondent maker of those checks was not liable thereon to
petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such
transaction was here shown. Section 29 of the Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to
be only an accommodation party.
In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party
lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or
indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in
other words, receives or realizes full value which the accommodated party then must repay to the
accommodating party, unless of course the accommodating party intended to make a donation to the
accommodated party. But the accommodating party is bound on the check to the holder in due course
who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check,
the accommodating party has warranted to the holder in due course that he will pay the same according
3
to its tenor.
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.
4
Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, that the
5
checks were supported by valuable consideration. Private respondent maker of the checks did not successfully
rebut these presumptions. The only evidence aliunde that private respondent offered was his own self-serving
uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its
General Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove"
that Travel-On's account receivables were somehow "still good." It will be seen that this claim was in fact a claim
that the checks were merely simulated, that private respondent did not intend to bind himself thereon. Only
6
evidence of the clearest and most convincing kind will suffice for that purpose; no such evidence was submitted
by private respondent. The latter's explanation was denied by Travel-On's General Manager; that explanation, in
any case, appears merely contrived and quite hollow to us. Upon the other hand, the "accommodation" or
assistance extended to Travel-On's passengers abroad as testified by petitioner's General Manager involved, not
the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign
exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration
by private respondent.
Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those
checks in themselves constituted evidence of indebtedness of private respondent, evidence not successfully
overturned or rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount
of such liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On admitted in its
complaint to have been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application
for the writ of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. If
anyone was in bad faith, it was private respondent who issued bad checks and then pretended to have
"accommodated" petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's
Board of Directors and to misrepresent Travel-On's financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE
and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court of Appeals,
as well as the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring private
respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest
thereon from 14 June 1972, plus ten percent (10%) of the total amount due as attorney's fees. Costs against
Private respondent.
YANG VS CA
FACTS:
December 22, 1987: Cely Yang and Prem Chandiramani entered into an agreement whereby Yang was to
give 2 P2.087M PCIB managers check in the amount of P4.2 million both payable to the order of
Fernando David. Yang and Chandiramani agreed that the difference of P26K in the exchange would be
their profit to be divided equally between them.
Yang and Chandiramani also further agreed that the Yang would secure from FEBTC a dollar draft in the
amount of US$200K, payable to PCIB FCDU Account No. 4195-01165-2, which Chandiramani would
exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong
Kong.
December 22, 1987, Yang procured the ff:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987,
payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated December 22, 1987,
likewise payable to the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00,
dated December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2.
December 22, 1987 1 p.m.: Yang gave the cashiers checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liongs messenger, Danilo Ranigo
Ranigo was to meet Chandiramani at 2 p.m. at Philippine Trust Bank, Ayala Avenue, Makati where he
would turn over Yangs cashiers checks and dollar draft to Chandiramani who, in turn, would deliver to
Ranigo a PCIB managers check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200K
in exchange but Chandiramani did not appear
December 22, 1987 4 p.m.: Ranigo reported the alleged loss of the checks and the dollar draft to
Liong. Liong, in turn, informed Yang, and the loss was then reported to the police.
Chandiramani was able to get hold of the instruments
Chandiramani delivered the 2 cashiers checks to Fernando David at China Banking Corporation branch in
San Fernando City, Pampanga
In exchange, he got US$360K from David, which he deposited in the savings account of his wife, Pushpa;
and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters
Bank branch in Greenhills
He also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical
Bank, New York for US$200K in PCIB FCDU Account No. 4195-01165-2 on the same date.
Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost
Both banks complied with her request
Yang filed against David and Chandiramani
CA affirms RTC: in favor of David
ISSUE:
W/N David is a holder in due course
HELD:
Although negotiable instruments do not constitute legal tender, they often take the place of money as a
means of payment
checks were crossed
Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument
acquired the same for a consideration or for value
David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after being assured that there was nothing
wrong with said checks
David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed
by Chandiramani upon the petitioner, absent any knowledge on his part that the action in taking the
instruments amounted to bad faith.
SECTION 3. - Cause of Contracts

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation
or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)
Art. 1351. The particular motives of the parties in entering into a contract are different from the cause
thereof. (n)
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a)
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved
that they were founded upon another cause which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence. (n)
Article II. - Consideration.
SEC. 24. Every negotiable instrument is deemed prima facie to have been issued for a
valuableconsideration, and every person whose signature appears thereon to have become a party
thereto for value.
SEC. 25. Value is any consideration sufficient to support a simple contract.
2. 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. 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 became such prior to that time.
SEC. 27. Whether the holder has alienon 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. 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. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, 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.
G.R. No. L-8844 December 16, 1914

FERNANDO
MAULINI,ETAL., plaintiffs-appellees,
vs.
ANTONIO G. SERRANO, defendant-appellant.
R.M.Calvoforappellant.
Jose Arnaiz for appellees.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff for the
sum
of
P3,000,
with
interest
thereon
at
the
rate
of
1 per cent month from September 5, 1912, together with the costs.
The action was brought by the plaintiff upon the contract of indorsement alleged to have been made in his favor
by the defendant upon the following promissory note:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of
September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial
operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th
day of September, 1912, this instrument will draw interest at the rate of 1 per cent per month from the
date when due until the date of its complete payment. The makers hereof agree to pay the additional sum
of P500 as attorney's fees in case of failure to pay the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel
Gimenez.
The note was indorsed on the back as follows:
Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.
The first question for resolution on this appeal is whether or not, under the Negotiable Instruments Law, an
indorser of a negotiable promissory note may, in an action brought by his indorsee, show, by parol evidence, that
the indorsement was wholly without consideration and that, in making it, the indorser acted as agent for the
indorsee, as a mere vehicle of transfer of the naked title from the maker to the indorsee, for which he received no
consideration whatever.
The learned trial court, although it received parol evidence on the subject provisionally, held, on the final decision
of the case, that such evidence was not admissible to alter, very, modify or contradict the terms of the contract of
indorsement, and, therefore, refused to consider the evidence thus provisionally received, which tended to show
that, by verbal agreement between the indorser and the indorsee, the indorser, in making the indorsement, was
acting as agent for the indorsee, as a mere vehicle for the transference of naked title, and that his indorsement
was wholly without consideration. The court also held that it was immaterial whether there was a consideration
for the transfer or not, as the indorser, under the evidence offered, was an accommodation indorser.
We are of the opinion that the trial court erred in both findings.1awphil.net
In the first place, the consideration of a negotiable promissory note, or of any of the contracts connected
therewith, like that of any other written instrument, is, between the immediate parties to the contract, open to
attack, under proper circumstances, for the purpose of showing an absolute lack or failure of consideration.
It seems, according to the parol evidence provisionally admitted on the trial, that the defendant was a broker
doing business in the city of Manila and that part of his business consisted in looking up and ascertaining persons
who had money to loan as well as those who desired to borrow money and, acting as a mediary, negotiate a loan
between the two. He had done much business with the plaintiff and the borrower, as well as with many other
people in the city of Manila, prior to the matter which is the basis of this action, and was well known to the parties
interested. According to his custom in transactions of this kind, and the arrangement made in this particular case,
the broker obtained compensation for his services of the borrower, the lender paying nothing therefor. Sometimes
this was a certain per cent of the sum loaned; at other times it was a part of the interest which the borrower was
to pay, the latter paying 1 per cent and the broker per cent. According to the method usually followed in these
transactions, and the procedure in this particular case, the broker delivered the money personally to the borrower,
took note in his own name and immediately transferred it by indorsement to the lender. In the case at bar this was
done at the special request of the indorsee and simply as a favor to him, the latter stating to the broker that he did
not wish his name to appear on the books of the borrowing company as a lender of money and that he desired
that the broker take the note in his own name, immediately transferring to him title thereto by indorsement. This
was done, the note being at once transferred to the lender.
According to the evidence referred to, there never was a moment when Serrano was the real owner of the note. It
was always the note of the indorsee, Maulini, he having furnished the money which was the consideration for the
note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker,
acting solely as an agent, a vehicle by which the naked title to the note passed fro the borrower to the lender. The
only payment that the broker received was for his services in negotiating the loan. He was paid absolutely nothing
for becoming responsible as an indorser on the paper, nor did the indorsee lose, pay or forego anything, or alter
his position thereby.
Nor was the defendant an accommodation indorser. The learned trial court quoted that provision of the
Negotiable Instruments Law which defines an accommodation party as "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 the same to be only an accommodation party." (Act No. 2031, sec. 29.)
We are of the opinion that the trial court misunderstood this definition. The accommodation to which reference is
made in the section quoted is not one to the person who takes the note that is, the payee or indorsee, but one
to the maker or indorser of the note. It is true that in the case at bar it was an accommodation to the plaintiff, in a
popular sense, to have the defendant indorse the note; but it was not the accommodation described in the law,
but, rather, a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement
the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for
the purpose of better securing the payment of the note that is, he lend his name to the maker, not to the
holder. Putting it in another way: An accommodation note is one to which the accommodation party has put his
name, without consideration, for the purpose of accommodating some other party who is to use it and is expected
to pay it. The credit given to the accommodation part is sufficient consideration to bind the accommodation
maker. 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.
The prohibition in section 285 of the Code of Civil Procedure does not apply to a case like the one before us. The
purpose of that prohibition is to prevent alternation, change, modification or contradiction of the terms of a
written instrument, admittedly existing, by the use of parol evidence, except in the cases specifically named in the
section. The case at bar is not one where the evidence offered varies, alters, modifies or contradicts the terms of
the contract of indorsement admittedly existing. The evidence was not offered for that purpose. The purpose was
to show that no contract of indorsement ever existed; that the minds of the parties never met on the terms of
such contract; that they never mutually agreed to enter into such a contract; and that there never existed a
consideration upon which such an agreement could be founded. The evidence was not offered to vary, alter,
modify, or contradict the terms of an agreement which it is admitted existed between the parties, but to deny that
there ever existed any agreement whatever; to wipe out all apparent relations between the parties, and not to
vary, alter or contradict the terms of a relation admittedly existing; in other words, the purpose of the parol
evidence was to demonstrate, not that the indorser did not intend to make the particular indorsement which he
did make; not that he did not intend to make the indorsement in the terms made; but, rather, to deny the reality
of any indorsement; that a relation of any kind whatever was created or existed between him and the indorsee by
reason of the writing on the back of the instrument; that no consideration ever passed to sustain an indorsement
of any kind whatsoever.
The contention has some of the appearances of a case in which an indorser seeks prove forgery. Where an
indorser claims that his name was forged, it is clear that parol evidence is admissible to prove that fact, and, if he
proves it, it is a complete defense, the fact being that the indorser never made any such contract, that no such
relation ever existed between him and the indorsee, and that there was no consideration whatever to sustain such
a contract. In the case before us we have a condition somewhat similar. While the indorser does not claim that his
name was forged, he does claim that it was obtained from him in a manner which, between the parties
themselves, renders, the contract as completely inoperative as if it had been forged.
Parol evidence was admissible for the purpose named.1awphil.net
There is no contradiction of the evidence offered by the defense and received provisionally by the court. Accepting
it as true the judgment must be reversed.
The judgment appealed from is reversed and the complaint dismissed on the merits; no special finding as to costs.
Arellano, C.J., Johnson and Trent, JJ., concur.
Separate Opinions
TORRES, J., concurring:
Act No. 2031, known as the Negotiable Instruments Law, which governs the present case, establishes various kinds
of indorsements by means of which the liability of the indorser is in some manner limited, distinguishing it from
that of the regular or general indorser, and among those kinds is that of the qualified indorsement which, pursuant
to section 38 of the same Act, constitutes the indorser a mere assignor of the title to the instrument, and may be
made by adding to the indorser's signature the words "without recourse" or any words of similar import.
If the defendant, Antonio G. Serrano, intervened, as he alleged and tried to prove that he did at the trial, only as a
broker or agent between the lender and plaintiff, Maulini, and the makers of the promissory note, Padern, Moreno
& Co. and Angel Gimenez, in order to afford an opportunity to the former to invest the amount of the note in such
manner that it might bring him interest, the defendant could have qualified the indorsement in question by adding
to his signature the words "without recourse" or any others such as would have made known in what capacity he
intervened in that transaction. As the defendant did not do so ad as he signed the indorsement in favor of the
plaintiff Maulini for value received from the latter, his liability, according to section 66 of the Act aforecited, is that
of a regular or general indorser, who, this same section provides, engages that if the instrument be dishonored,
and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. And the evidence which the defendant presented, tending
to show what were the conditions to which the defendant presented, tending to show what were the conditions to
which he obligated himself and in what capacity he intervened in making that indorsement and that this latter was
absolutely without consideration, should not have been admitted so that he might elude the aforesaid obligation,
or, if admitted, should not be taken into account, because as a regular indorser he warranted, pursuant to the said
section 66, that the instrument was genuine and in all respects what it purported to be, that he had a good title to
it, and that it was at the time of his indorsement valid and subsisting. He cannot, therefore, by means of any
evidence, and much less of such as consists of his own testimony, and as such interested party, alter, modify,
contradict or annul, as he virtually claimed and claims to be entitled to do, what in writing and with a full and
perfect knowledge of the meaning and import of the words contained in the indorsement, he set forth therein
over his signature.
Section 63 of the Act above cited says that a person placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his
contention to be bound indicates by appropriate words his intention to be bound in some other capacity. This
provision of the law clearly indicates that in every negotiable instrument it is absolutely necessary to specify the
capacity in which the person intervenes who is mentioned therein or takes part in its negotiation, because only by
so doing can it be determined what liabilities arise from that intervention and from whom, how and when they
must be exacted. And if, in the vent of a failure to express the capacity in which the person who signed the
negotiable instrument intended to be bound, he should be deemed to be an indorser, when the very words of the
instrument expressly and conclusively show that such he is, as occurs in the present case, and when the
indorsement contains no restriction, modification, condition or qualification whatever, there cannot be attributed
to him, without violating the provisions of the said Act, any other intention than that of being bound in the
capacity in which he appears in the instrument itself, nor can evidence be admitted or, if already admitted, taken
into consideration, for the purpose of proving such other intention, for the simple reason that if the law has
already fixed ad determined the capacity in which it must be considered that the person who signed the negotiable
instrument intervened and the intention of his being bound in a definite capacity, for no other purpose,
undoubtedly, than that there shall be no evidence given in the matter, when the capacity appears in the
instrument itself and the intention is determined by the very same capacity, as occurs in this case, the admission of
evidence in reference thereto is entirely unnecessary, useless, and contrary to the purposes of the law, which is
clear and precise in its provisions and admits of no subterfuges or evasions for escaping obligations contracted
upon the basis of credit, with evident and sure detriment to those who intervened or took part in the negotiation
of the instrument.
However, it is held in the majority opinion, for the purpose of sustaining the premises that the proofs presented by
the defendant could have been admitted without violating the provisions of section 285 of the Code of Civil
Procedure, that the evidence was not offered to vary, alter, modify, or contradict the terms of an agreement which
it is admitted existed between the parties, but to deny that there ever existed any agreement whatever; to wipe
out all apparent relations between the parties, and not to vary, alter or contradict the terms of a relation
admittedly existing; in other words, the purpose of the parol evidence was to demonstrate, not that the indorser
did not intend to make the particular indorsement in the terms made, but rather to deny the reality
of any indorsement; to deny that a relation of any kind whatsoever was created or existed between him and the
indorsee by reason of the writing on the back of the instrument; to deny that any consideration ever passed to
sustain an indorsement of any kind whatsoever. It is stated in the same decision that the contention has some of
the appearances of a case in which an indorser seeks to prove forgery.
First of all, we do not see that there exists any appearance or similarity whatever between the case at bar and one
where forgery is sought to be proved. The defendant did not, either civilly or criminally, impugn the indorsement
as being false. He admitted its existence, as stated in the majority opinion itself, and did not disown his signature
written in the indorsement. His denial to the effect that the indorsement was wholly without consideration, aside
from the fact that it is i contradiction to the statements that he over his signature made in the instrument, does
not allow the supposition that the instrument was forged.
The meaning which the majority opinion apparently wishes to convey, in calling attention to the difference
between what, as it says, was the purpose of the evidence presented by the defendant and what was sought to be
proved thereby, is that the defendant does not endeavor to contradict or alter the terms of the agreement, which
is contained in the instrument and is admitted to exist between the parties; but to deny the existence of such an
agreement between them, that is, the existence of any indorsement at all, and that any consideration ever passed
to sustain the said indorsement, or, in other words, that the defendant acknowledged the indorsement as regards
the form in which it appears to have been drawn up, but not with respect to its essence, that is, to the truth of the
particular facts set forth in the indorsement. It cannot be denied that the practical result evidence is other than to
contradict, modify, alter or even to annul the terms of the agreement contained in the indorsement: so that, in
reality, the distinction does not exist that is mentioned as a ground of the decision of the majority of the court in
support of the opinion that the evidence in question might have been admitted, without violating the provisions of
the aforementioned section 285 of the Code of Civil Procedure. This section is based upon the same principle
which is taken into account in the Negotiable Instruments Law to write into it such positive and definite provisions
which purport, without possibility of discussion or doubt, the uselessness of taking evidence when the capacity of
the person who intervened in a negotiable instrument or his intention of being bound in a particular way appears
in the instrument itself or has been fixed by statute, if it is not shown that he did so in some other capacity than
that of maker, drawer or acceptor.
But aside from what the Code of Civil Procedure prescribes with respect to this matter, as the present case is
governed by the Negotiable Instruments Law, we must abide by its provisions.
Section 24 of this Act, No. 2031, says 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. If the Act establishes this presumption for the case where there might be doubt with respect to the
existence of a valuable consideration, in order to avoid the taking of evidence in the matter, when the
consideration appears from the instrument itself by the expression of the value, the introduction of evidence is
entirely unnecessary and improper.
According to section 25 of the same Act, value is any consideration sufficient to support a simple contract, and so
broad is the scope the law gives to the meaning of "value" in this kind of instruments that it considers as such a
prior of preexistent debt, whether the instrument be payable on demand or at some future date.
Section 26 provides that where value has at any time been given for the instrument, the holder is deemed a holder
for value, both in respect to the maker and to the defendant indorser, it is immaterial whether he did so directly to
the person who appears in the promissory note as the maker or whether he delivered the sum to the defendant in
order that this latter might in turn deliver it to the maker.
The defendant being the holder of the instrument, he is also unquestionably the holder in due course. In the first
place, in order to avoid doubts with respect to this matter which might require the introduction of evidence, the
Act before mentioned has provided, in section 59, that every holder is deemed prima facie to be a holder in due
course, and such is the weight it gives to this presumption and to the consequences derived therefrom, that it
imposes upon the holder the burden to prove that he or some person under whom he claims acquired the title in
due course, only when it is shown that the title of any person who has negotiated the instrument was defective.
This rule, however, pursuant to the said section, does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title, in which case the defendant Serrano is not included,
because, in the first place, he was not bound on the instrument prior to the acquisition of the title by the plaintiff,
but it was the maker of the promissory note who was bound on the instrument executed in favor of the defendant
or indorser prior to the acquisition of the title by the plaintiff; and, in the second place, it does not appear, nor was
it proved, as will be seen hereinafter, that the title in question was defective.
According to section 52 of the same Act, the plaintiff is the holder in due course of the instrument in question, that
is, of the promissory note containing the obligation compliance with which is demanded of him by the defendant,
because he took the instrument under the condition: (a) That it was complete and regular upon its face; (b) that he
became the holder of it before it was overdue, and without notice that it had been previously dishonored; (c) that
he took it in good faith and for value; and (d) that at the time it was negotiated to him he had no notice of any
deficiency in the instrument or defect in the title of the person negotiating it.
Pursuant to section 56 of the said Act, to constitute notice of a deficiency in the instrument or defect in the title of
the person negotiating the same, the person to whom it is transferred must have had actual knowledge of the
deficiency or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.
In the present case it cannot be said, for it is not proven, that the plaintiff, upon accepting the instrument from the
defendant, had actual knowledge of any deficiency or defect in the same, for the simple reason that it contains no
deficiency or defect. Its terms are very clear and positive. There is nothing ambiguous, concealed, or which might
give rise to any doubt whatever with respect to its terms or to the agreement made by the parties. Furthermore,
as stated in the majority opinion, the defendant did not intend to make the particular indorsement which he did
make in the terms, form and manner in which it was made, nor did he intend to change or alter the terms of the
agreement which is admitted to have existed between the parties. All of which indicates that, neither as regards
the plaintiff nor as regards the defendant, was there any deficiency or defect in the title or in the instrument, and
that the plaintiff, upon taking or receiving the instrument from the defendant, had no knowledge of any fact from
which bad faith on his part might be implied. Besides, no evidence was produced of the existence of any such bad
faith, nor of the knowledge of any deficiency or defect.
Moreover, section 55 of Act No. 2031 provides that the title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or
force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith,
or under such circumstances as amount to a fraud. As no evidence was taken on these points, the only ones that
may be proven as regards negotiable instruments, the defendant must be deemed to be the holder of the
instrument in due course, pursuant to the provisions of the aforecited section 59, and he cannot be required to
prove that he or his predecessor in interest acquired the title as such holder in due course.
Now then, according to section 28 of the same Act, as against the holder of the instrument in due course absence
or failure of consideration is not a matter of defense; and, pursuant to section 57, a holder in due course holds the
instrument free from any defect of title of prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable
thereon. And the next section, No. 58 prescribes that in the hands of any holder other than a holder in due course,
a negotiable instrument is subject to the same defenses as if it were nonnegotiable.
So it could not be clearer than that, pursuant to the provisions of the Negotiable Instrument Law, which governs
the case at bar, as the plaintiff is the holder in due course of the instrument in question, no proof whatever from
the defendant could be admitted, nor if admitted should be taken into account, bearing on the lack of
consideration in the indorsement, as alleged by him, and for the purpose of denying the existence of any
indorsement and that any relation whatever was created or existed between him and the indorsee; likewise, that
no defense of any kind could have been admitted from the defendant in respect to the said instrument, and,
finally, that the defendant is obligated to pay the sum mentioned in the said indorsement, it being immaterial
whether or not he be deemed to be an accommodation party in the instrument, in order that compliance with the
said obligation may be required of him in his capacity of indorser.
Basing our conclusions on the foregoing grounds, and regretting to dissent from the opinion of the majority of our
colleagues, we believe that the judgment appealed from should be affirmed, with the costs against the appellant.
Araullo, J., dissents.
#Separate Opinions
over his signature.
of the instrument.
G.R. No. L-26767
February 22, 1968
ANG
TIONG, plaintiff-appellee,
vs.
LORENZO TING, doing business under the name and style of PRUNES PRESERVED MFG., and FELIPE
ANG, defendants.
FELIPE ANG, defendant-appellant.
Chipeco
&
Alcaraz,
Ang, Atienza & Tabora for defendant-appellant.
Jr.
for
plaintiff-appellee.
CASTRO, J.:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618, for the sum of
P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in blank) at the back thereof, the
instrument was received by the plaintiff Ang Tiong who thereafter presented it to the drawee bank for payment.
The bank dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe Ang that they
make good the amount represented by the check. These demands went unheeded; so he filed in the municipal
court of Manila an action for collection of the sum of P4,000, plus P500 attorney's fees. On March 6, 1962 the
municipal court adjudged for the plaintiff against the two defendants.
Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which rendered judgment
on July 31, 1962, amended by an order dated August 9, 1962, directing him to pay to the plaintiff "the sum of
P4,000, with interest at the legal rate from the date of the filing of the complaint, a further sum of P400 as
attorney's fees, and costs."
Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court because the issues
raised are purely of law.
The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply article 2071 of the
new Civil Code to the case at bar; (2) that it adjudged him a general indorser under the Negotiable Instruments
Law (Act 2031); and (3) that it held that he "cannot obtain his release from the contract of suretyship or obtain
security to protect himself against any proceedings on the part of the creditor and against the danger of insolvency
of the principal debtor," because he is "jointly and severally liable on the instrument."
This, appeal is absolutely without merit.
1. The genuineness and due execution of the instrument are not controverted. That the appellee is a holder
thereof for value is admitted.
Having arisen from a bank check which is indisputably a negotiable instrument, the present case is, therefore,
in so far as the indorsee is concerned vis-a-vis the indorser, governed solely plaintiff the Negotiable Instruments
Law (see secs. 1 and 185). Article 2071 of the new Civil Code, invoked by the appellant, the pertinent portion of
which states, "The guarantor, even before been paid, may proceed against the principal debtor; (1) when he is
sued for the payment; . . . the action of the guarantor is to obtain release from the guaranty, to demand a security
that shall protect him from any proceedings by the creditor . . .," is here completely irrelevant and can have no
application whatsoever.
We are in agreement with the trial judge that nothing in the check in question indicates that the appellant is
not a general indorser within the purview of section 63 of the Negotiable Instruments Law which makes "a person
placing his signature upon an instrument otherwise than as maker, drawer or acceptor" a general indorser,
"unless he clearly indicates plaintiff appropriate words his intention to be bound in some other capacity," which he
did not do. And section 66 ordains that "every indorser who indorses without qualification, warrants to all
subsequent holders in due course" (a) that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the
time of his indorsement valid and subsisting. In addition, "he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, and that if it be dishonored, he will pay the amount thereof to the
1
holder."
2. Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is
nevertheless, by the clear mandate of section 29 of the Negotiable Instruments Law, yet "liable on the instrument
to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only
an accommodation party." To paraphrase, the accommodation party is liable to a holder for value as if the contract
was not for accommodation. It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument. Nor is it correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the instrument, he knew that the indorser was only an
2
accommodation party.
3. That the appellant, again assuming him to be an accommodation indorser, may obtain security from the
maker to protect himself against the danger of insolvency of the latter, cannot in any manner affect his liability to
the appellee, as the said remedy is a matter of concern exclusively between accommodation indorser and
accommodated party. So that the fact that the appellant stands only as a surety in relation to the maker, granting
this to be true for the sake of argument, is immaterial to the claim of the appellee, and does not a whit diminish
nor defeat the rights of the latter who is a holder for value. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity
of a situation where an indorser, when sued on an instrument by a holder in due course and for value, can escape
liability on his indorsement by the convenient expedient of interposing the defense that he is a mere
accomodation indorser.
ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ.,
concur.1wph1.t
Footnotes
1
See also Beutel's Brannan Negotiable Instruments Law, 7th ed., pp. 927, 956; Alvendia, The Negotiable
Instruments Law, pp. 119-120; Stuart del Rosario, Treatise on Negotiable Instruments, 1961 ed., p. 189.
G.R. No. L-17845
April 27, 1967
INTESTATE
ESTATE
OF
vs.
FRANCISCO SEVILLA, respondent.
Belen
Law
Poblador, Cruz & Nazareno for respondent.
VICTOR
SEVILLA.
SIMEON
Offices
SADAYA, petitioner,
for
petitioner.
SANCHEZ, J.:
On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the
Bank of the Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per annum,
payable on demand. The entire, amount of P15,000.00, proceeds of the promissory note, was received from the
bank by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a
favor to Oscar Varona. Payments were made on account. As of June 15, 1950, the outstanding balance stood
P4,850.00. No payment thereafter made.
On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with interest, totalled
P5,416.12. Varona failed to reimburse Sadaya despite repeated demands.
Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special
Proceeding No. 1518. Francisco Sevilla was named administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees
in the sum of P1,500.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla
"did not receive any amount as consideration for the promissory note," but signed it only "as surety for Oscar
Varona".
On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of P5,746.12,
and directing the administrator to pay the same from any available funds belonging to the estate of the deceased
Victor Sevilla.
1
The motion to reconsider having been overruled, the administrator appealed. The Court of Appeals, in a decision
promulgated on July, 15, 1960, voted to set aside the order appealed from and to disapprove and disallow
"appellee's claim of P5,746.12 against the intestate estate."
The case is now before this Court on certiorari to review the judgment of the Court of Appeals.
Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the amount of 50%
of P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor Sevilla," be approved.
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the 15,000.00-peso
promissory note in favor of the Bank of the Philippine Islands, need not be essayed. As such accommodation the
makers, the individual obligation of each of them to the bank is no different from, and no greater and no less than,
that contract by Oscar Varona. For, while these two did not receive value on the promissory note, they executed
the same with, and for the purpose of lending their names to, Oscar Varona. Their liability to the bank upon the
2
explicit terms of the promissory note is joint and several. Better yet, the bank could have pursued its right to
collect the unpaid balance against either Sevilla or Sadaya. And the fact is that one of the last two, Simeon Sadaya,
paid that balance.
2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount paid from Oscar
3
Varona. This is but right and just. Varona received full value of the promissory note. Sadaya received nothing
therefrom. He paid the bank because he was a joint and several obligor. The least that can be said is that, as
between Varona and Sadaya, there is an implied contract of indemnity. And Varona is bound by the obligation to
4
reimburse Sadaya.
3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the relations
inter se amongst the three consigners of the promissory note. Their relations vis-a-vis the Bank, we repeat, is that
of joint and several obligors. But can the same thing be said about the relations of the three consigners, in respect
to each other?
Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can not be joint and
several. For, indeed, had payment been made by Oscar Varona, instead of Simeon Sadaya, Varona could not have
had reason to seek reimbursement from either Sevilla or Sadaya, or both. After all, the proceeds of the loan went
to Varona and the other two received nothing therefrom.
4. On principle, a solidary accommodation maker who made payment has the right to contribution, from his
co-accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions
imposed by law. This right springs from an implied promise between the accommodation makers to
share equallythe burdens that may ensue from their having consented to stamp their signatures on the promissory
5
note. For having lent their signatures to the principal debtor, they clearly placed themselves in so far as
payment made by one may create liability on the other in the category of mere joint grantors of the
6
former. This is as it should be. Not one of them benefited by the promissory note. They stand on the same
footing. In misfortune, their burdens should be equally spread.
7
Manresa, commenting on Article 1844 of the Civil Code of Spain, which is substantially reproduced in Article
8
2073 of our Civil Code, on this point stated:
Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto juridico, se han
extremado sus consecuencias hasta el punto de que estas son contrarias, no solo a la logica, sino tambien
a la equidad, que debe ser el alma del Derecho, como ha dicho Laurent.
Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar una misma deuda no
crea ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores, sino que trae, por el contrario,
su origen de una acto posterior, cual es el pago de toda la deuda realizado por uno de ellos, y la equdad,
no permite que los denias fiadores, que igualmente estaban estaban obligos a dicho pago, se aprovenchen
de ese acto en perjuico del que lo realozo.
Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es consecuencia del
beneficio o del derecho de division, como tenemos ya dicho. En efecto, por virtud de esta todos los
cofiadores vienen obligados a contribuir al pago de parte que a cada uno corresponde. De ese obligacion,
contraida por todos ellos, se libran los que no han pagado por consecuencia del acto realizado por el que
pago, y si bien este no hizo mas que cumplir el deber que el contracto de fianza le imponia de responder
de todo el debito cuando no limito su obligacion a parte alguna del mismo, dicho acto redunda en
beneficio de los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo
9
compromiso con el acreedor.
5. And now, to the requisites before one accommodation maker can seek reimbursement from a coaccommodation maker.
By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be supplied by the
provisions of this Code". Nothing extant in the Negotiable Instruments Law would define the right of one
accommodation maker to seek reimbursement from another. Perforce, we must go to the Civil Code.1wph1.t
Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes within the ambit of
Article 2073 of the Civil Code which reads:
ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one
among them who has paid may demand of each of the others the share which is proportionally owing
from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in
the same proportion.
The provisions of this article shall not be applicable, unless the payment has been made in virtue of a
10
judicial demand or unless the principal debtor is insolvent.
As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has paid the debt
11
to the creditor and is seeking contribution from his cosureties."
Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason. Says Manresa:
12
c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la corresponsabilidad

de los cofiadores.
La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que deben
concurrir para que pueda tener lugar lo dispuesto en el mismo. Ese derecho que concede al fiador para
reintegrarse directamente de los fiadores de lo que pago por ellos en vez de dirigir su reclamacion contra
el deudor, es un beneficio otorgado por la ley solo ell dos casos determinados, cuya justificacion resulta
evidenciada desde luego; y esa limitacion este debidamente aconsejada por una razon de prudencia que
no puede desconocerse, cual es la de evitar que por la mera voluntad de uno de los cofiadores pueda
hacerse surgir la accion de reintegro contra los demas en prejuicio de los mismos.
El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo en primer
termino el fiador que paga por el deudor el derecho de indemnizacion contra este, sancionado por el art.
1,838, es de todo punto indudable que ejercitando esta accion pueden quedar libres de toda
responsabilidad los demas cofiadores si, a consecuencia de ella, indemniza el fiado a aquel en los
terminos establecidos en el expresado articulo. Por el contrario de prescindir de dicho derecho el fiador,
reclamando de los confiadores en primer lugar el oportuno reintegro, estos en tendrian mas remedio que
satisfacer sus ductares respectivas, repitiendo despues por ellas contra el deudor con la imposicion de las
molestias y gastos consiguientes.
No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro de dichos
derechos, el de indemnizacion por el deudor y el del reintegro por los cofiadores, indudablemente optaria
siempre y en todo caso por el segundo, puesto que mucha mas garantias de solvencia y mucha mas
seguridad del cobro ha de encontrar en los fiadores que en el deudor; y en la practica quedaria reducido
el primero a la indemnizacion por el deudor a los confiadores que hubieran hecho el reintegro, obligando
a estos, sin excepcion alguna, a soportar siempre los gastos y las molestias que anteriormente homos
indicado. Y para evitar estos perjuicios, la ley no ha podido menos de reducir el ejercicio de ese derecho a
13
los casos en que absolutamente sea indispensable.
6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of a negotiable
promissory note may demand from the principal debtor reimbursement for the amount that he paid to the payee;
and (2) a joint and several accommodation maker who pays on the said promissory note may directly demand
reimbursement from his co-accommodation maker without first directing his action against the principal debtor
provided that (a) he made the payment by virtue of a judicial demand, or (b) a principal debtor is insolvent.
The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without any judicial
demand," and that "there is an absolute absence of evidence showing that Varona is insolvent". This combination
of fact and lack of fact epitomizes the fatal distance between payment by Sadaya and Sadaya's right to demand of
Sevilla "the share which is proportionately owing from him."
For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No costs. So ordered.
[G.R. No. 163720. July 13, 2005]
LIM vs. SABAN
SECOND DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 13 2005.
G.R. No. 163720 (Genevieve Lim vs. Florencio Saban.)
This treats of the Motion for Reconsideration (For Modification and Clarification of Decision) dated February
11, 2005 filed by petitioner requesting clarification of the Decision dated December 16, 2004, specifically as
regards the total amount payable as agent's commission and praying that she be held liable only for the
proportionate part of the obligation.
As required in the Resolution dated April 27, 2005, private respondent filed a Comment/Opposition dated
May 28, 2005.
In its Decision, the Court upheld the right of private respondent to his commission from the sale of a 1,000square meter property owned by the late Eduardo Ybaez after finding sufficient basis to affirm the appellate
court's conclusion that petitioner and Ybaez connived to deprive private respondent of his commission by dealing
directly with each other and reducing the purchase price of the lot, leaving nothing to compensate private
respondent for his efforts.
The Court ascertained that Ybaez agreed to sell the property for P200,000.00 and authorized private
respondent to mark up the selling price to include the amounts needed for the payment of taxes, transfer of title
and other expenses incident to the sale, as well as private respondent's commission. It was also established that
private respondent was able to negotiate the sale of the property to petitioner for P600,000.00. Hence, of the
overprice of P400,000.00, private respondent was entitled to receive as commission the amount of P236,743.00,
which represented the net amount after deducting P113,257.00 for taxes and P50,000.00 for petitioner's broker.
With these premises, the Court concurred with the result reached by the Court of Appeals, but disagreed as
regards said court's finding that petitioner had acted as an accommodation party.
We note that petitioner's confusion arose from a paragraph in the Decision in which the Court pronounced
that she should pay private respondent the balance of P200,000.00. For the clarification of the parties,
the Decision affirmed the Court of Appeals' decision holding petitioner liable to pay private respondent the
amount of P236,743.00, plus legal interest. This is in accordance with the tenor of the Decision and the specific
findings of the appellate court, affirmed by this Court, as regards the application of P400,000.00 overprice.
The applicable legal interest in this case is Six Percent (6%) per annum in accordance with Art. 2209 of the
Civil Code since the obligation does not constitute a loan or forbearance of credit. However, as declared in the case
[1]
of Eastern Shipping Lines, Inc. v. Court of Appeals, the interim period from the finality of the judgment awarding a
monetary claim and until payment thereof is deemed to be equivalent to a forbearance of credit. Thus, from the
time the judgment becomes final until its full satisfaction, the applicable rate of legal interest shall be Twelve
Percent (12%).
Concerning petitioner's claim that the obligation be divided among herself and her co-vendees, the Spouses
Benjamin and Lourdes Lim, there is no basis to rule on the matter since it was raised for the first time only in the
petition for review before this Court. It is axiomatic that an issue which was neither alleged in the pleadings nor
raised during the proceedings below cannot be ventilated for the first time before this Court as such would be
[2]
offensive to the basic rule of fair play, justice and due process.
WHEREFORE, the Motion for Reconsideration dated February 11, 2005 is hereby DENIED with FINALITY.
Petitioner is hereby ORDERED to pay respondent Florencio Saban the amount of P236,743.00, plus interest
thereon at the rate of Six Percent (6%) per annum from the time the complaint was filed until fully paid. A Twelve
Percent (12%) interest, in lieu of Six Percent (6%), shall be imposed on such amount upon finality of this decision
until the payment thereof.
Very truly yours,
(Sgd.) LUDICHI YASAY-NUNAG
Clerk of Court
G.R. No. L-34539 July 14, 1986
EULALIO
PRUDENCIO
and
ELISA
T.
PRUDENCIO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK, RAMON C. CONCEPCION and MANUEL
M. TAMAYO, partners of the defunct partnership Concepcion & Tamayo Construction Company, JOSE TORIBIO,
Atty-in-Fact of Concepcion & Tamayo Construction Company, and THE DISTRICT ENGINEER, Puerto Princesa,
Palawan, respondents.
Fernando R. Mangubat, Jr. for respondent PNB.
GUTIERREZ, JR., J.:

This is a petition for review seeking to annul and set aside the decision of the Court of Appeals, now the
Intermediate Appellate Court, affirming the order of the trial court which dismissed the petitioners' complaint for
cancellation of their real estate mortgage and held them jointly and severally liable with the principal debtors on a
promissory note which they signed as accommodation makers.
The factual background of this case is stated in the decision of the appellate court:
Appellants are the registered owners of a parcel of land located in Sampaloc, Manila, and
covered by T.C.T. 35161 of the Register of Deeds of Manila. On October 7, 1954, this property
was mortgaged by the appellants to the Philippine National Bank, hereinafter called PNB, to
guarantee a loan of P1,000.00 extended to one Domingo Prudencio.
Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter called
Company, had a pending contract with the Bureau of Public Works, hereinafter called the
Bureau, for the construction of the municipal building in Puerto Princess, Palawan, in the amount
of P36,800.00 and, as said Company needed funds for said construction, Jose Toribio, appellants'
relative, and attorney-in-fact of the Company, approached the appellants asking them to
mortgage their property to secure the loan of P10,000.00 which the Company was negotiating
with the PNB.
After some persuasion appellants signed on December 23, 1955 the 'Amendment of Real Estate
Mortgage', mortgaging their said property to the PNB to guaranty the loan of P10,000.00
extended to the Company. The terms and conditions of the original mortgage for Pl,000.00 were
made integral part of the new mortgage for P10,000.00 and both documents were registered
with the Register of Deeds of Manila. The promissory note covering the loan of P10,000.00 dated
December 29, 1955, maturing on April 27, 1956, was signed by Jose Toribio, as attorney-in-fact of
the Company, and by the appellants. Appellants also signed the portion of the promissory note
indicating that they are requesting the PNB to issue the Check covering the loan to the Company.
On the same date (December 23, 1955) that the 'Amendment of Real Estate' was executed, Jose
Toribio, in the same capacity as attorney-in- fact of the Company, executed also the 'Deed of
Assignment' assigning all payments to be made by the Bureau to the Company on account of the
contract for the construction of the Puerto Princesa building in favor of the PNB.
This assignment of credit to the contrary notwithstanding, the Bureau; with approval, of the PNB,
conditioned, however that they should be for labor and materials, made three payments to the
Company on account of the contract price totalling P11,234.40. The Bureau's last request for
P5,000.00 on June 20, 1956, however, was denied by the PNB for the reason that since the loan
was already overdue as of April 28, 1956, the remaining balance of the contract price should be
applied to the loan.
The Company abandoned the work, as a consequence of which on June 30, 1956, the Bureau
rescinded the construction contract and assumed the work of completing the building. On
November 14, 1958, appellants wrote the PNB contending that since the PNB authorized
payments to the Company instead of on account of the loan guaranteed by the mortgage there
was a change in the conditions of the contract without the knowledge of appellants, which
entitled the latter to a cancellation of their mortgage contract.
Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27, 1959
this action against the PNB, the Company, the latter's attorney-in-fact Jose Toribio, and the
District Engineer of Puerto Princesa, Palawan, seeking the cancellation of their real estate
mortgage. The 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.
After hearing, the trial court rendered judgment, denying the prayer in the complaint that the petitioners be
absolved from their obligation under the mortgage contract and that the said mortgage be released or cancelled.
The petitioners were ordered to pay jointly and severally with their co-makers Ramon C. Concepcion and Manuel
M. Tamayo the sum of P11,900.19 with interest at the rate of 6% per annum from the date of the filing of the
complaint on June 27, 1959 until fully paid and Pl,000.00 attorney's fees.
The decision also provided that if the judgment was not satisfied within 90 days from its receipt, the mortgaged
properties together with all the improvements thereon belonging to the petitioners would be sold at public
auction and applied to the judgment debt.
The Court of Appeals affirmed the trial court's decision in toto stating that, as accommodation makers, the
petitioners' liability is that of solidary co-makers and that since "the amounts released to the construction
company were used therein and, therefore, were spent for the successful accomplishment of the work constructed
for, the authorization made by the Philippine National Bank of partial payments to the construction company
which was also one of the solidary debtors cannot constitute a valid defense on the part of the other solidary
debtors. Moreover, those who rendered services and furnished materials in the construction are preferred
creditors and have a lien on the price of the contract." The appellate court further held that PNB had no obligation
whatsoever to notify the petitioners of its authorizing the three payments in the total amount of Pll,234.00 in favor
of the Company because aside from the fact that the petitioners were not parties to the deed of assignment, there
was no stipulation in said deed making it obligatory on the part of the PNB to notify the petitioners everytime it
authorizes payment to the Company. It ruled that the petitioners cannot ask to be released from the real estate
mortgage.
In this petition, the petitioners raise the following issues which they present in the form of errors:
I. First Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS WERE
SOLIDARY CO-DEBTORS INSTEAD OF SURETIES:
II. Second Assignment of Error.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE NOT
RELEASED FROM THEIR OBLIGATION TO THE RESPONDENT PNB, WHEN THE PNB, WITHOUT THE
KNOWLEDGE AND CONSENT OF PETITIONERS, CHANGED THE TENOR AND CONDITION OF THE
ASSIGNMENT OF PAYMENTS MADE BY THE PRINCIPAL DEBTOR; CONCEPCION & TAMAYO
CONSTRUCTION COMPANY; AND RELEASED TO SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE
BUREAU OF PUBLIC WORKS WHICH WERE MORE THAN ENOUGH TO WIPE OUT THE
INDEBTEDNESS TO THE PNB.
The petitioners 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. " They state that when respondent PNB did not apply the initial and subsequent payments
to the petitioners' debt as provided for in the deed of assignment, they were released from their obligation as
sureties and, therefore, the real estate mortgage executed by them should have been cancelled.
Section 29 of the Negotiable Instrument Law provides:
Liability of accommodation party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the instrument knew him to
be only an accommodation party.
In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539), we held that "... in lending his name to
the accommodated party, the accommodation party is in effect a surety. ... . " However, unlike in a contract of
suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder
for value such that even if the accommodated party receives an extension of the period for payment without the
consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not
release him because as far as a holder for value is concerned, he is a solidary co- debtor.
Expounding on the nature of the liability of an accommodation petition party under the aforequoted section, we
ruled in Ang Tiong v. Ting (22 SCRA 713, 716):
3. That the appellant, again assuming him to be an accommodation indorser, may obtain security
from the maker to protect himself against the danger of insolvency of the latter, cannot in any
manner affect his liability to the appellee, as the said remedy is a matter of concern exclusively
between accommodation indorser and accommodated party. So that the appellant stands only
as a surety in relation to the maker, granting this to be true for the sake of argument, is
immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of the
latter who is a holder for value. The liability of the appellant remains primary and unconditional.
To sanction the appellant's theory is to give unwarranted legal recognition to the patent
absurdity of a situation where an indorser, when sued on an instrument by a holder in due
course and for value, can escape liability on his indorsement by the convenient expedient of
interposing the defense that he is a mere accommodation indorser.
There is, therefore, no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand as sureties or
solidary co-debtors since such distinction would be entirely immaterial and inconsequential as far as a holder for
value is concerned. Consequently, the petitioners cannot claim to have been released from their obligation simply
because the time of payment of such obligation was temporarily deferred by PNB without their knowledge and
consent. There has to be another basis for their claim of having been freed from their obligation. The question
which should be resolved in this instant petition, therefore, is whether or not PNB can be considered a holder for
value under Section 29 of the Negotiable Instruments Law such that the petitioners must be necessarily barred
from setting up the defense of want of consideration or some other personal defenses which may be set up
against a party who is not a holder in due course.
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements
of a holder in due course under Section 52 of the same law except notice of want of consideration. (Agbayani,
Commercial Laws of the Philippines, 1964, p. 208). If he does not qualify as a holder in due course then he holds
the instrument subject to the same defenses as if it were non-negotiable (Section 58, Negotiable Instruments Law).
In the case at bar, can PNB, the payee of the promissory note be considered a holder in due course?
Petitioners contend that the 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.
In those cases where a payee was considered a holder in due course, such payee either acquired the note from
another holder or has not directly dealt with the maker thereof. As was held in the case of Bank of Commerce and
Savings v. Randell (186 NorthWestern Reporter 71):
We conclude, therefore, that a payee who receives a negotiable promissory note, in good faith,
for value, before maturity, and without any notice of any infirmity, from a holder, not the maker.
to whom it was negotiated as a completed instrument, is a holder in due course within the
purview of a Negotiable Instruments law, so as to preclude the defense of fraud and failure of
consideration between the maker and the holder to whom the instrument, was delivered.
Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern Reporter 748) on rehearing and quoting Daniel on
Negotiable Instruments, it was held:
It is a general principle of the law merchant that, as between the immediate parties to a
negotiable instrument-the parties between whom there is a privity-the consideration may be
inquired into; and as to them the only superiority of a bill or note over other unsealed evidence
of debt is that it prima facie imports a consideration.
Although as a general rule, a payee may be considered a holder in due course we think that such a rule cannot
apply with respect to the respondent PNB. Not only was PNB an immediate party or in privy to the promissory
note, that is, it had dealt directly with the petitioners knowing fully well that the latter only signed as
accommodation makers but more important, it was the Deed of Assignment executed by the Construction
Company in favor of PNB which principally moved the petitioners to sign the promissory note also in favor of PNB.
Petitioners were made to believe and on that belief entered into the agreement that no other conditions would
alter the terms thereof and yet, PNB altered the same. The Deed of Assignment specifically provided that Jose F.
Toribio, on behalf of the Company, "have assigned, transferred and conveyed and by these presents, do assign,
transfer and convey unto the said Philippine National Bank, its successors and assigns all payments to be received
from the Bureau of Public Works on account of contract for the construction of the Puerto Princesa Municipal
Building in Palawan, involving the total amount of P 36,000.00" and that "This assignment shall be irrevocable and
subject to the terms and conditions of the promissory note and or any other kind of documents which the
Philippine National Bank have required or may require the assignor to execute to evidence the above-mentioned
obligation."
Under the terms of the above Deed, it is clear that there are no further conditions which could possibly alter the
agreement without the consent of the petitioners such as the grant of greater priority to obligations other than the
payment of the loan due to the PNB and part of which loan was guaranteed by the petitioners in the amount of
P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three payments directly to the Company instead of
paying the same to the Bank. This approval was in violation of the Deed of Assignment and without any notice to
the petitioners who stood to lose their property once the promissory note falls due without the same having been
paid because the PNB, in effect, waived payments of the first three releases. From the foregoing circumstances,
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. The PNB knew that the promissory note which it took from
the accommodation makers was signed by the latter because of full reliance on the Deed of Assignment, which,
PNB had no intention to comply with strictly. Worse, the third payment to the Company in the amount of
P4,293.60 was approved by PNB although the promissory note was almost a month overdue, an act which is clearly
detrimental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners can validly set up
their personal defense of release from the real estate mortgage against PNB. The latter, in authorizing the third
payment to the Company after the promissory note became due, in effect, extended the term of the payment of
the note without the consent of the accommodation makers who stand as sureties to the accommodated party
and to all other parties who are not holders in due course or who do not derive their right from the same,
including PNB.
It may be argued that the Prudencios could have mortgaged their property even without the promissory note. The
records show, however, that they would not have mortgaged the lot were it not for the sake of the Company
whose attorney-in-fact was their relative. The spouses did not need the money for themselves.
The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to secure a loan in
favor of the Company but the Prudencios refused. 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.
Article 2085 of the Civil Code enumerates the requisites of a valid mortgage contract. Petitioners do not dispute
the validity of the mortgage. They only want to have it cancelled because the Bank violated the deed of assignment
and extended the period of time of payment of the promissory note without the petitioners' consent and to the
latter's detriment.
The mortgage cannot be separated from the promissory note for it is the latter which is the basis of determining
whether the mortgage should be foreclosed or cancelled. Without the promissory note which determines the
amount of indebtedness there would have been no basis for the mortgage.
True, if the Bank had not been the assignee, then the petition petitioners would be obliged to pay the Bank as their
creditor on the promissory note, irrespective of whether or not the deed of assignment had been violated.
However, the assignee and the creditor in this case are one and the samethe Bank itself. When the Bank violated
the deed of assignment, it prejudiced itself because its very violation was the reason why it was not paid on time in
its capacity as creditor in the promissory note. It would be unfair to make the petitioners now answer for the debt
or to foreclose on their property.
Neither can PNB justify its acts on the ground that the Bureau of Public Works approved the deed of assignment
with the condition that the wages of laborers and materials needed in the construction work must take
precedence over the payment of the promissory note. In the first place, PNB did not need the approval of the
Bureau. But even if it did, it should have informed the petitioners about the amendment of the deed of
assignment. Secondly, the wages and materials have already been paid. That issue is academic. What is in dispute
is who should bear the loss in this case. As between the petitioners and the Bank, the law and the equities of the
case favor the petitioners, And thirdly, the wages and materials constitute a lien only on the constructed building
but do not enjoy preference over the loan unless there is a liquidation proceeding such as in insolvency or
settlement of estate. (See Philippine Savings Bank v. Lantin, 124 SCRA 476). There were remedies available at the
time if the laborers and the creditors had not been paid. The fact is, they have been paid. Hence, when the PNB
accepted the condition imposed by the Bureau without the knowledge or consent of the petitioners, it amended
the deed of assignment which, as stated earlier, was the principal reason why the petitioners consented to
become accommodation makers.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals affirming the decision of the trial court
is hereby REVERSED and SET ASIDE and a new one entered absolving the petitioners from liability on the
promissory note and under the mortgage contract. The Philippine National Bank is ordered to release the real
estate mortgage constituted on the property of the petitioners and to pay the amount of THREE THOUSAND PESOS
(P3,000.00) as attorney's fees.
SO ORDERED.
G.R. No. L-8844 December 16, 1914
FERNANDO
MAULINI,
vs.
ANTONIO G. SERRANO, defendant-appellant.
R.
M.
Jose Arnaiz for appellees.
ET
Calvo
AL., plaintiffs-appellees,
for
appellant.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff for the
sum
of
P3,000,
with
interest
thereon
at
the
rate
of
1 per cent month from September 5, 1912, together with the costs.
The action was brought by the plaintiff upon the contract of indorsement alleged to have been made in his favor
by the defendant upon the following promissory note:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of
September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial
operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th
day of September, 1912, this instrument will draw interest at the rate of 1 per cent per month from the
date when due until the date of its complete payment. The makers hereof agree to pay the additional sum
of P500 as attorney's fees in case of failure to pay the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel
Gimenez.
The note was indorsed on the back as follows:
Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.
The first question for resolution on this appeal is whether or not, under the Negotiable Instruments Law, an
indorser of a negotiable promissory note may, in an action brought by his indorsee, show, by parol evidence, that
the indorsement was wholly without consideration and that, in making it, the indorser acted as agent for the
indorsee, as a mere vehicle of transfer of the naked title from the maker to the indorsee, for which he received no
consideration whatever.
The learned trial court, although it received parol evidence on the subject provisionally, held, on the final decision
of the case, that such evidence was not admissible to alter, very, modify or contradict the terms of the contract of
indorsement, and, therefore, refused to consider the evidence thus provisionally received, which tended to show
that, by verbal agreement between the indorser and the indorsee, the indorser, in making the indorsement, was
acting as agent for the indorsee, as a mere vehicle for the transference of naked title, and that his indorsement
was wholly without consideration. The court also held that it was immaterial whether there was a consideration
for the transfer or not, as the indorser, under the evidence offered, was an accommodation indorser.
We are of the opinion that the trial court erred in both findings.1awphil.net
In the first place, the consideration of a negotiable promissory note, or of any of the contracts connected
therewith, like that of any other written instrument, is, between the immediate parties to the contract, open to
attack, under proper circumstances, for the purpose of showing an absolute lack or failure of consideration.
It seems, according to the parol evidence provisionally admitted on the trial, that the defendant was a broker
doing business in the city of Manila and that part of his business consisted in looking up and ascertaining persons
who had money to loan as well as those who desired to borrow money and, acting as a mediary, negotiate a loan
between the two. He had done much business with the plaintiff and the borrower, as well as with many other
people in the city of Manila, prior to the matter which is the basis of this action, and was well known to the parties
interested. According to his custom in transactions of this kind, and the arrangement made in this particular case,
the broker obtained compensation for his services of the borrower, the lender paying nothing therefor. Sometimes
this was a certain per cent of the sum loaned; at other times it was a part of the interest which the borrower was
to pay, the latter paying 1 per cent and the broker per cent. According to the method usually followed in these
transactions, and the procedure in this particular case, the broker delivered the money personally to the borrower,
took note in his own name and immediately transferred it by indorsement to the lender. In the case at bar this was
done at the special request of the indorsee and simply as a favor to him, the latter stating to the broker that he did
not wish his name to appear on the books of the borrowing company as a lender of money and that he desired
that the broker take the note in his own name, immediately transferring to him title thereto by indorsement. This
was done, the note being at once transferred to the lender.
According to the evidence referred to, there never was a moment when Serrano was the real owner of the note. It
was always the note of the indorsee, Maulini, he having furnished the money which was the consideration for the
note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker,
acting solely as an agent, a vehicle by which the naked title to the note passed fro the borrower to the lender. The
only payment that the broker received was for his services in negotiating the loan. He was paid absolutely nothing
for becoming responsible as an indorser on the paper, nor did the indorsee lose, pay or forego anything, or alter
his position thereby.
Nor was the defendant an accommodation indorser. The learned trial court quoted that provision of the
Negotiable Instruments Law which defines an accommodation party as "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 the same to be only an accommodation party." (Act No. 2031, sec. 29.)
We are of the opinion that the trial court misunderstood this definition. The accommodation to which reference is
made in the section quoted is not one to the person who takes the note that is, the payee or indorsee, but one
to the maker or indorser of the note. It is true that in the case at bar it was an accommodation to the plaintiff, in a
popular sense, to have the defendant indorse the note; but it was not the accommodation described in the law,
but, rather, a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement
the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for
the purpose of better securing the payment of the note that is, he lend his name to the maker, not to the
holder. Putting it in another way: An accommodation note is one to which the accommodation party has put his
name, without consideration, for the purpose of accommodating some other party who is to use it and is expected
to pay it. The credit given to the accommodation part is sufficient consideration to bind the accommodation
maker. 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.
The prohibition in section 285 of the Code of Civil Procedure does not apply to a case like the one before us. The
purpose of that prohibition is to prevent alternation, change, modification or contradiction of the terms of a
written instrument, admittedly existing, by the use of parol evidence, except in the cases specifically named in the
section. The case at bar is not one where the evidence offered varies, alters, modifies or contradicts the terms of
the contract of indorsement admittedly existing. The evidence was not offered for that purpose. The purpose was
to show that no contract of indorsement ever existed; that the minds of the parties never met on the terms of
such contract; that they never mutually agreed to enter into such a contract; and that there never existed a
consideration upon which such an agreement could be founded. The evidence was not offered to vary, alter,
modify, or contradict the terms of an agreement which it is admitted existed between the parties, but to deny that
there ever existed any agreement whatever; to wipe out all apparent relations between the parties, and not to
vary, alter or contradict the terms of a relation admittedly existing; in other words, the purpose of the parol
evidence was to demonstrate, not that the indorser did not intend to make the particular indorsement which he
did make; not that he did not intend to make the indorsement in the terms made; but, rather, to deny the reality
of any indorsement; that a relation of any kind whatever was created or existed between him and the indorsee by
reason of the writing on the back of the instrument; that no consideration ever passed to sustain an indorsement
of any kind whatsoever.
The contention has some of the appearances of a case in which an indorser seeks prove forgery. Where an
indorser claims that his name was forged, it is clear that parol evidence is admissible to prove that fact, and, if he
proves it, it is a complete defense, the fact being that the indorser never made any such contract, that no such
relation ever existed between him and the indorsee, and that there was no consideration whatever to sustain such
a contract. In the case before us we have a condition somewhat similar. While the indorser does not claim that his
name was forged, he does claim that it was obtained from him in a manner which, between the parties
themselves, renders, the contract as completely inoperative as if it had been forged.
Parol evidence was admissible for the purpose named.1awphil.net
There is no contradiction of the evidence offered by the defense and received provisionally by the court. Accepting
it as true the judgment must be reversed.
The judgment appealed from is reversed and the complaint dismissed on the merits; no special finding as to costs.
Arellano, C.J., Johnson and Trent, JJ., concur.
Separate Opinions
over his signature.
of the instrument.
#Separate Opinions
over his signature.
of the instrument.
G.R. No. L-26486
April 1, 1927
MARIANO
vs.
MARIANO
G.
VELOSO
MARIANO
FRANCISCO J. GONZALES, intervenor-appellee.
ACUA, plaintiff-appellee,
and
NARCISO
XAVIER, defendants;
VELOSO, appellant.
G.
Fisher,
DeWitt,
Perkins
and
Jose
Martinez
de
San
J.
Rodriguez
Serra
Eduardo Gutierrez Repide for intervenor and appellee.
Brady
Agustin
for
for
for
defendant
appellant.
appellee.
Xavier.
STREET, J.:
This action was instituted in the Court of First Instance of the City of Manila by Mariano Acua, as transferee of a
joint and several note for P25,000, executed by the two defendants, N. Xavier and M. G. Veloso, for the purpose of
recovering the amount named therein, with interest at 10 per cent. Xavier answered with a general denial and
special defense based on the fact that he had given a second mortgage on certain property to secure the note and
that he had subsequently sold the mortgaged property to another who had assumed the indebtedness. M. G.
Veloso answered with a general denial a plea of non est factum, and a special defense to the effect that plaintiff is
not a holder for value and in good faith. In the course of the trial, Francisco J. Gonzalez as the original payee and
transferer of the note, was permitted by the court to intervene in like right with the plaintiff Acua, and from that
time forth the case was prosecuted by Acua and Gonzalez together. Upon hearing the cause the trial court gave
judgment jointly and severally against the defendants for the plaintiff Acua to recover the full amount of P25,000
with interest at 10 per cent from December 20, 1921, and costs. At the same time, having found that Veloso was a
mere accommodation maker as regards Xavier, he gave judgment over in favor of Veloso against Xavier for
whatever the former should pay upon the judgment, and lastly ordered that Veloso be subrogated to the rights of
the plaintiff Acua in a mortgage given by Xavier to secure the debt, as will hereafter be more fully explained.
From the judgment finally entered, and later modified, Veloso appealed.
Nearly all of the determinative facts in this case are proved by documents of indubitable authenticity, but the
transactions that have been brought within the range of inquiry are numerous and somewhat complicated. This
circumstance, coupled with a faulty memory of witnesses as to the relations of these numerous transactions to
each other, to say nothing of deliberate misstatements and tergiversations on the part of the witnesses both for
plaintiff and defendant, has made the case so perplexing as almost to baffle the understanding. In order to simplify
the presentation of the case, we propose to present the facts in separate segments.
To begin with, the plaintiff Acua is suing in the character of transferee of a negotiable promissory note, but he
acquired title to this note more than two years after it fell due. It results that, although he is a purchaser for value,
he is not a purchaser in due course before maturity; and he is therefore in the position merely of an assignee of
the rights pertaining to F. J. Gonzalez, the original payee and transferer of the note. But Gonzalez, as stated in the
opening paragraph of this opinion, has been permitted to intervene in the character of plaintiff for his own
protection. We shall therefore first consider the rights of the parties as they would have been if Gonzalez had
brought the action in the character of payee, making casus omissus of the transfer of the note to Acua.
With respect to the note which is the subject of this action, the following facts are in our opinion proved beyond a
reasonable doubt: At the time of the execution of said note, in December, 1921, the defendant N. Xavier was
acting in Manila as the agent of his codefendant M. G. Veloso, of Cebu, with respect to certain real property owned
by the latter in the City of Manila. At the same time Xavier, though lacking in capital, was given to the practice of
trading in real estate, so far as his credit permitted, upon his own account; and sometime before this note was
executed Xavier's attention had been attracted to the piece of this property would be a profitable speculation, but
he needed P25,000 to put the deal through. Xavier appears to have been on good terms with his principal, Veloso,
notwithstanding the fact that Xavier had become already largely indebted to Veloso in connection with the agency
which Xavier was exercising with respect to Veloso's Manila property. Xavier accordingly communicated to Veloso
his desire to acquire the Legarda property, and at the same time requested Veloso to assist him in the matter.
Veloso at first replied evasively, pleading lack of funds to the request for assistance, but at the same time admitted
that the property on Legarda Street was apparently a good purchase. In December, thereafter, Veloso came to
Manila and the matter was taken up again by Xavier with him, when Veloso decided to lend a helping hand.
Meanwhile, F. J. Gonzalez, a man of means and resident of Manila, had been approached with a view to getting
him to advance Xavier the necessary funds to enable the latter to make the purchase contemplated. Gonzalez
agreed to advance the money, or to find some one else to do so, upon two conditions, namely, first, that Xavier
and Veloso should make their joint and several note for the amount to be advanced and, secondly, that Xavier
should agree to purchase from Gonzalez a one-half interest which the latter possessed in a mortgage credit on a
piece of property in Pangasinan, which will hereinafter be referred asHacienda Leet. These conditions were
acceptable to Xavier, and Veloso agreed to join in the note. As the contemplated deal involved more than one
transaction, the matter could not be completely fixed up while Veloso was in Manila, but on December 14, just
prior to Veloso's departure for Cebu, a conference was held with Veloso in the hotel where the latter was
stopping. At this meeting Gonzalez and his broker were present with Xavier and Veloso; and the result was that an
undated promissory note, with the name of the payee in blank, was signed by Xavier and Veloso in the following
words:
MANILA, .................................................
On or before six months after date we will jointly and severally pay in Manila to the order of
........................... the sum of twenty-five thousand pesos (P25,000), Philippine currency, for value
received of the same in cash, for commercial operations, and with interest at 10 per cent per
annum, payable monthly.
Protest waived.
(Sgd.) N XAVIER
M. G. VELOSO.
Witness:
Sgd.) MODESTO ALBERTO

The space for the date of this note was left in blank with the understanding that it should be filled in with the true
date whenever the money should be actually advanced and the trade consummated, in order to mark correctly the
precise date from which interest should be calculated. The space for the name of the payee was also left unfilled
for the reason that, although Gonzalez had agreed to find the money, he was not certain at the time whether the
money would be advanced by him personally or by his client A. J. Rosario, whom he had in mind as the individual
who would probably supply the money. At any rate we entertain no doubt that Veloso signed the note
intelligently, with a view to assisting Xavier with his credit to the extent of the P25,000 which would be advanced
by Gonzalez or by some person whom Gonzalez would procure to make the loan. It is true that Veloso has
pleaded non est factum to the note and, when testifying as a witness, he at first denied the authenticity of the
note, but he later admitted his signature, and there can be no doubt that the document is genuine.
About a week passed before the intention of the parties could be carried into effect, but on December 20, 1921,
the purchase of the Legarda property by Xavier was effected. On that day, at a conference attended by all principal
parties concerned, or their representatives, Gonzalez handed to Xavier a check drawn payable to Xavier in the
amount of P25,000. This check was immediately passed by Xavier to Ramon Sotelo, agent of the vendor of the
Legarda property, in part payment thereof, and the proceeds of the check came in due time to the seller. It will be
noted, however, that the check just mentioned was not a check drawn by Gonzalez but by Rosario, Gonzalez and
Rosario having merely exchanged checks. It will thus be seen that, although Gonzalez did not directly advance the
P25,000 to Xavier in cash, he nevertheless delivered full value in the form of a check of another person, which was
accepted as cash and which served the purpose as well as metallic coins or bank bills would have done. At the
same time the note which we have copied above was delivered by Xavier to Gonzalez, who, then or subsequently,
filled up the blanks by writing the date "December 20, 1921" and his own name as payee in the blank spaces left
for that purpose.
It appears that the Legarda property thus acquired by Xavier was already encumbered with a mortgage to the
Shanghai Life Insurance Company, but the value of the property was much greater than the mortgage thus
secured; and in order to secure himself further for the P25,000 advanced in the manner above stated, as well as an
additional P22,052 for which Xavier was indebted to Gonzales upon account of the purchase price of Gonzalez's
interest in the mortgage on Hacienda Leet, Gonzalez required Xavier to executed a second mortgage to him upon
the Legarda property, thereby encumbering said property to the total extent of P47,052. This second mortgage is
now in course of foreclosure, and if at the foreclosure sale the property should to bring enough to pay off the note
for P25,000, with interest, together with the additional amount of P22,052 due to Gonzalez upon the other
transaction, it is obvious that Gonzalez would then be reimbursed for the money advanced upon the note, and that
would be the end of the matter. Still, the note now sued on is the joint and several obligation of Xavier and Veloso,
and as it is now past due, payment should not be postponed to await the result of the foreclosure proceeding.
Furthermore, the right of Gonzalez as payee of the note to recover thereon as against both the makers is
undeniable, he having paid full value for the note on the day it bears date.
But it is equally obvious that Veloso, who has lent his credit to Xavier, is entitled, in the event he pays the note, or
part thereof, to be subrogated to the rights of Gonzalez in the second mortgage on the Legarda property. It was
this right of subrogation which the trial judge intended to recognize and protect in the last paragraph of his
amendatory order of June 17, 1926; but we find that this order is to some extent lacking in clarity and is
objectionable in so far as it appears possibly to postpone Veloso's right of subrogation, with respect to P25,000 to
the P22,052, also secured by the second mortgage. The appellants fifth assignment of error is directed to this
point, and it is quite clear that appellant's criticism of the order entered below is well founded. The amount of the
note, with interest, is secured in the second mortgage equally with the P22,052 above referred to, and neither is
given preference over the other. It results that Veloso's right of subrogation extends to the whole proceeds of the
mortgaged property in the proportion of the two debts secured by the mortgage, in proportion of the two debts
secured by the mortgage, in the event that the property brings less at the foreclosure sale than would be
necessary to pay off both credits.
The solution of the case thus indicated is in our opinion the correct one beyond a doubt, but we have thus far
designedly ignored certain contemporaneous transactions which have introduced into the case considerations of
great perplexity. We now proceed to refer to these matters. It will be remembered that Gonzalez had made it a
condition precedent to the lending of his assistance to Xavier in this matter that Xavier should take off his hands an
interest which Gonzalez possessed in a mortgage on the Hacienda Leet. In addition to this, Gonzalez wanted to get
Rosario to assume the role of the lender of the money on the note which is the subject of the present suit. The sale
of Gonzalez interest in the mortgage on Hacienda Leet was in fact effected, but Rosario finally balked at taking
over the note; and Gonzalez had to keep it himself. But the way in which Gonzalez maneuvered to get Rosario
committed to the loan led to complex results, as will be discovered from an enumeration of the following
transactions which took place among the three interested parties, Gonzalez, Xavier, and Rosario: Gonzalez first
wrote a check for P25,010, payable to Rosario. Rosario then wrote his own check in favor of Xavier for P25,000,
this being the check which Xavier passed to Sotelo in part payment for the purchase of the Legarda property. At
the same time Gonzalez made an assignment of his interest in the mortgage on Hacienda Leet, amounting in value
to P47,052. Furthermore, it was supposed to be necessary to make it appear, on paper at least, that Rosario had
security for the check of P25,000 which he made out in the name of Xavier. Xavier therefore, immediately made a
pledge to Rosario of the interest which Xavier had acquired from Gonzalez in the mortgage on Hacienda Leet. But
as Rosario had actually gotten the P25,000 in the form of a check from Gonzalez, Rosario in turn pledged the same
credit to Gonzalez. We see therefore both the obligation and the security coming back to the hands of Gonzalez
who was at once the source from which the real money had been obtained and the seller of the mortgage credit to
Xavier. The foregoing transactions all occurred on December 20, 1921. On February 7, 1922, thereafter, the owner
of the Hacienda Leet made a new mortgage direct to Xavier and the other coowner of the mortgage credit
thereon, to secure the repayment of the sum of P90,000. As a consequence of this transaction the pledges made
by Xavier to Rosario and Rosario to Gonzalez were cancelled. On March 7, 1922, Xavier mortgaged his share in this
mortgage credit to Rosario, and Rosario assigned his rights to Gonzalez, in nominal satisfaction of the latter's claim
on Rosario for the P25,000, advanced nominally by Rosario. As a consequence of these transactions Gonzalez
became the direct creditor of Xavier, and Rosario was eliminated.
As we have already stated, the price fro which Gonzalez sold his interest in the mortgage on Hacienda Leet was
P47,052. Of this amount P22,052 was included as we have already seen, in the second mortgage given by Xavier to
Gonzalez on the Legarda property, while the other P25,000 was temporarily left uncovered in Gonzalez's hands
except as he possibly supposed himself to be secured by the note which is the subject of this action. Before long,
however, Xavier secured Gonzalez for this P25,000 by placing a mortgage on the Zorrilla Theater in favor of
Gonzalez to secure said amount of P25,000 and an additional indebtedness of about P18,500. This mortgage on
the Zorrilla Theater has now been foreclosed, with the result that Gonzalez bought the theater in at the
foreclosure sale for the null amount of the mortgage thereon. In this way P25,000 of the indebtedness which
Xavier had incurred to Gonzalez's interest in the mortgage on the Hacienda Leet was completely satisfied.
The history of the transaction by which Xavier became the purchaser of the mortgage credit on the Hacienda Leet
complicates the question as to what might really have been intended as the real consideration for the note which
is the subject of the present action. The taking of proof in the course of the trial of this case in the court below
appears to have covered several weeks, including a lengthy interval between the hearings. In the course of these
sessions Gonzalez took the stand as witness more than once. When he was first testifying he gave an account of
the nevertheless consistent with the idea that the consideration for the note was the check which went in part
payment of the purchase of the Legarda street property. After thinking his position over fully and refreshing his
mind from every available source of information, Gonzalez, at the final session of the court, committed himself to
the proposition that the real consideration for the note was P25,000 of the purchase price of the mortgage credit
of the Hacienda Leet. By this he undoubtedly meant to indicate that he held the note as collateral security for
P25,000 of said purchase price. This theory of the consideration for the note has the peculiarity that, if true, it
would be completely fatal to his right of recovery; for if he took the note as collateral security for the part of the
price for the mortgage credit on Hacienda Leet, that indebtedness has been paid and the collateral note is
nowfunctus officio. Furthermore, it is obvious that the application of the note to that purpose would have been a
breach of faith with Veloso and an unauthorized diversion of the note from the purpose for which it was created.
The only comment we have to make is that the court is, in our opinion, in a better position to appreciate as a
matter of law what was the true consideration for that note than was Gonzalez himself; and his mistake or
prevarication in the matter cannot defeat the legal rights which he acquired by the transaction first above detailed
with respect to the Legarda street property and the advancement by him of the money for payment of part of the
purchase price thereof. Besides, even supposing that he may once have really believed that he could hold the note
as collateral security for part of the purchase price of the mortgage credit, that point has become merely
academic, by the satisfaction of that indebtedness, and his mistake as to his rights in that respect does not vitiate
his better title arising out of the other transaction.
Now a few words with respect to the position of Acua, to whom Gonzales transferred both the note and his
interest in the second mortgage on the Legarda street property more than two years after the note was due. As
already intimated, Acua gave full value for the note. He therefore acquired by transfer all the rights of Gonzales
to the note. But as we have now demonstrated, Gonzales paid full value for this note at the time of its creation, in
conformity with the intention of the makers. Acua is therefore entitled to enforce the note as Gonzales could
have done it he were himself the present holder and sole plaintiff..
In the oral argument in behalf of the appellant his attorneys invited the court's attention to a number of American
cases holding that, where accommodation party cannot be held liable thereon (Rylee vs. Wilkinson [Miss.], 99
Southern, 901). The cases referred to as authority for that proposition contemplate the case where the
accommodation maker draws a note payable to the accommodation maker draws a note payable to the
accommodated payee and the payee first negotiates the note after the date of maturity. The case before us is not
of that sort. Here the accommodating party and the accommodated party unite in making a joint and several note
to a person who advances the face value of the note to one of its makers at the very time of its creation. The
consideration for the note, as regards both makers, was the money which the payee advanced to Xavier; and it
cannot be said that the note was lacking in consideration as to Veloso because he himself received non of this
money. Value was given for the note, and this was enough. In equity as between Veloso and Xavier, the former is
entitled to all the rights of surety, and Xavier is the real debtor; but as to the creditor, both Veloso and Xavier are
mere joint and several makers.
The discussion of the case in the briefs covers a few points of minor importance not discussed in this opinion, but
what has been said disposes of the major features of the controversy and indicates the inevitable conclusion to
which a court must arrive, namely, that the trial court committed no error in giving judgment in favor of the
plaintiff, but that the appellant's fifth assignment of error is well taken; and Veloso's right of subrogation, in case
enough is not realized to pay off the whole, must be understood to extend to such proportion of the proceeds of
the contemplated foreclosure sale of the mortgaged property on Legarda Street as the amount of the note, and
interest, bears to the entire secured indebtedness.
It being understood that the dispositive part of the court's decision as expressed in the closing paragraph of the
decision of June 17, 1926, and amended in the order of July 1, 1926, is modified to the extent above stated,
without express pronouncement as to costs of either instance.
Johnson, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.

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G.R. No.

L-56169 June 26, 1992

SECTION 3. - Cause of Contracts

Article II. - Consideration.

SEC. 25. Value is any consideration sufficient to support a simple contract.

G.R. No. L-8844 December 16, 1914

February 22, 1968

April 27, 1967

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

GUTIERREZ, JR., J.:

Sgd.) MODESTO ALBERTO

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