CD: Philippine Bank of Commerce v. Aruego

September 7, 2010 at 10:42 am (1981, Case Digests) (, , )

PHILIPPINE BANK OF COMMERCE v. ARUEGO
G.R. No. L-25836-37 January 31, 1981
Fernandez, J.

Doctrines:
1. 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. One cannot be an accommodation party if he signs as a drawee/acceptor.

2. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

Facts:
Plaintiff instituted against Aruego a case for the recovery of Php. 35,000.00 with daily interest plus attorney’s fees. 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, the printer, Encal Press and Photo Engraving (EPPE), 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.

Defendant argued that he is an accommodating party hence shall be liable only secondarily. 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.

Issues:
1. Whether or not the defendant is an accommodation party
2. Whether or not the drafts signed were bills of exchange

Held:
1. No. Section 29 of the Negotiable Instruments Law (NIL) provides:

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, the defendant should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

2. Yes. Pursuant to Section 126 of the NIL, a bill of exchange is an unconditional order in writting addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

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