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CASE LIST 3

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1. PINEDA V.DE LA RAMA 121 SCRA 671 JED

Emergency recit: Dela Rama was a lawyer hired by Pineda to help him stop the
impending criminal case that will be filed by the National Rice and Corn
Administration's (NARIC) against Pineda for allegedly missapropriating 11,000
cavans of rice on account of the NARIC general manager being a friend of Dela
Rama. Pineda then issued a promissory note worth P9,300 to Dela Rama which
he thought will be used to "grease" the hands of NARIC officers.
Dela Rama then sued to collect on the check issued but Pineda contented that
the check is void for lack of valid consideration since check will be used for an
illegal purpose.

Held: SECTION 24. Presumption of consideration.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.
However, the presumption that a negotiable instrument is issued for a valuable
consideration is only prima facie. It can be rebutted by proof to the contrary. The
promissory note was executed for an illegal consideration since it will be used to
bride the NARIC officers. Because contracts "whose cause, object or purpose is
contrary to law, morals, good customs, public order and public policy; are
inexistent and void from the beginning." The promissory note is void ab initio and
no cause of action for the collection cases can arise from it.

Doctrine: 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.
However, the presumption that a negotiable instrument is issued for a
valuable consideration is only prima facie. It can be rebutted by proof to the
contrary.

Facts:
- Dela Rama was a lawyer hired by Pineda to help him stop the impending
criminal case that will be filed by the National Rice and Corn Administration's
(NARIC) against Pineda for allegedly missapropriating 11,000 cavans of rice on
stored in Pineda's ricemill in Tarlac.
- Dela Rama was hired he is the friend of the NARIC general manager.
- Because Pineda (client) allegedly used up all his funds to buy a big hacienda in
Mindoro, Dela Rama (lawyer) lent Pineda P9,300.00 secured by a promissory
note.
- Dela Rama then sued to collect to collect on the promissory note.
- The CFI of ruled in favor of Pineda because he signed the promissory note for
P9,300.00 only because he believed that this amount had already been advanced
to grease the palms of the 'Chairman and General Manager of NARIC. Since the
purpose was illegal, then the consideration for the promissory note was null and
void. As such dela rama can't collect.
- CA reversed the CFI saying: Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith.
In furtherance of this principle, Section 24 of the Negotiable instruments Law
provides 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

Issue: Whether the promissory note is void for lack of consideration.

HELD: Section 24 of the Negotiable Instruments Law reads:
Presumption
of
consideration.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.

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Sec. 24 -50

However, reliance on the above provision is misplaced. The presumption that a

negotiable instrument is issued for a valuable consideration is only prima facie. It
can be rebutted by proof to the contrary.

According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments,
both given in cash. He also alleged that previously he loaned P3,000.00 but
Pineda paid this other loan two days afterward.

These allegations of Dela Rama are belied by the promissory note itself. The
second sentence of the note reads - "This represents the cash advances made by
him (dela rama) in connection with my (pineda) case for which he is my attorney-
in- law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00
promissory note because he believed Dela Rama's story that these amounts had
already been advanced by Dela Rama and given as gifts for NARIC officials. It is
indeed unusual for a lawyer to lend money to his client whom he had known for
only three months, with no security for the loan and on interest.

Considering the foregoing, we agree that the promissory note was executed for
an illegal consideration.

Civil Code provides:
Art. 1409. The following contracts are
inexistent and void from the beginning:
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs, public
order and public policy;
xxx xxx xxx

Art. 1412. If the act in which the unlawful or

forbidden cause consists does not constitute
a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both
contracting parties, neither may recover what
he has given by virtue of the contract, or
demand the performance of the other's
undertaking.
The consideration for the promissory note - to influence public officers in the
performance of their duties - is contrary to law and public policy. The promissory
note is void ab initio and no cause of action for the collection cases can arise
from it.

2. PHIL BANK OF COMMERCE V. ARUEGO 102 SCRA 530 JECH

Emergency Recitation Facts: Aruego was the president of Philippine Educational
Foundation, who signed bills of exchange to cover sums owed to Encal Press and
Pluto Engraving for payment of costs of printing World Current Events, a
periodical that he published. The drawer of the bills was PBCom, wherein Aruego
had a credit accommodation to cover said payments. A trust receipt was also
issued covering the periodicals. PBCom instituted an action to recover P35,000
for 22 transactions made by Aruego. The lower court declared Aruego in default,
which was affirmed by the CA.

Held: Aruego is liable on the Bills as principal, he did not indicate therein that he
was merely acting as an agent of Philippine Educational Foundation. A party who
signs a Bill as an agent, but failed to disclose his principal becomes personally
liable for the drafts he accepted. An accommodation party is liable for the value
of the instrument. Aruego herein signed as drawee/acceptor, thus he is primarily
liable. As long as commercial paper is a Bill of Exchange, then it is such, and not

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just evidence of an indebtedness. Even though payments were made before

acceptance, the instrument is still a Bill of Exchange. The nature of the
acceptance is only important in determining liabilities involved. Lower court
order affirmed.

Facts:

Plaintiff bank instituted an action against defendant Aruego for recovery
of money it had paid on various drafts drawn against it and signed by
defendant as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO".
He filed his answer interposing as defenses that he signed the drafts in a
representative capacity, that he signed only as accommodation party,
and that the drafts were really no bills of exchange.
Declared in default for having filed his answer one day late, defendant
moved to set the order aside alleging that it could not have been
possible for him to file his answer, and that he had good and substantial
defenses.
The court denied the motion and rendered judgment by default.
Defendant appealed from both the orders denying his motions to set
aside the default order and the judgment by default, which appeals
were consolidated and certified to the Supreme Court by the Court of
Appeals.

Issue: Whether the defendant has a good and substantial defense.

Held: No, the defendant's appeal cannot prosper based on the defenses raised.

Ratio:

Representative capacity
Section 20 of the NIL provides that "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
filling 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 representative of the Philippine Education
Foundation Company. He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.

Accommodation Party
An accommodation party is one who has signed the instrument as maker,
drawer, acceptor, indorser, without receiving value therefor and for the purpose
of lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of the
taking of the instrument knew him to be only an accommodation party.

In the instant case, the defendant signed as a drawee/acceptor. Under the NIL, a
drawee is primarily liable. Thus, if the defendant who is a lawyer, really intended
to be secondarily liable only, he should not have signed as an acceptor/drawee.
In doing so, he became primarily and personally liable for the drafts.

Not Bills of Exchange
The defendant also contends that the drafts signed by him were not really bills of
exchange but mere pieces of evidence of indebtedness because payments were
made before acceptance. This is also without merit.
Under the NIL, 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

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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.

Order denying petition for relief was affirmed.

3. CLARK V. SELLNER 42 PHIL 384 ANGEL
Emergency Recit Sellner, along with two others, signed a promissory note in
favor of Clarke for P12,000. The note matured but the amount was not paid.
Sellner avers that he never received the amount stipulated in the note and he
was a mere accommodation party. The SC held that his liability on the note is not
dependent on whether or not he has received any part of the debt. Such is
immaterial insofar as the creditor is concerned. By signing the note, Sellner
placed himself in the same position as the other signers in favor of the creditor.
Furthermore, Clarke is a holder for value- so even assuming that Sellner was a
mere accommodation party, still Clarke has the right to demand payment from
him. The obligation assumed by Sellner was more of a surety, the
accommodation party acting as a surety to the accommodated one. That being
the case, the lapse of 4 years is immaterial when it comes to Clarkes right to
enforce payment thereof.

o
o
o

Sellner did not receive in that transaction either the whole or any
part of the amount of the debt;
The instrument was not presented to Sellner for payment;
Sellner, being an accommodation party, is not liable unless the
note is negotiated, which was not done, as shown by the evidence.

The Trial Court ruled in favor of Sellner. It took into account the following
factual circumstances:
o At the time of the maturity of the note, the collateral security given
to guarantee the payment was worth more than what was due on
the note, but it depreciated to such an extent that, at the time of
the institution of this action, it was entirely valueless.
o The case was not commenced until after the lapse of four years
from the date on which the payment fell due
o Seller has not received any part of the amount mentioned in the
note, he was of the opinion, and so decided, that Sellner could not
be held liable.
o The theory of the judge a quo was that Clark's failure to enforce the
guaranty for the payment of the debt, and his delay in instituting
this action constitute laches, which had the effect of extinguishing
his right of action.

Issue: Whether or not Sellner has an obligation to pay Clarke

Held:

FACTS:

On July 1 1914, George Sellner, in conjunction with two other persons,

signed a note in favor of R.N. Clark, providing that 6 months after date, for
value received, we jointly and severally promise to pay to the order of R. N.
Clark . the sum of twelve thousand pesos
o With interest rate at 10% per annum, payable quarterly
o In case of suit, attorneys fees of 10% of amount due
The note matured, but its amount was not paid.
Sellners counsel alleges that:

The judgment appealed from is reversed. Sellner is under obligation to pay the
Clarke the amount of twelve thousand pesos (P12,000), as principal debt, plus
one thousand two hundred pesos (P1,200), the sum agreed upon as attorney's
fees, and 10 per cent interest on the principal debt from July 1, 1914, until it is
fully paid, deducting therefrom the sum of three hundred pesos (P300) already
paid on account.
Ratio:

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Sec. 24 -50

Liability of signers when the whole or any part of the amount of the debt is not
received

The liability of Sellner, as one of the signers of the note, is not

dependent on whether he has, or has not, received any part of the
amount of the debt.
Sellner is really and expressly one of the joint and several debtors on
the note, and as such he is liable under the provisions of section 60 of
Act No. 2031, entitled The Negotiable Instruments Law, which
provisions should be applied in this case in view of the character of the
instrument.

Liability when instrument upon payment

As to presentment for payment, such action is not necessary in order to

charge the person primarily liable, as is Sellner. (Sec. 70, Act No. 2031.)

Defense of laches cannot be applied in this case

Liability of accommodation parties

As to whether or not Sellner is an accommodation party, it should be

taken into account that by putting his signature to the note, he lent his
name, not to the creditor, but to those who signed with him placing
himself with respect to the creditor in the same position and with the
same liability as the said signers.
It should be noted that the phrase "without receiving value therefor,"
as used in section 29 of the aforesaid Act, means "without receiving
value by virtue of the instrument" and not, as it apparently is supposed
to mean, "without receiving payment for lending his name." If, as in the
instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the
singers has, or has not, received anything in payment of the use of his
name.
In reality the legal situation of Sellner in this case may properly be
regarded as that of a joint surety rather than that of an accommodation
party.

Sellner, as a joint surety, may, upon the maturity of the note,

pay the debt, demand the collateral security and dispose of it
to his benefit; but there is no proof whatever that this was
done.
As to Clark, he is the "holder for value," under the phrase of said section
29, for he had paid the money to the signers at the time the note was
executed and delivered to him.
o "Holder" means the payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof.
o And as such holder, he has the right to demand payment of the
debt from the signer of the note, even though he knows that
said person is merely an accommodation party, assuming
Sellner to be such, which, as has been stated, is not the case.
o

There is no sufficient ground for applying the theory that Clarks failure
to enforce the guaranty for the payment of the debt, and his delay in
instituting this action constitute laches, thus, extinguishing his right of
action.
Sellners position being a joint surety, he may, at any time after the
maturity of the note, make payment, thus subrogating himself in the
place of the creditor with the right to enforce the guaranty against the
other signers of the note for the reimbursement of what he is entitled
to recover from them.
The mere delay of the creditor in enforcing the guaranty has not by any
means impaired his action against the defendant. It should not be lost
sight of that the defendant's signature on the note is an assurance to
the creditor that the collateral guaranty will remain good, and that
otherwise, he, the defendant, will be personally responsible for the
payment.
If the creditor had done any act whereby the guaranty was impaired in
its value, or discharged, such an act would have wholly or partially
released the surety
o BUT it is a recognized doctrine in the matter of suretyship that
with respect to the surety, the creditor is under no obligation

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to display any diligence in the enforcement of his rights as a

creditor.
o His mere inaction, indulgence, passiveness, or delay in
proceeding against the principal debtor, or the fact that he did
not enforce the guaranty or apply on the payment of such
funds as were available, constitute no defense at all for the
surety, unless the contract expressly requires diligence and
promptness on the part of the creditor, which is not the case in
the present action.
In some decisions, there is a tendency toward holding that the
creditor's laches may discharge the surety, meaning by laches a
negligent forbearance.
o This theory, however, is not generally accepted and the courts
almost universally consider it essentially inconsistent with the
relation of the parties to the note.

4. PNB V. MAZA 48 PHIL207 MAITI

Emergency Recit: Maza and Mecenas made 5 promisory notes in favor of PNB
worth P10k each. However, these were not paid at maturity. Their obligations
accumulated to P65k with interest and so PNB sued for collection of money.
Maza and Mecenas argue, as their defense, that they did not really make those
promisory notes. Echaus made them sign the instruments so that he (Echaus) can
negotiate them to PNB. They petitioned for Echaus to be impleaded but to no
avail. The issue to be decided on is whether or not Maza and Mecenas are liable
as to the issued promisory notes. SC held that yes, they are liable even if they are
only deemed as accommodation parties.

Doctrine:
Accommodation parties, having signed the instruments without

receiving value therefor and for the purpose of lending their names to some
other person, are still liable on the instruments.
I think this is the pertinent provision in NIL.

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.

Facts:
PNB is suing Ramon Maza and Francisco Mecenas on 5 promisory notes
worth P10,000 each
2 were made on Jan 20 1921, due 3 months after date
3 were made on Jan 21 1921, due 4 months after date
one of the notes reads as follows:

After three months of the date, jointly and severally pay to the order of the
Philippine National Bank, Iloilo, Iloilo, I. F., the amount of ten thousand (P10, 000)
pesos in the Philippine National Bank.

Iloilo, I. F.

Value Received.

No. 340 Payable on 4/20/21



RAMOS MAZA


FRANCISCO MECENAS

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Sec. 24 -50

notes were not taken up by Maza and Mecenas at maturity

obligations with accumulated interest totaled= P65k on Sept 22, 1924
PNB filed action in CFI Iloilo against Maza and Mecenas to recover the
amounts in the promisory notes
special defense of Maza and Mecenas:
that the promisory notes were sent to them in blank by Echaus
with the request that they sign them so that he can negotiate
them with PNB in case of need
that they didn't negotiate the promisory notes with the bank
nor have they received the value thereof or delivered them to
the bank in payment of any pre-existing debt
it was Enrique Echaus who negotiated the noted with the bank
and who is accordingly the real party in interest and the party
liable for the payment of the notes
that Echaus should be included as a defendant
Trial judge denied, judgement rendered in favor of PNB and Maza and
Mecenas are jointly and severally liable for P65k with 9% interest on
P20k a day, and 9% interest on P30k from Sept 23 1924
Maza and Mecenas appealed, assigning 4 errors:
refusing to include Echaus as a party (it is not evident that Echaus
was an indispensable party)
The other three error go to the merits and rest on the same
foundation as the special defense.
Maza and Mecenas admit the genuineness and due execution of the
instruments sued on

Issue: WON Maza and Mecenas are liable for the promisory notes worth P65k?


Held:

From the pleadings and the stipulation of facts, it is deduced that the defendants
admit the genuineness and due execution of the instruments sued on . Neither
do the appellants point out any mistake in regard to the amount and interest
that the lower court sentenced them to pay to the plaintiff bank. Predicated on
these premises, from whatever point of view we look at the case, we arrive at
the same conclusion that the defendants are liable.


Ratio:

On the first assumption that Maza and Mecenas were the principals and Echaus
the agent, as argued by counsel for the appellee, the principals must fulfill their
obligations. On another assumption, which is a fact, that the defendants are
exactly what they appear to be, the makers of the negotiable instruments, then
they must keep their engagement and must pay as promised. Their liability on
the instruments is primary and unconditional.

The most plausible and reasonable stand for the defendants (Maza and
Mecenas) is that they are accommodation parties. but as accommodation
parties, the defendants (Maza and Mecenas) having signed the instruments
without receiving value therefor and for the purpose of lending their names to
some other person, are still liable on the instruments. The law now is that the
accommodation party can claim no benefit as such, but he is liable according to
the face of his undertaking, the same as if he were himself financially interested
in the transaction.

The defense is made to the action that the defendants never received the value
of the promissory notes. it is, of course, fundamental that an instrument given
without consideration does not create any obligation at law or in equity in favor
of the payee. However, to fasten liability upon an accommodation maker, it is
not necessary that any consideration should move to him. The consideration

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Sec. 24 -50

which supports the promise of the accommodation maker is that parted with by
the person taking the note and received by the person accommodated.

While perhaps unnecessary to this decision, it may properly be remarked
that when the accommodation parties make payment to the holder of the notes,
they have the right to sue the accommodated party for reimbursement, since the
relation between them is in effect that of principal and sureties, the
accommodation parties being the sureties.


5. SADAYA V. SEVILLA 19 SCRA 924 DONDON

Emergency Recit: Victor Sevilla, Oscar Varona, and Simeon Sadaya executed a
promissory note, jointly and severally, for Php15,000 with interest 8% per annum
in favour of BPI or its order, payable on demand. Varona received the entire
Php15,000 alone and Sadaya and Sevilla in reality only signed as co-makers of the
PN as a favour to Varona. After partial payments, there remained a balance of
Php5,746.12 which BPI ended up collecting from Sadaya as a co-maker, solidary
guarantor of the PN to BPI. Sadaya sought reimbursement from Varona but
Varona wasnt able to pay him back.
Subsequently, Sevilla died and during his intestate estate proceedings, Sadaya
sought to recover reimbursement for half of the Php5,746.12 that he paid out to
BPI by filing a creditor claim. He contends that he is entitled to reimbursement
since they are joint and several accommodation makers of the PN and therefore
must share the burden equally.
The administrator of Sevillas estate opposed this claim saying that Sevilla did not
receive any consideration from the PN and that he merely signed as a surety.
Issue: W/N Sadayas creditor claim against Sevillas intestate estate proceedings
will prosper. NO IT WONT!

Held: CA Ruling affirmed. Sadaya cannot claim from Sevilla

While the general rule is that co-accommodation makers can seek

reimbursement from other co-accommodation makers, there are requisites
before this can be done. These rules were derived from Art. 2073 of the Civil
Code:
A joint and several accommodation maker who pays the said PN 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. The principal debtor is insolvent
In this case, the CA found that Sadaya paid BPI voluntarily and without judicial
demand. Also, there was no showing that Varona was insolvent. Hence, Sadaya
cannot claim from Sevilla.

SANCHEZ, J:

FACTS:
March 28, 1949 Victor Sevilla, Oscar Varona, and Simeon Sadaya
executed a promissory note, jointly and severally, for Php15,000 with
interest 8% per annum in favour of BPI or its order, payable on demand.
The entire Php15,000 was received by Varona alone Sevilla and Sadaya
signed as co-makers of the PN as a favour to Varona
Partial payments were made to BPI but a balance of Php4,850 remained
October 6, 1952 BPI collected from Sadaya a total of Php5,746.12
(representing the balance + interests)
Sadaya made numerous demands to Varona for the sum paid but
Varona failed to reimburse him
Subsequently, Victor Sevilla died and his intestate estate proceedings
were started in CFI Rizal - Francisco Sevilla was named administrator

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Sec. 24 -50

During the proceedings, Sadaya tried to get reimbursement for the

Php5,746.12 he paid to BPI from fellow co-maker Sevilla by filing a
creditor claim in his intestate estate proceedings
o He claimed for Php5,746.12 plus Php1,500 attorneys fees
Administrator Francisco Sevilla opposed claim. Bases for contention
1) Victor Sevilla didnt receive any amount as consideration
for the PN (Varona got all the money)
2) He only signed as a surety of Varona
RTC Ruling (June 5, 1957) order administrator to pay Sadaya
Php5,746.12 (wrong ruling)
CA Ruling (July 15, 1960) reversed. Disapprove and disallow claim of
Php5,746.12 against the intestate estate (correct ruling)

Sadaya Contention:
Sadaya now seeks reversal of CA Ruling and prays for a new claim of
Php2,873.06 (50% of the previous total balance of Php 5,746.12)
Basis: Sevilla and Sadaya were joint and several accommodation makers
of the Php15,000 PN
o Although they didnt receive any value, they did it for the
purpose of lending their names to Varona
o Their liability to BPI upon the explicit terms of the PN is joint
and several

ISSUES:
W/N Sadaya has the right to be reimbursed by Varona YES
W/N Sadaya has the right to be reimbursed by the intestate estate of
Sevilla - NO

HELD: CA Judgment hereby AFFIRMED.

RATIO:

To clarify:
The relation between the 3 consigners of the PN and BPI joint and
several
However, what is important in this case is to:
1) Determine the relation of the 3 consigners with respect to each other
2) Determine their rights against each other flowing from this relationship

General Rule: 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.
Reason This right springs from the implied promise between the
accommodation makers to share EQUALLY the burdens that may ensue
from their having consented to stamp their signatures on the PN

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,
as JOINT GUARANTORS of the principal debtor
They all didnt receive anything so in misfortune, their burdens should
be equally spread

HOWEVER, there are requisites before an accommodation-maker can seek
reimbursement from a co-accommodation maker:
Art 18 Civil Code in matters not covered by the special laws, their deficiency
shall be supplied by the provisions of this Code.
There is nothing in the Negotiable instruments law pertaining to the
right of an accommodation maker to seek reimbursement from another.
Hence, Art. 2073 Civil Code will apply.

Art. 2073:

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Sec. 24 -50

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 judicial demand or unless the principal
debtor is insolvent.

From this provision, the rules therefore are:
2) A joint and several accommodation maker of a negotiable PN may
demand from the principal debtor reimbursement for the amount he
paid to the payee
3) A joint and several accommodation maker who pays the said PN 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. The principal debtor is insolvent

In the case at bar, CA found Sadayas payment to BPI as voluntary and without
any judicial demand.
Also, there is no showing that Varona was insovent.

Hence, Sadaya DOES NOT have the right to demand reimbursement from the
share proportionally owing Sevilla.

6. REPUBLIC BANK V. EBRADA 65 SCRA 680 ZEP

EMERGENCY RECIT (dead original payee, reimbursement) Bureau of Treasury

issued a back pay check to Martin Lorenzo worth P1,246.08. The check was
indorsed to Justina Tinio, then Delia Dominguez and then Mauricia Ebrada.
Ebrada encashed with the Republic Bank, the drawee Republic Bank paid amount
of the check to Ebrada. Ebrada, gave it to Dominguez; Dominguez gave cash to
Tinio. Later, Bureau of Treasury notified that check was a forgery because the
payee Martin Lorenzo was dead 11 years before the check was issued. Republic
Bank refunded the amount to the Bureau of Treasury. The bank then demanded
1
Ebrada to refund them.

BT

M. Lorenzo

Tinio

Dominguez

Ebrada

Ebrada
Dominguez
Tinio







ISSUE: Whether or not Republic Bank may recover from Ebrada - YES

As the last indorser, she warranted the genuineness of the signatures of the
payee and the previous indorsers.
The drawee bank is not duty bound
to ascertain whether or not the
signatures of the payee and the
indorsers are genuine. One who

1 Drawer: BT
Drawee: Republic Bank
Lorenzo, Dominguez, Ebrada

Payee: M. Lorenzo (defect

Indorsers: R.

RB

NEGO CASE LIST 3

Sec. 24 -50

purchases a check or draft is bound

to satisfy himself that the paper is
genuine and that by indorsing it or
presenting it for payment or putting
it
into
circulation
before presentation he
impliedly
asserts that he has performed his
duty and the drawee who has paid
the forged check, without actual
negligence on his part, may recover
the money paid from such negligent
purchasers.

Even if Ebrada did not profit because she gave the encashment to Dominguez,
she is still liable because she is considered as an 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.

FACTS

Treasury of the Philippines issued Check No. BP-508060, payable to the

order of MARTIN LORENZO, in the sum of P1,246.08, and drawn on the
Republic Bank.

That the back side of aforementioned check bears the following

signatures, in this order:
o

MARTIN LORENZO;

JUSTINA TINIO;

ADELAIDA DOMINGUEZ; and

MAURICIA T. EBRADA;

The check was delivered to defendant MAURICIA T. EBRADA by

ADELAIDA DOMINGUEZ, for the purpose of encashment

After EBRADA received the cash proceeds of said check, she

immediately turned over the amount to ADELAIDA DOMINGUEZ, who in
turn handed amount to TINIO.

Republic Bank was later advised by Bureau of Treasury that the alleged
indorsement on the reverse side of the check by the payee, Martin

Lorenzo was a forgery because Martin Lorenzo had allegedly died prior

to the issuance of the check.

Republic Bank was requested by the Bureau of Treasury to refund the

amount of P1,246.08.

NEGO CASE LIST 3

Sec. 24 -50

To recover what wasrefunded to the Bureau of Treasury, Republic Bank

made demands upon Ebrada.

Ebrada claimed that she was holder in due course or at the very least
she has acquired her rights from a holder in due course and was entitled
to the proceeds thereof.

CFI ordered Ebrada to pay Republic Bank.

Ebrada appealed to the CA.

Republic Bank should suffer the loss when it paid the amount of the
check in question to Ebrada, but it has the remedy to recover from the
latter the amount it paid to her. As last indorser of the check, Ebrada
has warranted that she has good title to it even she did not have it
because the payee of the check was already dead 11 years before the
check was issued. The fact that immediately after receiving title cash
proceeds of the check in question in the amount of P1,246.08 from the
Republic Bank, she turned over amount to the other parties, she is not
exempt her from liability. She acted as an accommodation party in the
check for which she is also liable under section 29 of NIL .
o

ISSUE
Whether or not Republic Bank may recover from Ebrada? Generally, does the
existence of one forged signature render void all the other negotiations of the
check with respect to the other parties whose signature are genuine?
HELD
Only the negotiation based on the forged or unauthorized signature is
inoperative. Negotiation of the check from Martin Lorenzo, the original payee,
to the second indorser, should be declared of no affect. But the negotiation to
Adelaida Dominguez, the third indorser, and from Adelaida Dominguez to the
defendant-appellant who did not know of the forgery, should be considered valid
and enforceable, barring any claim of forgery.

HELD

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.

As last indorser, Ebrada was supposed to have warranted that she has
good title to said check;
o

Section 65 of the Negotiable Instruments Law: Every person

negotiating an instrument by delivery or by qualified
indorsement, warrants That the instrument is genuine and in all
respects what it purports to be. That she has good title to it.

Every indorser who indorses without qualification warrants to

all subsequent holders in due course: The matters and things
mentioned in subdivisions (a), (b), and (c) of the next preceding
sections; That the instrument is at the time of his indorsement
valid and subsisting.

NEGO CASE LIST 3

are genuine, warranty not extending only to holders in due

course.

The signature of the original payee of the check, Martin Lorenzo was a
forgery because he was already dead 7 almost 11 years before the check
in question was issued by the Bureau of Treasury.
o

Sec. 24 -50

Under Section 23 of the Negotiable Instruments Law: When a

signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and
no right to retain the instruments, or to give a discharge thereof
against any party thereto, can be acquired through or under
such signature unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or
want of authority.

The drawee of a check can recover from the holder the money
paid to him on a forged instrument.

It is not supposed to be the drawees duty to ascertain whether

the signatures of the payee or indorsers are genuine or not.
This is because the indorser is supposed to warrant to the
drawee that the signatures of the payee and previous indorsers

One who purchases a check or draft is bound to satisfy himself

that the paper is genuine.

Drawee who has paid the forged check, without negligence on

his part, may recover the money paid from such negligent
purchasers

The reason for allowing the drawee bank to recover from the
encasher is:

Where the signature on a negotiable instrument is forged, the

negotiation of the check is without force or effect.

Ebrada, upon receiving the check in question from Adelaida Dominguez,

was duty-bound to ascertain whether the check in question was genuine
before presenting it to plaintiff Bank for payment. Her failure to do so
makes her liable for the loss and the plaintiff Bank may recover from her
the money she received for the check. As reasoned out above, had she
performed the duty of ascertaining the genuineness of the check, in all
probability the forgery would have been detected and the fraud
defeated.

Every one with even the least experience in business

knows that no business man would accept a check in
exchange for money or goods unless he is satisfied
that the check is genuine. He accepts it only because
he has proof that it is genuine, or because he has
sufficient confidence in the honesty and financial
responsibility of the person who vouches for it.

Where a check is drawn payable to the order of one person and is

presented to a bank by another and purports upon its face to have been
duly indorsed by the payee of the check, it is the duty of the bank to
know that the check was duly indorsed by the original payee, and where
the bank pays the amount of the check to a third person, who has
forged the signature of the payee, the loss falls upon the bank who
cashed the check, and its only remedy is against the person to whom it
paid the money.
7. UNITED INDUSTRIES V. PALER 112 SCRA 404 KARL

NEGO CASE LIST 3

Sec. 24 -50

Emergency Recit: Paler bought a TV set from United. To secure payment thereof,
he issued a promissory note for the amount of P2,690 and constituted a chattel
mortgage on said TV. Paler sold said TV. Pursuant to a violation of the chattel
mortgage, United filed a criminal action against Paler for estafa. Paler and de la
Rama, as an accommodation party, settled the criminal case extra-judicially by
issuing another promissory note. United made repeated demands, but Paler and
de la Rama failed to pay. CFI rendered judgment sentencing Paler and de la
Rama to pay United with the addition of interest and attorneys fees. Paler and
de la Rama, claim in their appeal that the complaint should have been dismissed
because the obligation sought to be enforced by United against them arose or
was incurred in consideration for the compounding of a crime. Under the law and
jurisprudence, there can be no recovery against de la Rama who incidentally
appears to have been an accommodation signer only of the promissory note
which is vitiated by the illegality of the cause. However, the same cannot be said
against Paler who had another obligation to United aside from the promissory
note.

Appeal from a decision of the CFI of Manila

Facts:
-
January 1962: Jose Paler and his wife (Paler) purchased from United
General Industries, Inc. (United) 1 Zenith 23 television set on an
instalment basis.
-
To secure payment of the purchase price, Paler issued a promissory note
for the amount of P2,690 and constituted a chattel mortgage on said TV
set.
-
Pursuant to a violation of the terms and conditions of the chattel
mortgage (Paler sold the TV set), United filed a criminal action against
Paler for estafa.
-
Paler and his co-accused, Jose de la Rama (de la Rama) settled the
criminal case extra-judicially and executed in Uniteds favour a
promissory note for the amount of P3,083.58 (issued by de la Rama as
an accommodation party).
-
United made repeated demands for payment, Paler and de la Rama
failed to pay the aforementioned amount with 1% interest per month
from April 11,1964.

Paler and de la Rama admit the fact that they executed a promissory
note dated April 11, 1964 in favor of plaintiff in the amount of
P3,083.58, with 12% interest per annum. They further admit the fact
that said obligation has not been paid the plaintiff notwithstanding
repeated demands made.
CFI rendered judgement, sentencing said Paler and de la Rama to pay
United the sum of P3,083.58, with 12% interest thereon per annum
from the date the complaint was filed on October 14, 1965 until full
payment is made and attorney's fees in the sum of P250.00. With costs.

Issue:

W/N the complaint should be dismissed (only in relation to de la Rama
for he was an accommodation party)

Ratio:
-
Paler and de la Rama, claim in their appeal that the complaint should
have been dismissed because the obligation sought to be enforced by
United against them arose or was incurred in consideration for the
compounding of a crime.
o Arroyo v Berwin: an agreement to stifle the prosecution of a
crime is manifestly contrary to public policy and due
administration of justice and will not be enforced in a court of
law.
-
Under the law and jurisprudence, there can be no recovery against Jose
de la Rama who incidentally appears to have been an accommodation
signer only of the promissory note which is vitiated by the illegality of
the cause.
-
But it is different with Jose Paler who did not pay for the TV set and
even sold the set without the written consent of the mortgagee which
accordingly brought about the filing of the estafa case. He has an
obligation independent of the promissory note which was co-signed by
Jose de la Rama. For Paler to escape payment of a just obligation will
result in unjust enrichment at the expense of another.
-
Art 19 Civil Code: Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. Art. 2208: attorney's fees and

NEGO CASE LIST 3

Sec. 24 -50

expenses of litigation, other than judicial costs, can be recovered

"Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim."

WHEREFORE, the judgment of the court a quo is modified to excluding Jose de la
Rama therefrom and increasing the award for attorney's fees to P1,000.00; it is
affirmed in all other respects. Triple costs.

Doctrine: The accommodation party is liable to the holder for value of the
instrument in the capacity that he signed. There can be no recovery against an
accommodation signer of the promissory note which is vitiated by the illegality of
the cause.




8. PRUDENCIO V. CA 143 SCRA 6 GASTON

EMERGENCY RECIT: Facts: Prudencios mortgaged their parcel of land to the PNB
and signed a promissory note as an accommodation maker for the Construction
Company. These documents were signed by the Prudencios as a favor to Toribio,
their relative and agent of the Company, in order to finance a construction
project undertaken by the Company for the Bureau of Public Works. A deed of
assignment was executed by Toribio, an agent of the Company, assigning to PNB
the payment the Company was to receive for its services to Bureau. On the
instance of PNB and the Bureau, the payments were applied to further finance
the construction project instead to pay back the loan. The Company defaulted on
its loan. Thus, the Prudencios were held solidarily liable for the promissory note.
Furthermore, the PNB moved to foreclose on the REM. RTC and CA ruled against
the Prudencios.
Held: Prudencios are solidarily liable because of their status as accommodation
makers. However, they need not pay because PNB is not a holder for value as

contemplated in Section 29 of the NIL. This is because PNB acted with bad faith
and thus cannot be considered a holder in due course.

I.
Facts

This is a petition for review seeking to annul the decision of 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 Prudencios are the registered owners of a parcel of land located in
Sampaloc, Manila,
The Concepcion & Tamayo Construction Company (Company), had a
pending contract with the Bureau of Public Works, (Bureau):
o For the construction of the municipal building in Puerto
Princess, Palawan,
o Consideration in the amount of P36,800.00.
Since the Company needed funds for said construction, Toribio,
Prudencios relative, and attorney-in-fact of the Company, approached
the Prudencios and asked them to mortgage their property to secure
the loan of P10,000.00 with the PNB.
After some persuasion, Prudencios signed the 'Amendment of Real
Estate Mortgage',
o Mortgaging their said property to the PNB to guaranty the loan
of P10,000.00 extended to the Company.
o Registered with the Register of Deeds of Manila.
The promissory note covering the loan of P10,000.00 maturing on April
27, 1956, was signed by Toribio and by the Prudencios.
o Prudencios 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.

NEGO CASE LIST 3

Sec. 24 -50

On the same date (December 23, 1955) that the 'Amendment of Real
Estate Mortgage' was executed, Toribio executed also the 'Deed of
Assignment':
o 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 to be applied as
payment of the loan.
Despite the instructions in the Deed of Assignment, the Bureau, with
the concurrence of the PNB, applied the payments to the labor and
materials used in the Palawan Project.
o The Bureau made three payments to the Company on account
of the contract price totaling P11,234.40.
o 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, the
Bureau rescinded the construction contract and assumed the work of
completing the building.
Subsequently, the Prudencios 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 Prudencios, which entitled
the latter to a cancellation of their mortgage contract.
o Failing in their bid to have the real estate mortgage cancelled,
the Prudencios filed an action against the PNB, the Company,
Toribio, and the District Engineer of Puerto Princesa, Palawan,
seeking the cancellation of their real estate mortgage.

TRIAL COURT

Trial court rendered judgment, denying the prayer in the complaint that
the Prudencios be absolved from their obligation under the mortgage
contract and that the said mortgage be released or cancelled.
o Prudencios were ordered to pay jointly and severally with their
co-makers Ramon C. Concepcion and Manuel M. Tamayo
(partners of the now defunct Company) the sum of P11,900.19
with legal interest

CA
The CA affirmed the trial court's decision in toto stating that,
o As accommodation makers, the Prudencios liability is that of
solidary co-makers, and
o 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 PNB of partial payments to the Company which
was also one of the solidary debtors cannot constitute a valid
defense on the part of the other solidary debtors.
o Moreover, those who rendered services and furnished
materials in the construction are preferred creditors and have a
lien on the price of the contract."
o Further, PNB had no obligation whatsoever to notify the
Prudencios of its authorizing the three payments in the total
amount of P11,234.00 in favor of the Company because aside
from the fact that the Prudencios 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 Prudencios
every time it authorizes payment to the Company.
o CA ruled that the Prudencios cannot ask to be released from
the REM.

II.
Issues

NEGO CASE LIST 3

1)
2)

III.

Sec. 24 -50

W/N CA ERRED IN HOLDING THAT PRUDENCIOS WERE SOLIDARY CO-

DEBTORS INSTEAD OF SURETIES
W/N CA ERRED IN HOLDING THAT PRUDENCIOS WERE NOT RELEASED
FROM THEIR OBLIGATION TO THE PNB, WHEN: THE PNB, WITHOUT THE
KNOWLEDGE AND CONSENT OF PRUDENCIOS, CHANGED THE TENOR
AND CONDITION OF THE ASSIGNMENT OF PAYMENTS MADE BY THE
PRINCIPAL DEBTOR, THE COMPANY; AND RELEASED TO SUCH PRINCIPAL
DEBTOR PAYMENTS FROM THE BUREAU WHICH WERE MORE THAN
ENOUGH TO WIPE OUT THE INDEBTEDNESS TO THE PNB.

Held
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 PNB is
ordered to release the real estate mortgage constituted on the property
of the petitioners and to pay the amount of THREE THOUSA`ND PESOS
(P3,000.00) as attorney's fees.

IV.
Ratio

SC Addresses Both Contentions
Section 29 of the Negotiable Instrument Law: 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 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.
There is, therefore, no question that as accommodation makers,
Prudencios 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 Prudencios 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.

SC Finds Another Basis to Free Prudencios 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.
o 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).

NEGO CASE LIST 3

Sec. 24 -50

In the case at bar, can PNB, the payee of the promissory note be considered a
holder in due course?

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
o 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.
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 PNB.
Not only was PNB an immediate party or in privy to the promissory
note, that is, it had dealt directly with the Prudencios knowing fully well
that the latter only signed as accommodation makers but more
important, it was the Deed of Assignment executed by the Company in
favor of PNB which principally moved the Prudencios to sign the
promissory note also in favor of PNB.
Prudencios 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 Toribio, on behalf of
the Company,
o "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
o "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 Prudencios.
This, notwithstanding, PNB approved the Bureau's release of three
payments directly to the Company instead of paying the same to the
Bank.
o This approval was in violation of the Deed of Assignment and
without any notice to the Prudencios 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 cannot 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.
We, therefore, hold that respondent PNB is not a holder in due course.
Thus, the Prudencios 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.

NEGO CASE LIST 3

Sec. 24 -50

9. CRISOLOGO V. SANTOS and CA NORBY

Emergeny Recit: A check was issued by ATTY. BENARES, in accommodation of his
(personal) CLIENTS, to JOSE. The check used was one of Mover Enterprises, of
which BENARES is a President of, and SANTOS is the VP. This check was
eventually dishonored for lack of funds. JOSE refused a check issued to replace
the dishonored check, and so these funds were consigned to the court. JOSE
avers the SANTOS is not the accommodation party here, but it is actually Mover
Enterprises. Court ruled that it is indeed SANTOS who is the accommodation
party, given that he co-signed (with BENARES) the check as maker. Assuming
arguendo that Mover is the accommodation party, no recourse against it can be
had because the act of a corporation in signing as an accommodation party is null
and void, these being ultra vires. In other words, Sec. 29 of the NIL does not
apply to corporations.

Facts:
The parties are substantially agreed on the following facts as found by both
lower courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover
Enterprises, Inc. in-charge of marketing and sales;
President of the said corporation was Atty. Oscar Z. Benares (BENARES).
On April 30, 1980, ATTY. BENARES, in accommodation of his clients, the
spouses Jaime and Clarita Ong (CLIENTS), issued a Check drawn against
Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00.
Check was payable to defendant Ernestina Crisologo-Jose (JOSE).
Since the check was under the account of Mover Enterprises, Inc., the
same was to be signed by its president, BENARES, and the treasurer of the
said corporation.

However, since at that time, the treasurer of Mover Enterprises was not
available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr.
(SANTOS), to sign the aforesaid check as an alternate story. This he did.
It appears this check was issued to Jose in consideration of a waiver by Jose
over a property which the GSIS agreed to sell to the clients of Benares. Upon
approval of the GSIS of a certain compromise with the Clients, the check can be
encashed.
However, since the compromise agreement was not approved on time, so
Benares signed and issued a replacement check. This was for the same
amount, same payee (Jose), and signed also by VP Santos.
When Jose deposited this, it was dishonored for insufficiency of funds.
A subsequent redepositing of the said check was likewise dishonored by the
bank for the same reason.
Hence, defendant through counsel was constrained to file a criminal complaint
for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office
against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr.
Meanwhile, during the preliminary investigation of the criminal charge against
Benares and Santos, Santos tendered cashier's check for P45,000.00 dated
April 10, 1981 to the defendant Jose. This cashiers check was purchased by
Benares and given to Santos to be applied as payment of the dishonored
check.
The defendant refused to receive the cashier's check in payment of the
dishonored check in the amount of P45,000.00. Hence, plaintiff encashed the
aforesaid cashier's check and subsequently deposited (consigned) said amount
of P45,000.00 with the Clerk of Court.
Trial Court said consignation here is not proper.
Court of Appeals reversed and set aside said judgment of dismissal and revived
the complaint for consignation, directing the trial court to give due course
thereto.

Issues:

NEGO CASE LIST 3

Sec. 24 -50

1. W/N Court of Appeals erred in holding that SANTOS, one of the signatories of
the check issued under the account of Mover Enterprises, Inc., is an
accommodation party under the Negotiable Instruments Law and a debtor of
JOSE to the extent of the amount of said check. (i.e. whether the
accommodation party is Mover Enterprises or Santos) - SANTOS IS
ACCOMMODATION PARTY
2. W/N the CA erred in ruling that the consignation done by Santos was proper. -
YES
3. W/N the CA virtually prejudged the criminal aspects of this case in this civil suit
and is incorrect in doing so. - YES

Ratio:
The pertinent provision of said law referred to provides:
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.
Consequently, to be considered an accommodation party, a person must (1) be
a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2)
not receive value therefor, and (3) sign for the purpose of lending his name for
the credit of some other person.
Based on the foregoing requisites, it is not a valid defense that the
accommodation party did not receive any valuable consideration when he
executed the instrument. From the standpoint of contract law,
accommodation party differs from the ordinary concept of a debtor therein in
the sense that he has not received any valuable consideration for the
instrument he signs.
Nevertheless, he is liable to a holder for value as if the contract was not
for accommodation in whatever capacity such accommodation party
signed the instrument, whether primarily or secondarily. Thus, it has been

held that in lending his name to the accommodated party, the

accommodation party is in effect a surety for the latter.
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in
this case, as Jose suggests, the inevitable question is whether or not it may be
held liable on the accommodation instrument, that is, the check issued in favor
of herein petitioner. We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, although
such holder at the time of taking the instrument knew him to be only an
accommodation party, [Sec. 29] does not include nor apply to corporations
which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party.
If the form of the instrument, or the nature of the transaction, is such as
to charge the indorsee with knowledge that the issue or indorsement of
the instrument by the corporation is for the accommodation of another,
he cannot recover against the corporation thereon.
By way of exception, an officer or agent of a corporation shall have the power
to execute or indorse a negotiable paper in the name of the corporation for
the accommodation of a third person only if specifically authorized to do so.
Corollarily, corporate officers, such as the president and vice-president, have
no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation
to matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or
operations, the inescapable conclusion in law and in logic is that the
signatories thereof shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.

NEGO CASE LIST 3

Sec. 24 -50

If we indulge Jose in her aforesaid postulation, then she is effectively barred

from recovering from Mover Enterprises, Inc. the value of the check. Be that as
it may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an
accommodation paper does not thereby absolve, but should render personally
liable, the signatories of said instrument where the facts show that the
accommodation involved was for their personal account, undertaking or
purpose and the creditor was aware thereof.
That it was a personal undertaking of said corporate officers was apparent to
Jose by reason of her personal involvement in the financial arrangement and
the fact that, while it was the corporation's check which was issued to her for
the amount involved, she actually had no transaction directly with said
corporation.
____________________________

On the issue of consignation, Jose's submission is that no creditor-debtor
relationship exists between the parties, hence consignation is not proper. This
argument was premised on the assumption that private respondent Santos is
not an accommodation party. As this issue has been settled above, Santos is
deemed a debtor of Jose, and given the proper requisites, consignation can be
had as a proper remedy.
________________________________

On the 3rd issue, basically the CA started talking about the specifics of the
criminal case (violation of BP 22), when the case referred to it was wholly civil
in character. SC remanded to the trial court the Criminal aspect of this case,
and told CA not to interfere.

10. TRAVEL ON V. CA 210 SCRA 351 CJ

Emergency Recit: Travel-On is a travel agency, while respondent Miranda
procures tickets from Travel-On on behalf of passengers and collects commission

therefrom. Travel-On delivered to Miranda various tickets, which were paid for
by Miranda using 6 post dated checks. The checks were dishonored by drawee
banks. Miranda claims that the checks were just were issued for accommodation
(check below) and only for show, and he had already fulfilled his obligationand
in fact had overpaid. Travel-On meanwhile alleges that the postdated checks are
evidence that Miranda still has a standing obligation to them. Trial court and CA
ruled for Miranda. Issue: W/N the postdated checks are per se evidence of
liability on the part of Miranda to Travel-On? Held: Yes. 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
thereto for value. Miranda has the burden to prove that he has no obligation
under the checks. SC rules for Travel-On.

I. FACTS
FELICIANO, J.:
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 travel-
on.
o He procured tickets from petitioner on behalf of airline passengers
and derived commissions therefrom.
Travel-On filed suit before the CFI of Manila to collect on 6 checks issued by
Miranda with a total face amount of P115,000.00.
The complaint averred that Travel-On sold and delivered various airline
tickets to Miranda at a total price of P278,201.57;
o Miranda paid some in cash, and further issued 6 postdated checks
amounting to P115,000.00 which were all dishonored by the
drawee banks.
Miranda, claimed that he had already fully paid and even overpaid his

NEGO CASE LIST 3

Sec. 24 -50

obligations and that refunds were in fact due to him.

o He argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to
Travel-On.
o 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,
Miranda testified that he had issued the checks in the name of Travel-On in
order that its General Manager could show to Travel-On's Board of Directors
that the accounts receivable of the company were still good.
o 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-Ons general manager, Elita Montilla, explained that the
"accommodation" extended to Travel-On by Miranda 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.
o The passenger then paid Travel-On upon his return to Manila

CFI:
Ruled in favor of Miranda, ordering Travel-On to pay 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.
CA:
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.
Issue: W/N the postdated checks are per se evidence of liability on the part of
Miranda to Travel-On?
Held: YES

Ratio:
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 Travel-On did not show that Miranda had an outstanding
balance of P115,000.00 which is the total amount of the checks he
issued.
The lower courts ruled against Travel-On because the figures
representing private respondent's unpaid accounts found in the
"Schedule of Outstanding Account" did not tally with the figures found
in the statement which showed Mirandas indebtedness.
o SC however said that it was simply not updated and that a
simple examination would lead one to the correct figure.
The fact alone that the various statements of account had variances in
figures, simply did not mean that private Miranda had no more financial
obligations to Travel-on. It must be stressed that Mirandas 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.
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 thereto for value.
o The mere introduction of the instrument sued on in
evidence prima facie entitles the Travel-On to recovery.
o 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 evidence.

NEGO CASE LIST 3

Sec. 24 -50

The CA placed the burden of proving the existence of valuable

consideration upon Travel-On. This cannot be countenanced; it was up
to Miranda to show that he had indeed issued the checks without
sufficient consideration.
o 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 respondent Miranda by
petitioner Travel-On.
The fact that all the checks issued by Miranda to Travel-On were
presented for payment by the latter would lead to no other conclusion
than that these checks were intended for encashment.
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:
o 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 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.
Travel-On was entitled to the benefit of the statutory presumption that
it was a holder in due course, that the checks were supported by
valuable consideration.
o Private respondent maker of the checks did not successfully
rebut these presumptions.
o The only evidence aliunde that private respondent offered was
his own self-serving uncorroborated testimony.
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.
o 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.
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 Miranda who issued bad
checks and then pretended to have "accommodated" petitioner's

NEGO CASE LIST 3

Sec. 24 -50

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 of the
Court of Appeals, 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, plus ten percent (10%) of the total amount due
as attorney's fees. Costs against Private respondent.

11. TOWN SAVINGS AND LOAN BANK V. CA 223 SCRA 459 MARIANA

Emergency Recit: Hipolitos loaned P700,000 with interest of 24% per annum
from Town Savings and Loan Bank via a promissory note that said it would
mature in 3 years, included an acceleration clause upon default and a fee for
penalties. They defaulted on payment. They refused to pay because they claimed
to be merely guarantors for Reyes, who benefited from the loan. She needed
their signatures so the bank could give her the loan that she applied for because
TSLB may not lend any single borrower more than the authorized limit of its loan
portfolio. The sole issue is whether or not the Hipolitos are liable on the
promissory note which they executed in favor of the petitioner. Court held that
the Hipolitos were accommodation parties. Under Section 29 of the Negotiable
Instruments Law, the Hipolitos are liable to the bank on the promissory note that
they signed to accommodate Reyes.


GRIO-AQUINO, J.:

FACTS

Petition for review on certiorari. Previous cases:
o RTC of Bulacan - declared that the Hipolitos were
accommodation parties on the promissory note and holding
them liable to pay Town Savings And Loan Bank the sum of

P1,392, 600.00
CA Reversed the decision of RTC. Hipolitos did not
accommodate Pilarita but the TSLB, whose lending authority
was restricted by the size of its loan portfolio. The Hipolitos
were relieved from any liability to TSLB

Hipolitos applied for, and were granted, a loan in the amount of

P700,000.00 with interest of 24% per annum for which they executed
and delivered to Town Savings and Loan Bank (or TSLB) a promissory
note with
o a maturity period of three (3) years
o an acceleration clause upon default in the payment of any
amortization
o a penalty of 36% and 10% attorney's fees, if the note were
referred to an attorney for collection

Hipolitos defaulted on May 24, 1984. Demands for payment ignored. By
the institution of the action, the obligation reached P1,114,983.40
Hipolitos claim:
o They were not personally liable on the P700,000 promissory
note because it was allegedly for the account of Pilarita H.
Reyes.
o Reyes was a real party-in-interest.
o Hipolitos were merely guarantors
o Only signed the PN because they were persuaded by Joey
Santos, president of TSLB.
o When they received the demand letters, they confronted him
but they were told that the Bank had to observe the formality
of sending notices and demand letters. The real purpose was
only to pressure Pilarita to comply with her undertaking.
Hipolitos didnt want to be dragged into the litigation as principal
parties. Incurred actual damages = P200,000 and Attorneys Fees
P30,000

ISSUE/HELD

NEGO CASE LIST 3

Sec. 24 -50

W/N the Hipolitos are liable on the promissory note which they executed in favor
of the petitioner. YES.

RATIO:

An accommodation party is one who has signed the instrument as marker,
drawer, indorser, without receiving value therefor and for the purpose of lending
his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the
instrument knew him to be only an accommodation party. In lending his name to
the accommodated party, the accommodation party is in effect a surety for the
latter. He 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 parties thereto because he wants to accommodate
another. (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540.)

Hipolitos signed the promissory note in order to enable Reyesto borrow the total
sum of P1.4 million from TSLB. The actual beneficiary of the loan was Reyes and
no other. The Hipolitos accommodated her by signing a promissory note for half
of the loan that she applied for because TSLB may not lend any single borrower
more than the authorized limit of its loan portfilio. Under Section 29 of the
Negotiable Instruments Law, the Hipolitos are liable to the bank on the
promissory note that they signed to accommodate Pilarita.

Hipolitos allegation that it was the banks president who induced him to sign the
PN was uncorroborated by any evidence on record. Their intention in signing was
for Reyes to be able to obtain the full amount of the loan that she needed.

No agreement here, written or verbal, that in signing the promissory note,
Hipolitos were acting as agents for the money lender the Bank. The consideration
of the note signed by the Hipolitos was received by them through Pilarita. They
acted as agents of Pilarita, not of the bank. They signed the promissory note as
favor to Pilarita, to help her raise the funds that she needed. It was Pilarita whom
they accommodated, not the bank, contrary to the erroneous finding of the
appellate court.

WHEREFORE, the petition for review is GRANTED. The appealed decision of the
Court of Appeals is hereby REVERSED and that of the trial court is REINSTATED.
Costs against the private respondents.

SO ORDERED.

Cruz, Bellosillo and Quiason, JJ., concur.

Doctrines:

o An accommodation party is one who has signed the instrument as
marker, drawer, indorser, without receiving value therefor and for the
purpose of lending his name to some other person. Such person is liable
on the instrument to a holder for value, notwithstanding such holder, at
the time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the accommodated party,
the accommodation party is in effect a surety for the latter. He 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 parties thereto because he wants to
accommodate another.
o Under Section 29 of the Negotiable Instruments Law, the Hipolitos are
liable to the bank on the promissory note that they signed to
accommodate Pilarita.




12. CLAUDE P. BAUTISTA V. AUTO PLUS TRADERS 2008 GR 166405 LEX

Emergency Recit:
Bautista, as President and Presiding Officer of Cruiser Bus Lines and Transport
Corporation, purchased various spare parts from Auto Plus Traders, Inc. and
issued 2 postdated checks to cover his purchases. The checks were subsequently
dishonored. Bautista was charged for violation of BP22. According to Auto Plus,

NEGO CASE LIST 3

Sec. 24 -50

Bautista, by issuing his check to cover the obligation of the corporation, became
an accommodation party. The Court held that there is no agreement that
Bautista shall be held liable for the corporation's obligations in his personal
capacity. The third requisite in Sec.29 of NIL is lacking in this case. Hence, without
clear proof, Bautista cannot be held liable for the value of the two checks issued.

August 06, 2008
QUISUMBING, J.:

I. FACTS

Bautista, as President and Presiding Officer of Cruiser Bus Lines and
Transport Corporation, purchased various spare parts from Auto Plus
Traders, Inc. and issued 2 postdated checks to cover his purchases. The
checks were subsequently dishonored. Auto Plus then executed an
affidavit-complaint for violation of BP.22.

Information states that Bautista: xxx knowing fully well that he had no
sufficient funds and/or credit with the drawee bank, wilfully, unlawfully
and feloniously issued and made out Rural Bank of Digos, Inc. Check No.
058832, dated December 15, 2000, in the amount of P151,200.00, in
favor of Auto Plus Traders, Inc., but when said check was presented to
the drawee bank for encashment, the same was dishonored for the
reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite notice of
dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment to the damage and
prejudice of herein complainant xxx

Bautista pleaded not guilty.

MTC: Bautista guilty. Ordered to pay Auto Plus P248,700.00
representing the value of the two checks, with interest at the rate of

12% per annum to be computed from the time of the filing of these
cases in Court, until the account is paid in full.

RTC: Modified decision. Bautista directed to pay the following sums: (1)
P248,700.00 representing the value of the two checks, with interest at
the rate of 12% per annum to be computed from the time of the filing of
these cases in Court, until the account is paid in full; (2) P1,780.00 for
filing fees and P5,000.00 as cost of litigation.

CA: Affirmed decision of RTC.

Bautista asserts that the corporation, which has a separate personality

from its officers, is solely liable for the value of the two checks.

Auto Plus alleged that Bautista issued 2 postdated checks: a personal

check in his name for the amount of P151,200 and a corporation check
under the account of Cruiser Bus Lines and Transport Corporation for
the amount of P97,500. According to Auto Plus, Bautista, by issuing his
check to cover the obligation of the corporation, became an
accommodation party. Under Section 29 of the Negotiable Instruments
Law, an accommodation party is liable on the instrument to a holder for
value.

Issue
Whether the CA erred in upholding the RTC's ruling that Bautista, as an officer of
the corporation, is personally and civilly liable to Auto Plus for the value of the
two checks.

Held:
Bautista is not liable, Cruiser Bus Lines and Transport Corporation is.

NEGO CASE LIST 3

Sec. 24 -50

Ratio:

The debts are clearly corporate debts for which only Cruiser Bus Lines
and Transport Corporation should be held liable.

Juridical entities have personalities separate and distinct from its
officers and the persons composing it. Generally, the stockholders and
officers are not personally liable for the obligations of the corporation
except only when the veil of corporate fiction is being used as a cloak or

cover for fraud or illegality, or to work injustice. These situations,
however, do not exist in this case.

The evidence shows that it is Cruiser Bus Lines and Transport
Corporation that has obligations to Auto Plus Traders, Inc. for tires.
There is no agreement that Bautista shall be held liable for the
corporation's obligations in his personal capacity. Hence, he cannot be
held liable for the value of the two checks issued.

Bautista cannot be considered liable as an accommodation party for
Check No. 58832. Section 29 of the Negotiable Instruments Law 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 first two elements are present here, however
there is insufficient evidence presented in the instant case to show the
presence of the third requisite. All that the evidence shows is that
Bautista signed Check No. 58832, which is drawn against his personal
account. There is no showing in what capacity Bautista issued the
check. In the absence of concrete evidence it cannot just be assumed
that he intended to lend his name to the corporation. Hence, Bautista
cannot be considered as an accommodation party.

13. SIAIN ENTERPRISES INC. V CUPERTINO REALTY GR 170782 20091 GEORGINA

EMERGENCY RECIT Siain and Cupertino entered into a contract of loan for 35M
secured by a PN and a REM to be used as payment for Siain's obligations to DBP.
They later on amended the PN by adding a 17% interest per annum. After a
while, Siain signed another PN for 160M with a 30%/annum compounding
interest in favour of Cupertino, with Siain's president Cue Le Leng signing in
behalf of Siain and as a co-maker. Then, they amended the REM to reflect the
additional 160M loan. thus, 197M was annotated. However, Siain demanded
from Cupertino to release the 160M, but Cupertino said that it had already done
so, even before Siain signed the 2nd PN. Cupertino foreclosed the REM and Siain
filed for a restraining order. Siain contends that the PN was made without a
consideration since Cupertino failed to release the 160M. Thus, the PN and
foreclosure of the REM was void.

However, SC ruled that the PN on its face is presumed to be for a
valuable consideration, and he that declares otherwise has the burden of proof.
Moreover, between the verbal denial of Siain and the evidence of Cupertino
(which is the series of transaction), the latter has more bearing.

(Corp)
The 160M was received by Siain through its affiliate companies (Siain Transport
Inc and Yuyek Manufacturing), they have the same incorporators and board of

NEGO CASE LIST 3

Sec. 24 -50

directors, internal auditor, office address, and majority stockholder is Cue Le

Leng. some of the REM were also properties of the affiliate companies

FACTS
-April 10, 1995, Siain obtained a loan from Cupertino for an amount of 37M
pesos, secured by a promissory note
(signed by Cue LeLeng (Siain) and Wilfred Lao (Cupertino), respective presidents)

-The PN stated:


-money would be put in escrow (held by) in Metrobank and
Metrobank would apply the


money as payment of
Siain's obligations to DBP.

-Loan was also secured by a REM over 2 parcels of land and immovables
such as equipments and
machineries

-After 2 days, they amended the PN, provided a 17%/ annum

- August 16, 1995, Siain signed another PN from Cupertino (160M)

-Cue Le Leng, president of Siain, signed as a maker on behalf of Siain,
and as a co-maker
personally liable to Cupertino

-compounding interest of 30%/annum

-payable on 1st day of the month

-penalty of THREE PERCENT (3%) per month on the total amount/sum
due until fully paid

-On same date, they amended their REM to reflect the total loan worth (197M)

-March 11, 1996, Siain demanded from Cupertino the release of 160M, which
Cupertino maintained that it had already done so.
- Cupertino instituted extrajudicial foreclosure of the REM, which prompted Siain
to file a restraining order against the foreclosure

- Siain contends:

-it was only for 37M, and non-interest bearing

-made payments of 7.9M as initial payment and 29M as balance, but
Cupertino refused, saying

7.9M only applies to the interest

-amended REM, for the additional loan of 160M, however, even after
registration of REM,


Cupertino still did not release said
amount.
-Cupertino:

-there was a stipulated interest of 17%

- no payment was ever made

-Siain has already received the amount of prior to the execution PN and
amendment of REM
-Pre-trial was conducted but no agreement was reached.
TC and COA = foreclosure was valid,


amended REM had a consideration, Siain received the 160M

ISSUE

WON there was a valuable consideration given for the PN-yes
RATIO:
All the loan documents, on their face, unequivocally declare petitioners
indebtedness to Cupertino:

1. Promissory Note dated April 10, 1995, prefaced with a [f]or value
received, and the escrow arrangement for the release of the P37,000,000.00
obligation in favor of DBP, another creditor of petitioner.

2. Mortgage likewise dated April 10, 1995 executed by petitioner to
secure its P37,000,000.00 loan obligation with Cupertino.

3. Amendment to Promissory Note for P37,000,000.00 dated April
12, 1995 which tentatively sets the interest rate at seventeen percent (17%) per
annum.

NEGO CASE LIST 3

Sec. 24 -50

4. Promissory Note dated August 16, 1995, likewise prefaced with

[f]or value received, and unconditionally promising to pay
CupertinoP160,000,000.00 with a stipulation on compounding interest at thirty
percent (30%) per annum. The Promissory Note requires, among others, the
execution of a real estate mortgage to serve as collateral therefor. In case of
default in payment, petitioner, specifically, through its president, Cua Le Leng,
authorizesCupertino to dispose of said security or any part thereof at [a] public
sale.

5. Amendment of Real Estate Mortgage also dated August 16, 1995
with a recital that the mortgagor, herein petitioner, has increased its loan
payable to the mortgagee, Cupertino, from P37,000,000.00 to P197,000,000.00.
In connection with the increase in loan obligation, the parties confirmed and
ratified the Real Estate Mortgage dated April 10, 1995.

Unmistakably, from the foregoing chain of transactions, a presumption
has arisen that the loan documents were supported by a consideration.

Moreover,
SEC. 24. of NIL states that
Presumption of consideration. 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.


Siain had the burden of proof to establish that no consideration was given.
However, the evidence it presented were self serving

1. verbal denial

2. Journal Receipt Book during 1995 (cashflow of Siain)


-Moreover, as what Cupertino contended, Siain received the
money even before the

execution of the PN.

Loan proceeds were used by Siain affiliate companies (Siain Transport Inc and
Yuyek Manufacturing)
even some of the items under the mortgages were properties of its affiliate
companies

SIAIN ENTERPRISES, INC. v. CUPERTINO REALTY CORP. and EDWIN CATACUTAN
Version 2

DOCTRINE:
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. (Sec. 24 of the NIL)
Disputable presumptions are satisfactory if uncontradicted and not
overcome by other evidence
(1) That there was sufficient consideration for a contract and (2) That a
negotiable instrument was given or indorsed for a sufficient
consideration are disputable presumptions (Rule 131, Sec.3 of Rules of
Court)
FACTS:
Siain Enterprises, Inc. (SIAIN) is engaged in the manufacturing and
retailing/wholesaling business. Cupertino Realty Corp. (CUPERTINO) is
engaged in the realty business.
Siain obtained a loan of P37M from Cupertino covered by a promissory
note signed by their presidents, Cua Le Leng (Siain) and Wilfredo Lua
(Cupertino).
o The promissory note authorizes Cupertino, as the creditor, to
place in escrow the loan proceeds of P37M with Metropolitan
Bank and Trust Company to pay off Siains loan obligation with
Development Bank of the Philippines. This promissory note
indicated the words for valued received and the
unconditional promise to pay P37M.
o The promissory note evidencing their loan agreement did not
provide any stipulation with respect to interest.
o To secure the loan, Siasi executed a Real Estate Mortgage (2
parcels of land and other immovables) in favor of Cupertino.

NEGO CASE LIST 3

Sec. 24 -50

Two days after, Siasi and Cupertino executed an amendment to

promissory note providing for a 17% interest per annum on the P37M
loan. Their presidents likewise signed the amendment.
Subsequently, Siasi obtained an additional loan of P160M from
Cupertino.
o To cover the additional loan, Cua Le Leng (president of Siain)
signed a second promissory note as maker, on behalf of Siain,
and as co-maker, liable to Cupertino in her personal capacity.
This promissory note likewise indicated the words for valued
received and the unconditional promise to pay P160M.
o On the same day, Siasi and Cupertino executed an amendment
of real estate mortgage preparatory to the promised release by
Cupertino of additional loan proceeds (P160M)
Note that the total loan now is P197M (P37M + P160M)
Siain, through counsel, wrote Cupertino and demanded the release of
the P160M load increase covered by the amendment of real estate
mortgage.
o According to Siain, despite repeated verbal demands,
Cupertino did not release the additional loan of P160M
Cupertino, also through its counsel, responded and denied that it had
yet to release the P160M. They maintained that Siain had long obtained
the P160M.
o Note that at the time Siain demanded the P160M from
Cupertino, Cupertino had already sent a letter demanding from
Siain the payment of the P37M loan covered by the first
promissory note.
For failure to pay, Cupertino instituted extrajudicial foreclosure
proceedings over the properties subject of the amended real estate
mortgage.
o The institution of the extrajudicial foreclosure proceedings over
the property prompted Siain to file a complaint with a prayer
for a restraining order to enjoin Notary Public Catacutan
(commissioned to conduct the auction sale) from proceeding
with the public auction.
RTC: dimissed Siains complaint. CA: affirmed RTCs ruling. Both courts
upheld the validity of the amended real estate mortgage. Both courts

held that Siain failed to overcome and debunk Cupertinos evidence that
the amended real estate mortgage had a consideration, and that Siain
did receive the amount of P160M representing its incurred obligation to
Cupertino. Between bare denial and negative evidence of non-receipt of
the P160M and Cupertinos affirmative evidence on the existence of the
consideration, the latter must be given more weight and value.
ISSUES:
W/N the amended real estate mortgage is void as Siain alleges that they did not
receive the agreed consideration of P160M.
HELD:
The amended real estate mortgage is valid.
RATIO:
1. All the loan documents declare Siains indebtedness to Cupertino. These
loan documents presented were: (1) Promissory note covering P37M
prefaced with for valued received (2) Mortgage executed to secure
the P37M loan (3) Amended Promissory Note for P37M setting an
interest rate of 17% per annum (4) Promissory note covering P160M
prefaced with for valued received (5) Amendment of Real estate
mortgage
2. From the chain of transactions, a presumption has arisen that the loan
documents were supported by a consideration.
a. Section 24 of the Negotiable Instruments Law indicates that
every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person
whose signature appears thereon have become a party thereto
for value.
b. Rule 131, Section 3 of the Rules of Court states that a
disputable presumption is satisfactory if uncontradicted and
not overcome by other evidence
i. The disputable presumptions that arose from the case
are (1) that there was sufficient consideration for a
contract and (2) that a negotiable instrument was
given or indorsed for a sufficient consideration.
c. Siain was not able to contradict these presumptions. They
failed to substantiate its claim of non-receipt of the proceeds of
the P160M loan increase despite the allowance given by the

NEGO CASE LIST 3

3.

Sec. 24 -50

courts to present evidence and prove the invalidity of the

Amended Real Estate Mortgage.
i. They had the burden of proof: duty to present a
preponderance of evidence to establish its claim. But
their evidence only consisted of a barefaced denial of
such receipt
During trial, Siain presented its cash journal receipt book. The court was
not persuaded by the presentation of such evidence
a. It only contained cash receipts for the year 1995. The
components of the P197M amended real estate mortgage had
all taken place prior to 1995, hence, they could not have been
recorded therein.
b. It also appears that the journal was prepared solely at the
order of Siains president, Cue Le Leng, therefore self-serving
and cannot be given any serious credibility

(OTHER ALLEGATIONS OF SIAIN)
1. Siain vaguely drew a theory that in their previous loan transaction with
Cupertino covered by the first promissory note, it did not receive the
proceeds of the P37M.
a. The court held that in this theory, Siain conveniently ignored
the fact that the first promissory note secured by the real
estate mortgage was under an escrow arrangement and taken
out to pay its obligation to DBP. Obviously, they would not be
in possession of the proceeds of the loan for it was under such
escrow arrangement.
b. Hence, there was no precedent to explain its stance that
Cupertino undertook to release the P160M loan only after it
had first signed the Amended Real Estate Mortgage.

(NOT CONNECTED TO NEGO)
ISSUE:
W/N the doctrine of piercing the veil of corporate fiction should be applied in
this case
HELD:
Yes, it should be applied.

RATIO:
A corporations separate and distinct legal personality may be disregarded and
the veil of corporate fiction pierced when the notion of legal entity is