Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments Law)
FACTS:
- February 28, 1983: Admiral United Savings Bank (admiral) extended a loan of P500K to Henry Dela Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker.
- The loan was evidenced by Promissory Note payable on or before February 23, 1984, with interest at the rate of 18% per annum and service charge of 10% per annum and liquidated damages at the rate of 3% per month plus incidental cost of collection and/or legal fees/cost, in the event of non-payment on due date.
- Co and Isip failed to pay the loan when it became due and demandable
- Admiral filed a collection case against Co and Isip with the RTC
- Co: promissory note was sham and frivolous hence, void ab initio and denied receiving any benefits from the loan transaction, claiming that ADMIRAL merely induced him into executing a promissory note
- Pending resolution of the case, Isip died so dropped from the complaint
- Co then filed a 3rd party complaint against Metropolitan Rentals & Sales, Inc. (Metro) and averred that incorporators and officers of Metro prodded him in obtaining the loan
- Metro denied
- RTC: dismissed
- primarily relied on the release of mortgage executed by the officers of Admiral, and on Co's testimony that metro already paid the loan
- CA: reversed
- found preponderance of evidence to hold Co liable for the payment of his loan obligation to ADMIRAL
- Co has not denied the authenticity and due execution of the promissory note. He, however, asserts that he is not legally bound by said document because he merely acted as an accommodation party for METRO RENT.
ISSUE: W/N Co should not be liable for being an accomodation party
HELD: NO. petition is DENIED.
- The document, bearing Co's signature, speaks for itself
- At any rate, Co's assertion that he merely acted as an accommodation party for METRO RENT cannot release him from liability under the note.
- An accommodation party who lends his name to enable the accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives no part of the consideration
- He assumes the obligation to the other party and binds himself to pay the note on its due date.
- By signing the note, Co thus became liable for the debt even if he had no direct personal interest in the obligation or did not receive any benefit therefrom.
- Co is not unfamiliar with commercial transactions. He is a certified public accountant, who obtained his bachelor's degree in accountancy from De La Salle University. Certainly, he fully understood the import and consequences of what he was doing when he signed the promissory note. He even mortgaged his own properties to secure payment of the loan. His disclaimer, therefore, does not inspire belief.
- Unfortunately for Co, no such inference of payment or loan can be made from the deed he presented
- The record is bereft of any showing that the promissory note was secured by a mortgage over properties
- In addition, collaterals for the loan, are still with the bank. If indeed there was payment of the principal obligation and cancellation of the mortgage, Co should have immediately demanded for the return of the TCTs. It was only on June 11, 1987, after the filing of the complaint with the RTC that Co demanded for the return of TCTs
- Similarly, Co's protestation that the cancellation of the real estate mortgage extinguished his obligation to pay the loan cannot be sustained.
- A real estate mortgage is but an accessory contract to secure the loan in the promissory note. Its cancellation does not automatically result in the extinguishment of the loan.
- Thus, in the case at bench, ADMIRAL can still run after Co for the payment of the loan under the promissory note, even after the release of the mortgage on the properties, especially because there was no showing that the mortgage was constituted as a security for the loan covered by the promissory note