G.R. Nos. L-25836-37, 31 January 1981, 102 SCRA 530

FACTS:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in default, and from the order of said court in the same case denying his motion to set aside the judgment rendered after he was declared in default.

The Philippine Bank of Commerce instituted a complaint against Jose M. Aruego the recovery of the total sum of about P35,000.00 containing twenty-two (22) causes of action referring to the twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March 14, 1951.

The sum sought to be recovered represents the cost of the printing of “World Current Events,” a periodical published by the defendant. To facilitate the payment of the printing, the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the “World Current Events,” the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance.

As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft.

The defendant contended that he signed the bills of exchange referred to in the plaintiff’s complaint in a representative capacity, as the then President of the Philippine Education Foundation Company, publisher of “World Current Events and Decision Law Journal,” printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff bank and that defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the security of said plaintiff bank.

The reason for this statement is that unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in the case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect, although these documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional security of the same.

ISSUE:

Whether or not the defendant is just signing in a representative capacity and as accommodation party.

RULING:

An accommodation party is one who has signed the instrument as maker, 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. In the instant case, the defendant signed as a drawee/acceptor.

Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts. The defense of the defendant that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president is untenable. Signing as an acceptor and failing to disclose his principal, defendant is personally liable for the drafts he accepted.

Section 20 of the Negotiable Instruments Law 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 filing a representative character, without disclosing his principal, does not exempt him from personal liability.”

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.

*Case digest by Jay Mark P. Balbosa, JD-IV, Andres Bonifacio Law School, SY 2019-2020