TodayisTuesday,April21,2015

RepublicofthePhilippines
SUPREMECOURT
Manila
G.R.Nos.L2583637January31,1981
THEPHILIPPINEBANKOFCOMMERCE,plaintiffappellee,
vs.
JOSEM.ARUEGO,defendantappellant.

FERNANDEZ,J.:
Thedefendant,JoseM.Aruego,appealedtotheCourtofAppealsfromtheorderoftheCourtofFirstInstanceof
Manila,BranchXIII,inCivilCaseNo.42066denyinghismotiontosetasidetheorderdeclaringhimindefault,1and
fromtheorderofsaidcourtinthesamecasedenyinghismotiontosetasidethejudgmentrenderedafterhewasdeclaredin
default. 2 These two appeals of the defendant were docketed as CAG.R. NO. 27734R and CAG.R. NO. 27940R,
respectively.

UponmotionofthedefendantonJuly25,1960,3hewasallowedbytheCourtofAppealstofileoneconsolidatedrecord
onappealofCAG.R.NO.27734RandCAG.R.NO.27940R.4

InaresolutionpromulgatedonMarch1,1966,theCourtofAppeals,FirstDivision,certifiedtheconsolidatedappeal
totheSupremeCourtonthegroundthatonlyquestionsoflawareinvolved.5
OnDecember1,1959,thePhilippineBankofCommerceinstitutedagainstJoseM.AruegoCivilCaseNo.42066for
therecoveryofthetotalsumofaboutP35,000.00withdailyinterestthereonfromNovember17,1959untilfullypaid
andcommissionequivalentto3/8%foreverythirty(30)daysorfractionthereofplusattorney'sfeesequivalentto
10%ofthetotalamountdueandcosts. 6ThecomplaintfiledbythePhilippineBankofCommercecontainstwentytwo
(22)causesofactionreferringtotwentytwo(22)transactionsenteredintobythesaidBankandAruegoondifferentdates
coveringtheperiodfromAugust28,1950toMarch14,1951. 7Thesumsoughttoberecoveredrepresentsthecostofthe
printing of "World Current Events," a periodical published by the defendant. To facilitate the payment of the printing the
defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the "World Current Events," the
printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft
beingsentlatertothedefendantforacceptance.AsanaddedsecurityforthepaymentoftheamountsadvancedtoEncal
PressandPhotoEngraving,theplaintiffbankalsorequireddefendantAruegotoexecuteatrustreceiptinfavorofsaidbank
whereinsaiddefendantundertooktoholdintrustforplaintifftheperiodicalsandtosellthesamewiththepromisetoturnover
totheplaintifftheproceedsofthesaleofsaidpublicationtoanswerforthepaymentofallobligationsarisingfromthedraft.8

AruegoreceivedacopyofthecomplainttogetherwiththesummonsonDecember2,1959.9OnDecember14,1959
defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At the
hearing,thecourtdenieddefendant'smotionforextension.Whereupon,thedefendantfiledamotiontodismissthecomplaint
onDecember17,1959onthegroundthatthecomplaintstatesnocauseofactionbecause:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts
thereofhadalreadybeenpaidbytheplaintifftothedrawer(EncalPressandPhotoEngraving),withoutknowledge
orconsentofthedefendantdrawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an
accommodatingpartyonlyforthedrawer(EncalPressandPhotoEngraving)andwinbeliableintheeventthatthe
accommodatingparty(drawer)failstopayitsobligationtotheplaintiff.11
ThecomplaintwasdismissedinanorderdatedDecember22,1959,copyofwhichwasreceivedbythedefendant
onDecember24,1959.12
OnJanuary13,1960,theplaintifffiledamotionforreconsideration. 13OnMarch7,1960,actinguponthemotionfor
reconsiderationfiledbytheplaintiff,thetrialcourtsetasideitsorderdismissingthecomplaintandsetthecaseforhearingon
March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was received by the
defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila,
MamertodelaCruz.Onthefollowingday,March12,1960,thedefendantfiledamotiontopostponethetrialofthecaseon
thegroundthattherehavingbeennoanswerasyet,theissueshadnotyetbeenjoined.15Onthesamedate,thedefendant
filed his answer to the complaint interposing the following defenses: That he signed the document upon which the plaintiff
sues in his capacity as President of the Philippine Education Foundation that his liability is only secondary and that he
believedthathewassigningonlyasanaccommodationparty.16

OnMarch15,1960,theplaintifffiledanexpartemotiontodeclarethedefendantindefaultonthegroundthatthe
defendant should have filed his answer on March 11, 1960. He contends that by filing his answer on March 12,
1960, defendant was one day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The
defendantlearnedoftheorderdeclaringhimindefaultonMarch21,1960.OnMarch22,1960thedefendantfiledamotion
tosetasidetheorderofdefaultallegingthatalthoughtheorderofthecourtdatedMarch7,1960wasreceivedonMarch11,
1960at5:00intheafternoon,itcouldnothavebeenreasonablyexpectedofthedefendanttofilehisansweronthelastday
of the reglementary period, March 11, 1960, within office hours, especially because the order of the court dated March 7,
1960wasbroughttotheattentionofcounselonlyintheearlyhoursofMarch12,1960.Thedefendantalsoallegedthathe
hasagoodandsubstantialdefense.AttachedtothemotionaretheaffidavitsofdeputysheriffMamertodelaCruzthathe
servedtheorderofthecourtdatedMarch7,1960onMarch11,1960,at5:00o'clockintheafternoonandtheaffidavitofthe
defendantAruegothathehasagoodandsubstantialdefense.19Thetrialcourtdeniedthedefendant'smotiononMarch25,
1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of
P35,444.35 representing the total amount of his obligation to the said plaintiff under the twentytwo (22) causes of action
allegedinthecomplaintasofNovember15,1957andthesumofP10,000.00asattorney'sfees.21

OnMay9,1960thedefendantfiledanoticeofappealfromtheorderdatedMarch25,1961denyinghismotionto
setasidetheorderdeclaringhimindefault,anappealbondintheamountofP60.00,andhisrecordonappeal.The
plaintifffiledhisoppositiontotheapprovalofdefendant'srecordonappealonMay13,1960.Thefollowingday,May
14,1960,thelowercourtdismisseddefendant'sappealfromtheorderdatedMarch25,1960denyinghismotionto
setasidetheorderofdefault.22OnMay19,1960,thedefendantfiledamotionforreconsiderationofthetrialcourt'sorder
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order
dismissingappeal. 24OnMay21,1960,thetrialcourtreconsidereditspreviousorderdismissingtheappealandapproved
thedefendant'srecordonappeal. 25OnMay30,1960,thedefendantreceivedacopyofanoticefromtheClerkofCourt
datedMay26,1960,informingthedefendantthattherecordonappealfilededbythedefendantwasforwardedtotheClerk
ofCourtofAppeals.26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default
reiteratingthesamegroundpreviouslyadvancedbyhiminhismotionforrelieffromtheorderofdefault. 27 Upon
oppositionoftheplaintifffiledonJune3,1960, 28thetrialcourtdeniedthedefendant'smotiontosetasidethejudgmentby
defaultinanorderofJune11,1960.29OnJune20,1960,thedefendantfiledhisnoticeofappealfromtheorderofthecourt
denyinghismotiontosetasidethejudgmentbydefault,hisappealbond,andhisrecordonappeal.Thedefendant'srecord
on appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with the Court of
Appeals:(1)AppealfromtheorderofthelowercourtdenyinghismotiontosetasidetheorderofdefaultdocketedasCA
G.R.NO.27734R(2)AppealfromtheorderdenyinghismotiontosetasidethejudgmentbydefaultdocketedasCAG.R.
NO.27940R.

Inhisbrief,thedefendantappellantassignedthefollowingerrors:
I
THELOWERCOURTERREDINHOLDINGTHATTHEDEFENDANTWASINDEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN
DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM
WITHOUTFIRSTDISPOSINGOFSAIDANSWERINANAPPROPRIATEACTION.
III
THELOWERCOURTERREDINDENYINGDEFENDANT'SPETITIONFORRELIEFOFORDEROF
DEFAULTANDFROMJUDGMENTBYDEFAULTAGAINSTDEFENDANT.31
Ithasbeenheldthattoentitleapartytorelieffromajudgmenttakenagainsthimthroughhismistake,inadvertence,
surprise or excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in
ordertosetasidetheorderofdefault,thedefendantmustnotonlyshowthathisfailuretoanswerwasduetofraud,accident,
mistakeorexcusablenegligencebutalsothathehasameritoriousdefense.

The record discloses that Aruego received a copy of the complaint together with the summons on December 2,
1960 that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss that on
December22,1960thelowercourtdismissedthecomplaintthatonJanuary23,1960,theplaintifffiledamotionfor
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order
settingasidetheorderofdismissalthatacopyoftheorderwasreceivedbythedefendantonMarch11,1960at
5:00o'clockintheafternoonasshownintheaffidavitofthedeputysheriffandthatonthefollowingday,March12,
1960,thedefendantfiledhisanswertothecomplaint.
Thefailurethenofthedefendanttofilehisansweronthelastdayforpleadingisexcusable.Theordersettingaside
thedismissalofthecomplaintwasreceivedat5:00o'clockintheafternoon.Itwasthereforeimpossibleforhimto
havefiledhisansweronthatsamedaybecausethecourtsthenheldofficeonlyupto5:00o'clockintheafternoon.
Moreover,thedefendantimmediatelyfiledhisansweronthefollowingday.
However,whilethedefendantsuccessfullyprovedthathisfailuretoanswerwasduetoexcusablenegligence,he
hasfailedtoshowthathehasameritoriousdefense.Thedefendantdoesnothaveagoodandsubstantialdefense.
DefendantAruego'sdefensesconsistofthefollowing:
a)Thedefendantsignedthebillsofexchangereferredtointheplaintiff'scomplaintinarepresentativecapacity,as
the then President of the Philippine Education Foundation Company, publisher of "World Current Events and
DecisionLawJournal,"printedbyEncalPressandPhotoEngraving,drawerofthesaidbillsofexchangeinfavorof
theplaintiffbank
b)Thedefendantsignedthesebillsofexchangenotasprincipalobligor,butasaccommodationoradditionalparty
obligor,toaddtothesecurityofsaidplaintiffbank.Thereasonforthisstatementisthatunlikerealbillsofexchange,
wherepaymentofthefacevalueisadvancedtothedraweronlyuponacceptanceofthesamebythedrawee,inthe
case in question, payment for the supposed bills of exchange were made before acceptance so that in effect,
althoughthesedocumentsarelabelledbillsofexchange,legallytheyarenotbillsofexchangebutmereinstruments
evidencingindebtednessofthedraweewhoreceivedthefacevaluethereof,withthedefendantasonlyadditional
securityofthesame.33
The first defense of thedefendantisthathesignedthe supposedbills of exchange as anagent ofthe Philippine
EducationFoundationCompanywhereheispresident.Section20oftheNegotiableInstrumentsLawprovidesthat
"Wheretheinstrumentcontainsorapersonaddstohissignaturewordsindicatingthathesignsfororonbehalfofa
principalorinarepresentativecapacity,heisnotliableontheinstrumentifhewasdulyauthorizedbutthemere
additionofwordsdescribinghimasanagentorasfilingarepresentativecharacter,withoutdisclosinghisprincipal,
doesnotexempthimfrompersonalliability."
Aninspectionofthedraftsacceptedbythedefendantshowsthatnowherehashedisclosedthathewassigningas
arepresentativeofthePhilippineEducationFoundationCompany. 34Hemerelysignedasfollows:"JOSEARUEGO
(Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.

The defendant also contends that he signed the drafts only as an accommodation party and as such, should be
madeliableonlyafterashowingthatthedrawerisincapableofpaying.Thiscontentionisalsowithoutmerit.

Anaccommodationpartyisonewhohassignedtheinstrumentasmaker,drawer,indorser,withoutreceivingvalue
thereforandforthepurposeoflendinghisnametosomeotherperson.Suchpersonisliableontheinstrumenttoa
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodationparty.35Inlendinghisnametotheaccommodatedparty,theaccommodationpartyisineffectasuretyfor
thelatter.Helendshisnametoenabletheaccommodatedpartytoobtaincreditortoraisemoney.Hereceivesnopartofthe
considerationfortheinstrumentbutassumesliabilitytotheotherpartiestheretobecausehewantstoaccommodateanother.
Intheinstantcase,thedefendantsignedasadrawee/acceptor.UndertheNegotiableInstrumentLaw,adraweeisprimarily
liable.Thus,ifthedefendantwhoisalawyer,heshouldnothavesignedasanacceptor/drawee.Indoingso,hebecame
primarilyandpersonallyliableforthedrafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of
evidenceofindebtednessbecausepaymentsweremadebeforeacceptance.Thisisalsowithoutmerit.Underthe
Negotiable Instruments Law, a bill of exchange is an unconditional order in writting addressed by one person to
another,signedbythepersongivingit,requiringthepersontowhomitisaddressedtopayondemandoratafixed
ordeterminablefuturetimeasumcertaininmoneytoorderortobearer. 36Aslongasacommercialpaperconforms
withthedefinitionofabillofexchange,thatpaperisconsideredabillofexchange.Thenatureofacceptanceisimportant
onlyinthedeterminationofthekindofliabilitiesofthepartiesinvolved,butnotinthedeterminationofwhetheracommercial
paperisabillofexchangeornot.

Itisevidentthenthatthedefendant'sappealcannotprosper.Tograntthedefendant'sprayerwillresultinanew
trial which will serve no purpose and will just waste the time of the courts as well as of the parties because the
defenseisnilorineffective.37
WHEREFORE,theorderappealedfrominCivilCaseNo.42066oftheCourtofFirstInstanceofManiladenyingthe
petitionforrelieffromthejudgmentrenderedinsaidcaseisherebyaffirmed,withoutpronouncementastocosts.
SOORDERED.
Teehankee(Chairman),Makasiar,GuerreroandMelencioHerreraJJ.,concur.

Footnotes
1RecordonAppeal,p.323,Rollo,p.14forCAG.R.NO.27940docketedasL25837.
2Ibid.,p.377.
3Rollo,p.5forCAG.R.NO.27940docketedhereasL25837.
4Ibid.,p.12.
5Rollo,pp.3136forCAG.R.NO.27754docketedhereasL25836.Theresolutionwaswrittenby
thenPresidingJusticeFredRuizCastroandconcurredinbyJusticeCarmelinoAlvendiaandJustice
JesusY.Peres
6RecordonAppealp.1.
7Ibid.,pp.156.
8Ibid.
9Ibid.,p.241.
10Ibid.,p.242.
11Ibid.,pp,243245.
12Ibid.,pp.248249.
13Ibid.,pp.249269.
14Ibid.,pp.274275.
15Ibid.,pp.275277.
16Ibid.,pp.302303.
17Ibid.,pp.304307.
18Ibid.,p.307.
19Ibid.,pp.308314.
20Ibid.,p.323.
21Ibid.,pp.327339.
22Ibid.,pp.346347.
23Ibid.,pp.347351.
24Ibid.,pp.352356.
25Ibid.,p.357.
26Ibid.,pp.357358.
27Ibid.,pp.358370,
28Ibid.,pp.370377.
29Ibid.,p.377.

30Ibid.,p.381.
31Rollo,p.19,Briefforthedefendantappellant,pp.12.
32BankofPhilippineIslandsv.deCoster,47Phil.594Therulinginthiscaseissubstantiallythe
sameasSection3,Rule18oftheNewRulesofCourt.
33RecordonAppeal,pp.316318,Rollo,p.14.
34Ibid.,pp.177240.
35Section29,NegotiableInstrumentsLaw.
36Section126,NegotiableInstrumentsLaw.
37Ferrervs.YangSepeng,60SCRA149.
TheLawphilProjectArellanoLawFoundation