Philippine Bank of Commerce V. Jose M.

Aruego (1961)

FACTS:
Jose Aruego obtained a credit accommodation from the Philippine Bank of Commerce to
facilitate the payment of printing of “World Current Events”, the periodical he is publishing.
Thus, for every printing of the periodical, the printer, Encal Press and Photo Engraving, collected
the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the amounts advanced to
Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a
trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff
the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of
the sale of said publication to answer for the payment of all obligations arising from the draft.
The Philippine Bank of Commerce instituted an action to recover the cost of printing of the
latter’s periodical (P35,000 with daily interest and commission for every 30 days) based on their
22 transactions. Aruego however argues that he signed the supposed bills of exchange in a
representative capacity as the President of the Philippine Education Foundation Company; that
his liability is only secondarily; and that he was signing only as an accommodation party to add
to the security of the bank. Lower courts: Ordered Aruego to pay PBC, declaring him in default.

ISSUE:
Whether/not Aruego can be held liable by the petitioner bank.
Whether/not Aruego is primarily and personally liable for the drafts.

HELD:
YES. Aruego is liable to the petitioner.
Section 20 of the Negotiable Instruments Law provides: "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent or as filing a representative character, without
disclosing his principal, does not exempt him from personal liability." An inspection of the drafts
accepted by the defendant shows that nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation Company. He merely signed as follows:
"JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO”.

YES. Aruego is primarily and personally liable for the drafts. An accommodation party is one
who has signed the instrument as maker, drawer, endorser, without receiving value therefor and
for the purpose of lending his name to some other person. Under the Negotiable Instruments
Law, a bill of exchange is an unconditional order in writing addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a
commercial paper conforms with the definition of a bill of exchange, that paper is considered a
bill of exchange. The nature of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a commercial paper is a
bill of exchange or not.