Astro Electronics Corp. v.

Philippine Export and Foreign Loan Guarantee Corporation

G.R. No. 136729, 23 September 2003

FACTS:

Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting
P3M w/ interest and secured by 3 promissory notes: December 14, 1981: P600,000.00,
December 14, 1981: P400,000.00, and August 27, 1981: P2,000,000.00.

Petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas
also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of
Astro and as surety. Thereafter, Philguarantee, with the consent of Astro, guaranteed in
favor of Philtrust the payment of 70% of Astros loan, subject to the condition that upon
payment by Philguanrantee of said amount, it shall be proportionally subrogated to the
rights of Philtrust against Astro.

As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee
paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against
Astro and Roxas a complaint for sum of money with the RTC of Makati. Roxas disclaims
any liability on the instruments, alleging, inter alia, that he merely signed the same in blank
and the phrases in his personal capacity and in his official capacity were fraudulently
inserted without his knowledge.

ISSUE:

Whether or not Roxas should be jointly and severally liable with Astro.

RULING:

Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes
are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed
twice: first, as president of Astro and second, in his personal capacity. In signing his name
aside from being the President of Asro, Roxas became a co-maker of the promissory
notes and cannot escape any liability arising from it. Under the Negotiable Instruments
Law, persons who write their names on the face of promissory notes are makers, promising
that they will pay to the order of the payee or any holder according to its tenor.

Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a
joint and several debtor under the notes considering that his intention to be liable as such
is manifested by the fact that he affixed his signature on each of the promissory notes
twice which necessarily would imply that he is undertaking the obligation in two different
capacities, official and personal.

Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights
of Philtrust to demand for and collect payment from both Roxas and Astro since it already
paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation. In compliance
with its contract of Guarantee in favor of Philtrust.
Affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro
Manila, whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity)
were ordered to pay respondent Philippine Export and Foreign Loan Guarantee
Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with
interests and costs
 Romeo C. Garcia vs. Dionisio V. Llamas

G.R. No. 154127. December 8, 2003

Facts:

A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner
Romeo Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from
him. They bound themselves jointly and severally to pay the loan on or before January
23, 1997 with a 15% interest per month. The loan remained unpaid despite repeated
demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory note merely as
an accommodation party for de Jesus and the latter had already paid the loan by
means of a check and that the issuance of the check and acceptance thereof novated
or superseded the note.

The trial court rendered a judgment on the pleadings in favor of the respondent and
directed petitioner to pay jointly and severally respondent the amounts of Php 400, 000
representing the principal amount plus interest at 15% per month from January 23, 1997
until the same shall have been fully paid, less the amount of Php 120,000 representing
interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when
respondent accepted the check from de Jesus. According to the CA, the check was
issued precisely to pay for the loan that was covered by the promissory note jointly and
severally undertaken by petitioner and de Jesus. Respondent’s acceptance of the check
did not serve to make de Jesus the sole debtor because first, the obligation incurred by
him and petitioner was joint and several; and second, the check which had been
intended to extinguish the obligation bounced upon its presentment.

Issues:

(1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation party had
any basis.

Held:

For novation to take place, the following requisites must concur: (1) There must be a
previous valid obligation; (2) the parties concerned must agree to a new contract; (3)
the old contract must be extinguished; and (4) there must be a valid new contract.
The parties did not unequivocally declare that the old obligation had been extinguished
by the issuance and the acceptance of the check or that the check would take the
place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or
order—a requisite for negotiability. Hence, petitioner cannot avail himself of the NIL’s
provisions on the liabilities and defenses of an accommodation party. Besides, a non-
negotiable note is merely a simple contract in writing and evidence of such intangible
rights as may have been created by the assent of the parties. The promissory note is thus
covered by the general provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An
accommodation party is liable for the instrument to a holder for value even if, at the time
of its taking, the latter knew the former to be only an accommodation party. The relation
between an accommodation party and the party accommodated is, in effect, one of
principal and surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissory debtor from the beginning. The liability
is immediate and direct.
 Romeo C. Garcia vs. Dionisio V. Llamas

G.R. No. 154127. December 8, 2003

Facts:

A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner
Romeo Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from
him. They bound themselves jointly and severally to pay the loan on or before January
23, 1997 with a 15% interest per month. The loan remained unpaid despite repeated
demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory note merely as
an accommodation party for de Jesus and the latter had already paid the loan by
means of a check and that the issuance of the check and acceptance thereof novated
or superseded the note.

The trial court rendered a judgment on the pleadings in favor of the respondent and
directed petitioner to pay jointly and severally respondent the amounts of Php 400, 000
representing the principal amount plus interest at 15% per month from January 23, 1997
until the same shall have been fully paid, less the amount of Php 120,000 representing
interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when
respondent accepted the check from de Jesus. According to the CA, the check was
issued precisely to pay for the loan that was covered by the promissory note jointly and
severally undertaken by petitioner and de Jesus. Respondent’s acceptance of the check
did not serve to make de Jesus the sole debtor because first, the obligation incurred by
him and petitioner was joint and several; and second, the check which had been
intended to extinguish the obligation bounced upon its presentment.

Issues:

(1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation party had
any basis.

Held:

For novation to take place, the following requisites must concur: (1) There must be a
previous valid obligation; (2) the parties concerned must agree to a new contract; (3)
the old contract must be extinguished; and (4) there must be a valid new contract.
The parties did not unequivocally declare that the old obligation had been extinguished
by the issuance and the acceptance of the check or that the check would take the
place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or
order—a requisite for negotiability. Hence, petitioner cannot avail himself of the NIL’s
provisions on the liabilities and defenses of an accommodation party. Besides, a non-
negotiable note is merely a simple contract in writing and evidence of such intangible
rights as may have been created by the assent of the parties. The promissory note is thus
covered by the general provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An
accommodation party is liable for the instrument to a holder for value even if, at the time
of its taking, the latter knew the former to be only an accommodation party. The relation
between an accommodation party and the party accommodated is, in effect, one of
principal and surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissory debtor from the beginning. The liability
is immediate and direct.
 Travel-On, Inc. vs Court of Appeals

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

-accommodation party

FACTS:

Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets
on behalf of airline passengers and derived commissions therefrom. Miranda was sued
by petitioner to collect on the six postdated checks he issued which were all dishonored
by the drawee banks. Miranda, however, claimed that he had already fully paid and
even overpaid his obligations and that refunds were in fact due to him. He argued that
he had issued the postdated checks not for the purpose of encashment to pay his
indebtedness but for purposes of accommodation, as he had in the past accorded
similar favors to petitioner. Petitioner however urges that the postdated checks are per
se evidence of liability on the part of private respondent and further argues that even
assuming that the checks were for accommodation, private respondent is still liable
thereunder considering that petitioner is a holder for value.

ISSUE:

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

RULING:

There was no accommodation transaction in the case at bar. In accommodation

transactions recognized by the Negotiable Instruments Law, an accommodating party
lends his credit to the accommodated party, by issuing or indorsing a check which is held
by a payee or indorsee as a holder in due course, who gave full value therefor to the
accommodated party. The latter, in other words, receives or realizes full value which the
accommodated party then must repay to the accommodating party. But the
accommodating party is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated party. In the case at bar, Travel-
On was payee of all six (6) checks, it presented these checks for payment at the drawee
bank but the checks bounced. Travel-On obviously was not an accommodated party; it
realized no value on the checks which bounced. Miranda must be held liable on the
checks involved as petitioner is entitled to the benefit of the statutory presumption that it
was a holder in due course and that the checks were supported by valuable
consideration.
**In accommodation transactions recognized by the Negotiable Instruments Law, an
accommodating party lends his credit to the accommodated party, by issuing or
indorsing a check which is held by a payee or indorsee as a holder in due course, who
gave full value therefor to the accommodated party. In the case at bar, Travel-On was
the payee of all six (6) checks, it presented these checks for payment at the drawee
bank but the checks bounced. Travel-On obviously was not an accommodated party; it
realized no value on the checks which bounced.
 Gonzales v. Rizal Commercial Banking Corporation

G.R. No. 156294, 29 November 2006, 508 SCRA 459

FACTS:

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta against the
drawee bank Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., and payable
to Gonzales’ mother, defendant Eva Alviar (or Alviar). Alviar then endorsed this check.
Since RCBC gives special accommodations to its employees to receive the check’s
value without awaiting the clearing period, Gonzales presented the foreign check to
Olivia Gomez, Gonzales then received its peso equivalent of ₱155,270.85.

RCBC then tried to collect the amount of the check with the drawee bank by the latter
through its correspondent bank, the First Interstate Bank of California, on two occasions
dishonored the check because of “END. IRREG” or irregular indorsement. Insisting, RCBC
again sent the check to the drawee bank, but this time the check was returned due to
“account closed”. Unable to collect, RCBC demanded from Gonzales the payment of
the peso equivalent of the check that she received. Gonzales settled the matter by
agreeing that payment be made thru salary deduction.

The deductions was implemented starting October 1987. On March 7, 1988 RCBC sent a
demand letter to Alviar for the payment of her obligation but this fell on deaf ears as
RCBC did not receive any response from Alviar. Taking further action to collect, RCBC
then conveyed the matter to its counsel and on June 16, 1988, a letter was sent to
Gonzales reminding her of her liability as an indorser of the subject check and that for her
to avoid litigation she has to fulfill her commitment to settle her obligation as assured in
her said letter. On July 1988 Gonzales resigned from RCBC. What had been deducted
from her salary was only ₱12,822.20 covering ten months.

It was against the foregoing factual backdrop that RCBC filed a complaint for a sum of
money against Eva Alviar, Melva Theresa Alviar-Gonzales and the latter’s husband Gino
Gonzales. The spouses Gonzales filed an Answer with Counterclaim praying for the
dismissal of the complaint as well as payment of ₱10,822.20 as actual damages,
₱20,000.00 as moral damages, ₱20,000.00 as exemplary damages, and ₱20,000.00 as
attorney’s fees and litigation expenses. Defendant Eva Alviar, on the other hand, was
declared in default for having filed her Answer out of time.

ISSUE:

Whether or not Gomez should be held liable.

RULING:

No. The dollar-check3 in question in the amount of $7,500.00 drawn by Don Zapanta of
Ade Medical Group (U.S.A.) against a Los Angeles, California bank, Wilshire Center Bank
N.A., was dishonored because of “End. Irregular,” i.e., an irregular endorsement. While
the foreign drawee bank did not specifically state which among the four signatures found
on the dorsal portion of the check made the check irregularly endorsed, it is absolutely
undeniable that only the signature of Olivia Gomez, an RCBC employee, was a qualified
endorsement because of the phrase “up to ₱17,500.00 only.” There can be no other
acceptable explanation for the dishonor of the foreign check than this signature of Olivia
Gomez with the phrase “up to ₱17,500.00 only” accompanying it. This Court definitely
agrees with the petitioner that the foreign drawee bank would not have dishonored the
check had it not been for this signature of Gomez with the same phrase written by her.

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this
dollar-check drawn by Don Zapanta because of the defect introduced by RCBC,
through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned
in that state to its original payee, Eva Alviar.

There is no doubt in the mind of the Court that a subsequent party which caused the
defect in the instrument cannot have any recourse against any of the prior endorsers in
good faith. Eva Alviar’s and the petitioner’s liability to subsequent holders of the foreign
check is governed by the Negotiable Instruments Law as follows:

Sec. 66. Liability of general indorser. – Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or

both, as the case may be, according to its tenor, and that if it 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.

The matters and things mentioned in subdivisions (a), (b) and (c) of Section 65 are the
following:

(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 had capacity to contract;

Under Section 66, the warranties for which Alviar and Gonzales are liable as general
endorsers in favor of subsequent endorsers extend only to the state of the instrument at
the time of their endorsements, specifically, that the instrument is genuine and in all
respects what it purports to be; that they have good title thereto; that all prior parties had
capacity to contract; and that the instrument, at the time of their endorsements, is valid
and subsisting. This provision, however, cannot be used by the party which introduced a
defect on the instrument, such as respondent RCBC in this case, which qualifiedly
endorsed the same, to hold prior endorsers liable on the instrument because it results in
the absurd situation whereby a subsequent party may render an instrument useless and
inutile and let innocent parties bear the loss while he himself gets away scot-free. It
cannot be over-stressed that had it not been for the qualified endorsement (“up to
₱17,500.00 only”) of Olivia Gomez, who is the employee of RCBC, there would have been
no reason for the dishonor of the check, and full payment by drawee bank therefor
would have taken place as a matter of course.
 Ang v. Associated Bank

G.R. No. 146511, 5 September 2007

FACTS:

Respondent Associated Bank (formerly Associated Banking Corporation and now known
as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong
and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal
debtor and co-maker, respectively. Respondent Bank alleged that the defendants
obtained a loan of P50,000, evidenced by a promissory note no. 1, and P30,000,
evidenced by a promissory note no. 2. As agreed, the loan would be payable, jointly and
severally, on January 31, 1979 and December 8, 1978, respectively.

Despite repeated demands for payment, the latest of which were on September 13, 1988
and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively,
respondent Bank claimed that the defendants failed and refused to settle their
obligation, resulting in a total indebtedness.

Petitioner interposed the affirmative defenses that: the bank is not the real party in interest
as it is not the holder of the promissory notes, much less a holder for value or a holder in
due course; the bank knew that he did not receive any valuable consideration for
affixing his signatures on the notes but merely lent his name as an accommodation party;
he accepted the promissory notes in blank, with only the printed provisions and the
signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed
the notes upon the orders, instructions, or representations of his co-defendant; and that
the promissory notes did not indicate in what capacity he was intended to be bound.

ISSUE:

Whether the petitioner is liable to the obligation despite being merely a co-maker and
accommodation party.

RULING:

Yes. Notably, Section 29 of the NIL defines an accommodation party as a person “who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person.” As
gleaned from the text, an accommodation party is one who meets all the three
requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person. An accommodation party
lends his name to enable the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the instrument, knew him or her
to be merely an accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party

and the accommodated party is one of principal and surety – the accommodation party
being the surety. As such, he is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in relation to whatever
is adjudged touching the obligation of the latter since their liabilities are interwoven as to
be inseparable. Although a contract of suretyship is in essence accessory or collateral to
a valid principal obligation, the surety’s liability to the creditor is immediate, primary and
absolute; he is directly and equally bound with the principal. As an equivalent of a
regular party to the undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the obligations
nor does he receive any benefit therefrom.

Consequently, in issuing the two promissory notes, petitioner as accommodating party

warranted to the holder in due course that he would pay the same according to its tenor.
It is no defense to state on his part that he did not receive any value therefor because
the phrase “without receiving value therefor” used in Sec. 29 of the NIL means “without
receiving value by virtue of the instrument” and not as it is apparently supposed to mean,
“without receiving payment for lending his name.” Stated differently, when a third person
advances the face value of the note to the accommodated party at the time of its
creation, the consideration for the note as regards its maker is the money advanced to
the accommodated party. It is enough that value was given for the note at the time of
its creation. As in the instant case, a sum of money was received by virtue of the notes,
hence, it is immaterial so far as the bank is concerned whether one of the signers,
particularly petitioner, has or has not received anything in payment of the use of his
name.

Furthermore, since the liability of an accommodation party remains not only primary but
also unconditional to a holder for value, 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.
 Far Eastern Bank & Trust Company v. Gold Palace Jewelry Company

G.R. No. 168274, 20 August 2008, 562 SCRA 604

FACTS:

A foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace
Jewellery Co. several pieces of jewelry valued at P258,000.00. In payment of the same,
he offered a Foreign issued by the United Overseas Bank (Malaysia) addressed to the
Land Bank of the Philippines, and payable to the respondent company for P380,000.00.

Yang issued Cash Invoice, to the foreigner, informing him that the pieces of jewelry would
be released when the draft had already been cleared. Respondent Julie Yang-Go, the
manager of Gold Palace deposited the draft in the company’s Far East account. LBP
cleared the draft, and Gold Palace’s account with Far East was credited. The foreigner
was then able to get the goods, and because the amount in the draft was more than
the value of the goods purchased, she issued, as his change, Far East Check No. 173088
for P122,000.00. This check was later presented for encashment and was, in fact, paid by
the said bank.

After around three weeks, LBP informed Far East that the amount in said Foreign Draft
had been materially altered from P300.00 to P380,000.00 and that it was returning the
same. Intending to debit the amount from respondent’s account, Far East subsequently
refunded the P380,000.00 earlier paid by LBP. Meanwhile, Far East was able to debit only
P168,053.36 from the Gold Palace’s account as the respondent has already utilized their
funds. This was debited without their permission. The bank informed the Gold Palace later
thru a phone call.

On August 1998, petitioner demanded from respondents the payment of P211,946.

Because Gold Palace did not heed the demand, Far East consequently instituted civil
case for sum of money and damages before the RTC in Makati.

RTC ruled in favor of Far East that on the basis of its warranties as a general indorser, Gold
Palace was liable to Far East.

On appeal, the CA, reversed the ruling and held that Far East failed to undergo the
proceedings on the protest of the foreign draft or to notify Gold Palace of the draft’s
dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an
indorser.

ISSUE:

Whether or not Odrada is a holder in due course of the manager’s checks.

RULING:

No. Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance. His actual payment of the amount in the check implies not only
his assent to the order of the drawer and a recognition of his corresponding obligation to
pay the aforementioned sum, but also, his clear compliance with that obligation. In this
case, the drawee bank cleared and paid the subject foreign draft and forwarded the
amount thereof to the collecting bank. The latter, Far East, then credited to Gold
Palace’s account the payment it received. Following the plain language of the law, the
drawee, by the said payment, recognized and complied with its obligation to pay in
accordance with the tenor of his acceptance. Stated simply, LBP was liable on its
payment of the check according to the tenor of the check at the time of payment,
which was the raised amount.

SC also notes that Respondent Gold Palace was not a participant in the alteration of the
draft, was not negligent, and was a holder in due course—it received the draft complete
and regular on its face. Gold Palace relied on the drawee bank’s clearance and
payment of the draft. Respondent is also protected by the said Section 62. Commercial
policy favors the protection of any one who, in due course, changes his position on the
faith of the drawee bank’s clearance and payment of a check or draft.

The fault is in LBP; having the most convenient means to correspond with UOB, did not
first verify the amount of the draft before it cleared and paid the same. Gold Palace, on
the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. Thus, the collecting agent, Far East, should not have debited the
money paid by the drawee bank from respondent company’s account.

When Gold Palace deposited the check with Far East, the latter, under the terms of the
deposit and the provisions of the NIL, became an agent of the former for the collection
of the amount in the draft. Far East then was able to collect from LBP. As the transaction
in this case had been closed and the principal-agent relationship between the payee
(GoldPalace) and the collecting bank (Far East) had already ceased, the latter in
returning the amount to the drawee bank (LBP) was already acting on its own and should
now be responsible for its own actions. The drawee bank had no right to recover what it
paid.

Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely because
the said indorsement is only for purposes of collection which, under Section 36 of the NIL,
is a restrictive indorsement. It did not in any way transfer the title of the instrument to the
collecting bank. Far East did not own the draft, it merely presented it for payment.
Considering that the warranties of a general indorser as provided in Section 66 of the NIL
are based upon a transfer of title and are available only to holders in due course. Without
any legal right to do so, the collecting bank, therefore, could not debit respondent’s
account for the amount it refunded to the drawee bank.

SC ruled that, for doing so, Far East must return what it had erroneously taken. The remedy
under the law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration.