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Philippine Bank of Commerce v. Jose M. Aruego

January 31, 1981Fernandez

alycat - The case mentions nothing about a check, which is the topic this is under. I think the case should have been under bills of exchange

SUMMARY: PBC instituted a civil action against Aruego for the recovery of P35,000. The sum represents the cost of printing a periodical published by Aruego. To facilitate payment of the printing, Aruego obtained a credit accommodation from PBC. So, for every printing, Encal collected the cost of printing by drawing a draft against Aruego, such draft being sent to PBC for acceptance. As added security, PBC asked Aruego to execute a trust receipt in favor of the bank. Both the trial court and SC held that Aruego is liable.

DOCTRINE: 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 this definition, it is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties, but not in the determination of whether or not a commercial paper is a bill of exchange.

FACTS: (Read the first two bullets for the Nego part. The rest is procedural.) The Philippine Bank of Commerce (PBC) instituted a civil

action against Jose M. Aruego for the recovery of P35,000. The sum represents the cost of printing “World Current

Events,” a periodical published by Aruego. To facilitate payment of the printing, Aruego obtained a credit accommodation from PBC. So, for every printing, Encal Press and Photo Engraving (Encal) collected the cost of printing by drawing a draft against Aruego, such draft being sent to PBC for acceptance. As added security, PBC asked Aruego to execute a trust receipt in favor of the bank. Here, Aruego undertook to hold in trust for PBC the periodicals and to sell the same with

the promise to turn over to PBC the proceeds and to answer for the payment of all obligations arising from the draft.

Aruego filed a motion to dismiss on the ground that the complaint states no cause of action. The motion was granted.

PBC filed a motion for reconsideration. The trial court set aside its order dismissing the complaint and set the case for hearing.

Aruego filed his answer to the complaint a day after he received a copy of the order, interposing as defenses: (1) that he signed the document upon which PBC sues, in his capacity as President of the Philippine Education Foundation, so his liability is only secondary; (2) he believed he was signing only as an accommodation party.

PBC filed a motion to declare Aruego in default on the ground that the latter submitted his answer a day late (although the order was dated March 7, he received it only on March 11; he filed his answer on March 12). Aruego was declared in default.

Aruego filed a motion to set aside the order of default, alleging that it could not have been expected of him to submit his answer on time after having received the order at 5PM on the last day of the reglementary period. The trial court denied his motion to set aside.

The trial court rendered judgment sentencing Aruego to pay PBC the sum of P35,000.

Aruego filed an appeal, but the lower court dismissed this. He filed a motion for reconsideration. PBC opposed. The trial court reconsidered its previous order dismissing the appeal. Aruego received a notice informing him that the record on appeal was forwarded to the Court of Appeals.

Aruego also filed a motion to set aside the judgment sentencing him to pay the P35,000. PBC opposed. The trial court denied the motion. Aruego filed an appeal from the trial court’s order dismissing his motion to set aside . This was approved.

Thus, Aruego had two appeals before the Court of Appeals: (1) appeal from the order of the lower court denying his motion to set aside the order of default; (2) appeal from the order denying his motion to set aside the judgment by default.

ISSUES: WON Aruego is liable for the sum of P35,000 – YES

RATIO:

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To entitle a party to relief from a judgment taken against him through his mistake, inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious defense. Given the facts, the failure of Aruego to file his answer on the last day for pleading is excusable. However, while Aruego successfully proved that his failure to answer was due to excusable negligence, he has failed to show that he has a meritorious defense.

Aruego's defenses consist of the following:

a) He signed the bills of exchange in a representative capacity, as then President of the Philippine Education Foundation Company, publisher of "World Current Events and Decision Law Journal," printed by Encal, drawer of the said bills of exchange in favor of PBC

b) He signed the bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the security of PBC. 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. In effect, although these documents are labeled bills of exchange, legally they are mere instruments evidencing indebtedness of the drawee who received the face value thereof, with Aruego as only additional security of the same. 

As regards the first defense: Sec. 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."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative

of the Philippine Education Foundation Company. He merely signed as "JOSE ARUEGO (Acceptor) (SGD)” For failure to disclose his principal, Aruego is personally liable for the drafts he accepted.

As regards the second defense: Aruego contends that he signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is incapable of paying. This contention is also without merit.

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, Aruego signed as a drawee/acceptor. Under the NIL, a drawee is primarily liable.

Aruego also contends that the drafts signed by him were not 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 this definition, it is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties, but not in the determination of whether or not a commercial paper is a bill of exchange.

DISPOSITIVE: WHEREFORE, the order appealed from denying the petition for relief from the judgment rendered in said case is hereby AFFIRMED, without pronouncement as to costs.