SUPREME COURT CONTRARY TO LAW.
Manila
SECOND DIVISION
G.R. No. 166405 August 6, 2008
CLAUDE P. BAUTISTA, petitioner,
vs.
AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS (Twenty-First
Division),respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision1 dated August 10, 2004 of the Court of
Appeals in CA-G.R. CR No. 28464 and the Resolution2 dated October 29, 2004, which denied
petitioner's motion for reconsideration. The Court of Appeals affirmed the February 24, 2004
Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch 16, in
Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus
Lines and Transport Corporation, purchased various spare parts from private respondent Auto
Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were
subsequently dishonored. Private respondent then executed an affidavit-complaint for violation
of Batas Pambansa Blg. 223 against petitioner. Consequently, two Informations for violation of BP
Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the
petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The
Informations4 read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of Batas
Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned
accused, 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.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of Batas
Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned
accused, 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. 059049, dated October 30,
2000, in the amount of P97,500.00, 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.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the
prosecution's evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC
granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as
to the guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through
the accused is directed to pay the complainant the sum of 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;
ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused,
to reimburse complainant the expense representing filing fees amounting to P1,780.00
and costs of litigation which this Court hereby fixed at P5,000.00.
SO ORDERED.5
Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties
appealed to the RTC. On February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as
follows: Accused is directed to pay and/or reimburse the complainant 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.
SO ORDERED.6
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner
elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision and
May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed
Decision of the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004
and its Order dated May 11, 2004 are AFFIRMED.
SO ORDERED.7
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in
upholding the RTC's ruling that petitioner, as an officer of the corporation, is personally and
civilly liable to the private respondent for the value of the two checks.8
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that
the corporation, which has a separate personality from its officers, is solely liable for the value of
the two checks.
Private respondent counters that petitioner should be held personally liable for both checks.
Private respondent alleged that petitioner issued two 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 private respondent,
petitioner, by issuing his check to cover the obligation of the corporation, became an
accommodation party. Under Section 299of the Negotiable Instruments Law, an accommodation
party is liable on the instrument to a holder for value. Private respondent adds that petitioner
should also be liable for the value of the corporation check because instituting another civil
action against the corporation would result in multiplicity of suits and delay.
At the outset, we note that private respondent's allegation that petitioner issued a personal
check disputes the factual findings of the MTCC. The MTCC found that the two checks belong to
Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks was a
personal check of the petitioner. Generally this Court, in a petition for review on certiorari under
Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that
the findings of the MTCC and the RTC are at variance,10 we are compelled to settle this issue.
A perusal of the two check return slips11 in conjunction with the Current Account
Statements12 would show that the check for P151,200 was drawn against the current account of
Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser
Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding
petitioner liable for the value of the checks considering that petitioner was acquitted of the crime
charged and that 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.13 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.14 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 petitioner 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 in payment for the corporation's obligation in the
total amount of P248,700.
Likewise, contrary to private respondent's contentions, petitioner 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.15 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.16 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 petitioner
signed Check No. 58832, which is drawn against his personal account. The said check, dated
December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and
Transport Corporation on August 29, 2000.17 There is no showing of when petitioner issued the
check and in what capacity. In the absence of concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered
as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially
since there is no evidence that the debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the
Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464
are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED,
without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper
civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171998 October 20, 2010
ANAMER SALAZAR, Petitioner,
vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review seeking to annul and set aside the Decision 1 dated September
29, 2005 and the Resolution2 dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV
No. 83104.
The facts, as found by the Court of Appeals, are not disputed, thus:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling
sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent,
was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in
the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja
and Kallos procured from J. Y. Bros. 300 cavans of rice worth ₱214,000.00. As payment, Salazar
negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996
issued by Nena Jaucian Timario in the amount of ₱214,000.00 with the assurance that the check
is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However,
upon presentment, the check was dishonored due to "closed account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a
replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena
Jaucian Timario in the amount of ₱214,000.00 but which, just the same, bounced due to
insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to
settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa
before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer
to evidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion of
which reads:
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of
the crime charged but is hereby held liable for the value of the 300 bags of rice. Accused Anamer
D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the sum of
₱214,000.00. Costs against the accused.
SO ORDERED.
Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her
to present evidence thereon. The motion was denied. Accused went up to the Supreme Court on
a petition for review on certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931,
in its Decision dated September 23, 2003, the High Court ruled:
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November
19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of
Legaspi City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the continuation
of trial for the reception of the evidence-in-chief of the petitioner on the civil aspect of the case
and for the rebuttal evidence of the private complainant and the sur-rebuttal evidence of the
parties if they opt to adduce any.
SO ORDERED.3
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the
civil aspect of the criminal case.
On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:
WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D.
Salazar the civil aspect of the above-entitled case. No pronouncement as to costs.
Place into the files (archive) the record of the above-entitled case as against the other accused
Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her
apprehension, and fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos.
SO ORDERED.5
The RTC found that the Prudential Bank check drawn by Timario for the amount of ₱214,000.00
was payable to the order of respondent, and such check was a negotiable order instrument; that
petitioner was not the payee appearing in the check, but respondent who had not endorsed the
check, much less delivered it to petitioner. It then found that petitioner’s liability should be
limited to the allegation in the amended information that "she endorsed and negotiated said
check," and since she had never been the holder of the check, petitioner's signing of her name on
the face of the dorsal side of the check did not produce the technical effect of an indorsement
arising from negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it
was replaced by a Solid Bank check which, however, was also subsequently dishonored; that
since the Solid Bank check was a crossed check, which meant that such check was only for
deposit in payee’s account, a condition that rendered such check non-negotiable, the substitution
of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential
change which had the effect of discharging from the obligation whoever may be the endorser of
the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory
the obligation arising from the technical act of indorsing a check and, thus, had the effect of
novation; and that the ultimate effect of such substitution was to extinguish the obligation
arising from the issuance of the Prudential Bank check.
Respondent filed an appeal with the CA on the sole assignment of error that:
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR
BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID
NOT PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM
NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.6
After petitioner filed her appellees' brief, the case was submitted for decision. On September 29,
2005, the CA rendered its assailed Decision, the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision
is REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the appellant
the amount of ₱214,000.00, plus interest at the legal rate from the written demand until full
payment. Costs against the appellee.7
In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later
replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as payment for the
300 cavans of rice bought from respondent. The CA, applying Sections 63, 8 669 and 2910 of the
Negotiable Instruments Law, found that petitioner was considered an indorser of the checks
paid to respondent and considered her as an accommodation indorser, who was liable on the
instrument to a holder for value, notwithstanding that such holder at the time of the taking of
the instrument knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated
March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of errors:
1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF
THE ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE
PRUDENTIAL BANK CHECK WHICH WOULD HAVE RESULTED TO THE
NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE
LATTER CHECK.
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS
AGAINST THE PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON
THE GROUND OF NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE
OF THE PRUDENTIAL BANK CHECK.
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE
MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE GROUND
THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED UPON AND
CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN
TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11
Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the
respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that
discharged the latter check; that respondent's acceptance of the Solid Bank check,
notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever
criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of
the Prudential Bank check would have incurred in the issuance thereof in the amount of
₱214,000.00; and that a check is a contract which is susceptible to a novation just like any other
contract.
Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply
thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis ours)
And, under Article 1231 of the Civil Code, obligations are extinguished:
xxxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the latter check is
unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,12 we
stated the concept of novation, thus:
x x x Novation is done by the substitution or change of the obligation by a subsequent one which
extinguishes the first, either by changing the object or principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights of the creditor. Novation
may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the change and
the intention of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the emergence of the
new one. Implied novation necessitates that the incompatibility between the old and new
obligation be total on every point such that the old obligation is completely superceded by the
new one. The test of incompatibility is whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable, the subsequent obligation would
also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing
obligation and, second, creating a new one in its stead. This kind of novation presupposes a
confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all
parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the
birth of a valid new obligation. Novation is merely modificatory where the change brought
about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay; in this instance, the new agreement will not have
the effect of extinguishing the first but would merely supplement it or supplant some but not all
of its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly recognizes
the old, changes only the terms of payment, adds other obligations not incompatible with the
old ones or the new contract merely supplements the old one.13
practice that a check with two parallel lines in the upper left hand corner means that it could
only be deposited and could not be converted into cash.20 Thus, the effect of crossing a check
relates to the mode of payment, meaning that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein.21 The change in the mode of paying
the obligation was not a change in any of the objects or principal condition of the contract for
novation to take place.22

Considering that when the Solid Bank check, which replaced the Prudential Bank check, was
In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's claim
that novation took place when the dishonored BPI check it endorsed to BA Finance Corporation presented for payment, the same was again dishonored; thus, the obligation which was secured
by the Prudential Bank check was not extinguished and the Prudential Bank check was not
was subsequently replaced by a Security Bank check,15 and said:
discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable
as an accommodation indorser for the payment of the dishonored Prudential Bank check.
There are only two ways which indicate the presence of novation and thereby produce the effect
of extinguishing an obligation by another which substitutes the same. First, novation must be
explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the
Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104,
the old and the new obligations must be incompatible on every point.1avvphi1 The test of
are AFFIRMED.
incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates the
first. In the instant case, there was no express agreement that BA Finance's acceptance of the SO ORDERED.
SBTC check will discharge Nyco from liability. Neither is there incompatibility because both
checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to DIOSDADO M. PERALTA
BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case.16 Associate Justice

In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored WE CONCUR:
Prudential Bank check, did not result to novation as there was no express agreement to establish
that petitioner was already discharged from his liability to pay respondent the amount of
₱214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there
must be an express intention to novate. In fact, when the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner which shows petitioner’s recognition of Republic of the Philippines
SUPREME COURT
the existing obligation to respondent to pay ₱214,000.00 subject of the replaced Prudential Bank
Manila
check.

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

Moreover, respondent’s acceptance of the Solid Bank check did not result to any incompatibility,
since the two checks − Prudential and Solid Bank checks − were precisely for the purpose of
paying the amount of ₱214,000.00, i.e., the credit obtained from the purchase of the 300 bags of
rice from respondent. Indeed, there was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of the check to pay the amount of
₱214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner
the chance to pay her obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check
being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable
check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential
Bank check, since there was an essential change in the circumstance of each check.
Such argument deserves scant consideration.
Among the different types of checks issued by a drawer is the crossed check.17 The Negotiable
Instruments Law is silent with respect to crossed checks,18 although the Code of
Commerce makes reference to such instruments.19We have taken judicial cognizance of the
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
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, 1 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. 2 These two appeals
of the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R,
respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file
one consolidated record on appeal of CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the
consolidated appeal to the Supreme Court on the ground that only questions of law are
involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil
Case No. 42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon
from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty
(30) days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and
costs. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-two (22)
causes of action referring to 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. 7 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. 8
Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On
December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the
hearing on December 16, 1959. 10At the hearing, the court denied defendant's motion for
extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17,
1959 on the ground that the complaint states no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for acceptance,
the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo
Engraving), without knowledge or consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is
an accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be
liable in the event that the accommodating party (drawer) fails to pay its obligation to the
plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received
by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting
upon the motion for reconsideration filed by the plaintiff, the trial court set aside its order
dismissing the complaint and set the case for hearing on March 15, 1960 at 8:00 in the
morning. 14 A copy of the order setting aside the order of dismissal was received by the
defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit of the
deputy sheriff of Manila, Mamerto de la Cruz. On the following day, March 12, 1960, the
defendant filed a motion to postpone the trial of the case on the ground that there having been
no answer as yet, the issues had not yet been joined. 15 On the same date, the defendant filed his
answer to the complaint interposing the following defenses: That he signed the document upon
which the plaintiff sues in his capacity as President of the Philippine Education Foundation; that
his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on
the ground that the defendant should have filed his answer on March 11, 1960. He contends that
by filing his answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the
trial court declared the defendant in default. 18 The defendant learned of the order declaring him
in default on March 21, 1960. On March 22, 1960 the defendant filed a motion to set aside the
order of default alleging that although the order of the court dated March 7, 1960 was received
on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the
defendant to file his answer on the last day of the reglementary period, March 11, 1960, within
office hours, especially because the order of the court dated March 7, 1960 was brought to the
attention of counsel only in the early hours of March 12, 1960. The defendant also alleged that he
has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960,
at 5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20 On
May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff
the sum of P35,444.35 representing the total amount of his obligation to the said plaintiff under
the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the
sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961
denying his motion to set aside the order declaring him in default, an appeal bond in the
amount of P60.00, and his record on appeal. The plaintiff filed his opposition to the approval of
defendant's record on appeal on May 13, 1960. The following day, May 14, 1960, the lower court
dismissed defendant's appeal from the order dated March 25, 1960 denying his motion to set
aside the order of default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of
the trial court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order dismissing appeal. 24 On May 21, 1960, the
trial court reconsidered its previous order dismissing the appeal and approved the defendant's
record on appeal. 25 On May 30, 1960, the defendant received a copy of a notice from the Clerk of
Court dated May 26, 1960, informing the defendant that the record on appeal filed ed by the
defendant was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared
in default reiterating the same ground previously advanced by him in his motion for relief from
the order of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court
denied the defendant's motion to set aside the judgment by default in an order of June 11,
1960. 29 On June 20, 1960, the defendant filed his notice of appeal from the order of the court
denying his motion to set aside the judgment by default, his appeal bond, and his record on
appeal. The defendant's record on appeal was approved by the trial court on June 25,
1960. 30 Thus, the defendant had two appeals with the Court of Appeals: (1) Appeal from the
order of the lower court denying his motion to set aside the order of default docketed as CA-
G.R. NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment by
default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
 THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT
WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO
DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME
THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT
FIRST DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION
FOR RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY
DEFAULT AGAINST DEFENDANT. 31
It has been held that 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. 32 In other words, in order to set aside the order of default, the defendant
must not only show that his failure to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons
on December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed
a motion to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on
January 23, 1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting
upon the motion for reconsideration, the trial court issued an order setting aside the order of
dismissal; that a copy of the order was received by the defendant on March 11, 1960 at 5:00
o'clock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following
day, March 12, 1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is excusable. The
order setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It
was therefore impossible for him to have filed his answer on that same day because the courts
then held office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately
filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to
excusable negligence, he has failed to show that he has a meritorious defense. The defendant
does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant 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;
b) The 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. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an agent of
the Philippine Education Foundation Company where he is president. 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."
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. 34 He
merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to
disclose his principal, Aruego is personally liable for the drafts he accepted.
The defendant also 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.35 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 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 Negotiable Instruments Law, 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. 36 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.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer
will result in a new trial which will serve no purpose and will just waste the time of the courts as
well as of the parties because the defense is nil or ineffective. 37

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.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ., concur.