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RepublicofthePhilippines

SUPREMECOURT

Manila

G.R.Nos.L­25836­37January31,1981

THEPHILIPPINEBANKOFCOMMERCE,plaintiff­appellee,

vs.

JOSEM.ARUEGO,defendant­appellant.

FERNANDEZ,J.:

Thedefendant,JoseM.Aruego,appealedtotheCourtofAppealsfromtheorderoftheCourtofFirstInstanceof Manila,BranchXIII,inCivilCaseNo.42066denyinghismotiontosetasidetheorderdeclaringhimindefault, 1 and

fromtheorderofsaidcourtinthesamecasedenyinghismotiontosetasidethejudgmentrenderedafterhewasdeclaredin default. 2 These two appeals of the defendant were docketed as CA­G.R. NO. 27734­R and CA­G.R. NO. 27940­R, respectively.

UponmotionofthedefendantonJuly25,1960, 3 hewasallowedbytheCourtofAppealstofileoneconsolidatedrecord 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. 6 ThecomplaintfiledbythePhilippineBankofCommercecontainstwenty­two

(22)causesofactionreferringtotwenty­two(22)transactionsenteredintobythesaidBankandAruegoondifferentdates

coveringtheperiodfromAugust28,1950toMarch14,1951. 7 Thesumsoughttoberecoveredrepresentsthecostofthe printingof"WorldCurrentEvents,"aperiodicalpublishedbythedefendant.Tofacilitatethepaymentoftheprintingthe defendantobtainedacreditaccommodationfromtheplaintiff.Thus,foreveryprintingofthe"WorldCurrentEvents,"the printer,EncalPressandPhotoEngraving,collectedthecostofprintingbydrawingadraftagainsttheplaintiff,saiddraft beingsentlatertothedefendantforacceptance.AsanaddedsecurityforthepaymentoftheamountsadvancedtoEncal PressandPhoto­Engraving,theplaintiffbankalsorequireddefendantAruegotoexecuteatrustreceiptinfavorofsaidbank whereinsaiddefendantundertooktoholdintrustforplaintifftheperiodicalsandtosellthesamewiththepromisetoturnover totheplaintifftheproceedsofthesaleofsaidpublicationtoanswerforthepaymentofallobligationsarisingfromthedraft. 8

AruegoreceivedacopyofthecomplainttogetherwiththesummonsonDecember2,1959. 9 OnDecember14,1959

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)Whenthevariousbillsofexchangewerepresentedtothedefendantasdraweeforacceptance,theamounts

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. 13 OnMarch7,1960,actinguponthemotionfor

reconsiderationfiledbytheplaintiff,thetrialcourtsetasideitsorderdismissingthecomplaintandsetthecaseforhearingon March15,1960at8:00inthemorning. 14 Acopyoftheordersettingasidetheorderofdismissalwasreceivedbythe 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. 15 Onthesamedate,thedefendant filedhisanswertothecomplaintinterposingthefollowingdefenses:Thathesignedthedocumentuponwhichtheplaintiff suesinhiscapacityasPresidentofthePhilippineEducationFoundation;thathisliabilityisonlysecondary;andthathe believedthathewassigningonlyasanaccommodationparty. 16

OnMarch15,1960,theplaintifffiledanexpartemotiontodeclarethedefendantindefaultonthegroundthatthe

defendantshouldhavefiledhisansweronMarch11,1960.HecontendsthatbyfilinghisansweronMarch12,

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

ofthereglementaryperiod,March11,1960,withinofficehours,especiallybecausetheorderofthecourtdatedMarch7,

1960wasbroughttotheattentionofcounselonlyintheearlyhoursofMarch12,1960.Thedefendantalsoallegedthathe

hasagoodandsubstantialdefense.AttachedtothemotionaretheaffidavitsofdeputysheriffMamertodelaCruzthathe

servedtheorderofthecourtdatedMarch7,1960onMarch11,1960,at5:00o'clockintheafternoonandtheaffidavitofthe

defendantAruegothathehasagoodandsubstantialdefense. 19 Thetrialcourtdeniedthedefendant'smotiononMarch25, 1960. 20 OnMay6,1960,thetrialcourtrenderedjudgmentsentencingthedefendanttopaytotheplaintiffthesumof

P35,444.35representingthetotalamountofhisobligationtothesaidplaintiffunderthetwenty­two(22)causesofaction

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. 22 OnMay19,1960,thedefendantfiledamotionforreconsiderationofthetrialcourt'sorder dismissinghisappeal. 23 Theplaintiff,onMay20,1960,opposedthedefendant'smotionforreconsiderationoftheorder dismissingappeal. 24 OnMay21,1960,thetrialcourtreconsidereditspreviousorderdismissingtheappealandapproved thedefendant'srecordonappeal. 25 OnMay30,1960,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, 28 thetrialcourtdeniedthedefendant'smotiontosetasidethejudgmentby defaultinanorderofJune11,1960. 29 OnJune20,1960,thedefendantfiledhisnoticeofappealfromtheorderofthecourt denyinghismotiontosetasidethejudgmentbydefault,hisappealbond,andhisrecordonappeal.Thedefendant'srecord onappealwasapprovedbythetrialcourtonJune25,1960. 30 Thus,thedefendanthadtwoappealswiththeCourtof

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, surpriseorexcusableneglect,hemustshowtothecourtthathehasameritoriousdefense. 32 Inotherwords,in

ordertosetasidetheorderofdefault,thedefendantmustnotonlyshowthathisfailuretoanswerwasduetofraud,accident,

mistakeorexcusablenegligencebutalsothathehasameritoriousdefense.

TherecorddisclosesthatAruegoreceivedacopyofthecomplainttogetherwiththesummonsonDecember2,

1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on

December22,1960thelowercourtdismissedthecomplaint;thatonJanuary23,1960,theplaintifffiledamotionfor

reconsiderationandonMarch7,1960,actinguponthemotionforreconsideration,thetrialcourtissuedanorder

settingasidetheorderofdismissal;thatacopyoftheorderwasreceivedbythedefendantonMarch11,1960at

5:00o'clockintheafternoonasshownintheaffidavitofthedeputysheriff;andthatonthefollowingday,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

ThefirstdefenseofthedefendantisthathesignedthesupposedbillsofexchangeasanagentofthePhilippine

EducationFoundationCompanywhereheispresident.Section20oftheNegotiableInstrumentsLawprovidesthat

"Wheretheinstrumentcontainsorapersonaddstohissignaturewordsindicatingthathesignsfororonbehalfofa

principalorinarepresentativecapacity,heisnotliableontheinstrumentifhewasdulyauthorized;butthemere

additionofwordsdescribinghimasanagentorasfilingarepresentativecharacter,withoutdisclosinghisprincipal,

doesnotexempthimfrompersonalliability."

Aninspectionofthedraftsacceptedbythedefendantshowsthatnowherehashedisclosedthathewassigningas arepresentativeofthePhilippineEducationFoundationCompany. 34 Hemerelysignedasfollows:"JOSEARUEGO

(Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he accepted.

Thedefendantalsocontendsthathesignedthedraftsonlyasanaccommodationpartyandassuch,shouldbe

madeliableonlyafterashowingthatthedrawerisincapableofpaying.Thiscontentionisalsowithoutmerit.

Anaccommodationpartyisonewhohassignedtheinstrumentasmaker,drawer,indorser,withoutreceivingvalue

thereforandforthepurposeoflendinghisnametosomeotherperson.Suchpersonisliableontheinstrumenttoa

holderforvalue,notwithstandingsuchholder,atthetimeofthetakingoftheinstrumentknewhimtobeonlyan

accommodationparty. 35 Inlendinghisnametotheaccommodatedparty,theaccommodationpartyisineffectasuretyfor thelatter.Helendshisnametoenabletheaccommodatedpartytoobtaincreditortoraisemoney.Hereceivesnopartofthe considerationfortheinstrumentbutassumesliabilitytotheotherpartiestheretobecausehewantstoaccommodateanother. Intheinstantcase,thedefendantsignedasadrawee/acceptor.UndertheNegotiableInstrumentLaw,adraweeisprimarily liable.Thus,ifthedefendantwhoisalawyer,heshouldnothavesignedasanacceptor/drawee.Indoingso,hebecame primarilyandpersonallyliableforthedrafts.

Thedefendantalsocontendsthatthedraftssignedbyhimwerenotreallybillsofexchangebutmerepiecesof evidenceofindebtednessbecausepaymentsweremadebeforeacceptance.Thisisalsowithoutmerit.Underthe NegotiableInstrumentsLaw,abillofexchangeisanunconditionalorderinwrittingaddressedbyonepersonto another,signedbythepersongivingit,requiringthepersontowhomitisaddressedtopayondemandoratafixed ordeterminablefuturetimeasumcertaininmoneytoorderortobearer. 36 Aslongasacommercialpaperconforms

withthedefinitionofabillofexchange,thatpaperisconsideredabillofexchange.Thenatureofacceptanceisimportant

onlyinthedeterminationofthekindofliabilitiesofthepartiesinvolved,butnotinthedeterminationofwhetheracommercial

paperisabillofexchangeornot.

Itisevidentthenthatthedefendant'sappealcannotprosper.Tograntthedefendant'sprayerwillresultinanew trialwhichwillservenopurposeandwilljustwastethetimeofthecourtsaswellasofthepartiesbecausethe 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.594;Therulinginthiscaseissubstantiallythe

sameasSection3,Rule18oftheNewRulesofCourt.

33RecordonAppeal,pp.316­318,Rollo,p.14.

34Ibid.,pp.177­240.

35Section29,NegotiableInstrumentsLaw.

36Section126,NegotiableInstrumentsLaw.

37Ferrervs.YangSepeng,60SCRA149.

TheLawphilProject­ArellanoLawFoundation

36Section126,NegotiableInstrumentsLaw. 37Ferrervs.YangSepeng,60SCRA149. TheLawphilProject­ArellanoLawFoundation