Case Summary (G.R. No. 24224)
Petitioner
The Philippine National Bank sued to recover the principal and accumulated interest on five promissory notes executed in January 1921 and unpaid at maturity, seeking enforcement of the instruments’ face amounts and accrued interest.
Respondents
Ramon Maza and Francisco Mecenas, who admitted execution of the promissory notes but asserted as special defense that they signed the instruments at the request of Enrique Echaus, received no value, did not deliver the notes to the bank, and were therefore accommodation parties; they also sought the inclusion of Echaus as a defendant.
Key Dates
Execution of two notes: January 20, 1921 (due three months after date). Execution of three notes: January 21, 1921 (due four months after date). Amount due with accumulated interest as of September 22, 1924: P65,207.73. Trial court judgment rendered prior to the appeal; appellate decision affirmed.
Applicable Law and Authorities
- Negotiable Instruments Law (Act No. 2031): primary statutory framework for liability of makers and accommodation parties; specifically cited sections include sec. 60 (maker’s primary and unconditional liability) and sec. 29 (liability of accommodation parties).
- Civil Code (cited for agency/principal obligations): art. 1727 (principals’ obligation to fulfill undertakings).
- Code of Civil Procedure (cited: secs. 103, 285) regarding the effect of pleadings and admissions.
- Precedent authorities cited in the decision: Ramirez v. Orientalist Co. and Fernandez; Clark v. Sellner; and several U.S. state decisions and treatises referenced to support accommodation-party principles.
Facts
Maza and Mecenas signed five promissory notes, each for P10,000; two on January 20, 1921 (three-month term) and three on January 21, 1921 (four-month term). The notes were not paid at maturity. The bank calculated the total due, including accrued interest, as P65,207.73 by September 22, 1924, and sued the two signatories to recover that sum. The defendants admitted the genuineness and due execution of the notes but asserted that Enrique Echaus sent them the instruments in blank for signature, that they received no value and never negotiated the notes with the bank, and that Echaus was the true party who negotiated the notes and should have been made a defendant.
Procedural History
At trial in the Court of First Instance of Iloilo, the defendants’ motion to have Enrique Echaus made a party was denied. The trial court rendered judgment for the bank against Maza and Mecenas jointly and severally for P65,207.73 with specified interest and costs. The defendants appealed, assigning four errors: one relating to the trial court’s refusal to require Echaus to be a defendant, and three going to the merits based on the accommodation-party defense.
Issue Presented on Appeal
- Whether the trial court erred in refusing to require that Enrique Echaus be made a party to the action.
- Whether Maza and Mecenas are liable on the promissory notes as makers or as accommodation parties despite their contention that they received no value and that Echaus negotiated the notes.
Court’s Reasoning — Joinder of Parties
The appellate court first addressed the defendants’ contention that Echaus should have been made a party. The court noted procedural waiver: the defendants failed to duly except to the trial court’s order denying joinder, which precluded review of that ruling on appeal. Independently, the court observed that it was not apparent from the record that Echaus was an indispensable party whose absence required reversal. Thus, the denial of the motion to add Echaus did not furnish reversible error.
Court’s Reasoning — Admissions and Proof
The court emphasized that the pleadings and stipulation of facts contained admissions by the defendants as to the genuineness and due execution of the promissory notes. Under the cited provisions of the Code of Civil Procedure and attendant authorities, those admissions were binding and removed contest over execution. The appellants did not dispute the amount or interest assessed by the trial court. Given those admissions and the absence of factual dispute about computation, the court found the evidentiary foundation for liability intact.
Court’s Reasoning — Liability of Makers and Principals
The court considered alternate characterizations of the legal relationship. If Maza and Mecenas were principals and Echaus their agent, the principals would remain bound to fulfill obligations incurred through their agent (Civil Code, art. 1727). Separately, if the defendants are simply the makers of negotiable instruments (as they appear on their faces), the Negotiable Instruments Law imposes primary and unconditional liability on makers (Act No. 2031, sec. 60). Either characterization supported the bank’s recovery against the named signatories.
Court’s Reasoning — Accommodation Parties
Recognizing that the defendants’ most plausible defense was that they were accommodation parties who signed without receiving value, the court applied the law governing accommodation signatories. Under Act No. 2031, sec. 29, an accommodation party who signs a negotiable instrument for the purpose of lending his name to another is nevertheless liable according
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Facts of the Case
- The Philippine National Bank sued Ramon Maza and Francisco Mecenas on five promissory notes, each for ten thousand pesos (P10,000).
- Two promissory notes were executed by Maza and Mecenas on January 20, 1921, payable three months after date.
- Three promissory notes were executed by the same parties on January 21, 1921, payable four months after date.
- The promissory notes were not taken up by Maza and Mecenas at maturity.
- The obligations, with accumulated interest, totaled P65,207.73 as of September 22, 1924.
- The action to recover the amounts was begun by the Philippine National Bank in the Court of First Instance of Iloilo.
Text of a Typical Note (as included in the record)
- The decision reproduces the text of one note typical of the rest, in substantial part in Spanish, showing:
- Face amount: P10,000.00, Iloilo, I. F., Jan. 20, 1921.
- Promise: "A los tres meses de la fecha, pagaremos mancomunada y solidariamente a la orden del Philippine National Bank, Iloilo, Iloilo, I. F., la cantidad de diez mil (P10,000) pesos en el Philippine National Bank."
- Notations: "Valor Recibido. No. 340 Pagadero el 4/20/21 (Fdos.) RAMON MAZA FRANCISCO MECENAS."
Defendants' Special Defense and Related Motion
- Defendants contended that Enrique Echaus sent the promissory notes to them in blank and requested that they sign them so that Echaus might negotiate them with the Philippine National Bank if needed.
- Defendants asserted that they did not negotiate the promissory notes with the bank, did not receive the value of the notes, nor deliver them to the bank in payment of any preexisting debt.
- Defendants alleged that Enrique Echaus was the person who negotiated the notes with the bank and therefore was the real party in interest and the party liable for payment.
- Defendants moved that Enrique Echaus be ordered included as one of the defendants; the trial judge denied this motion.
Trial Court Judgment
- The trial judge rendered judgment for the plaintiff against the defendants, jointly and severally, for P65,207.73.
- The trial court awarded interest at 9 percent on twenty thousand pesos (P20,000) from September 23, 1924, equivalent to P5 per day.
- The trial court awarded interest at 9 percent on thirty thousand pesos (P30,000) from September 23, 1924, equivalent to P7.50 per day.
- Costs were awarded against the defendants.
Procedural Posture on Appeal and Assigned Errors
- Four errors were assigned by the defendants on appeal.
- The first assigned error concerned the trial judge’s refusal to require Enrique Echaus to be made a party to the action.
- The other three assigned errors pertained to the merits and were grounded on the same basis as the special defense (i.e., that Echaus, not the defendants, was the real party in interest and liable for the notes).
Appellate Court Treatment of the Party-Inclusion Issue
- The appellate court observed that the defendants failed to duly except to the trial judge’s order denying the motion to include Echaus; consequently, they were not entitled to ask the appellate court to review that ruling.
- The court further noted that it was not evident from the record that Enrique Echaus was an indispensable party.
Admissions and Evidentiary Posture
- From the pleadings and a stipulation of facts, the defendants admitted the genuineness and due execution of the instruments sued on.
- The court cited Code of Civil Procedure, sections 103 and 285, and the case Ramirez vs. Orientalist Co. and Fernandez [1918], 38 Phil., 634, in connection with the legal effect of such admissions.
- The appellants did not point o