PRUDENTIO vs COURT OF APPEALS

G.R. No. L34539

July 14, 1986
FACTS:
Appellants are owners of a parcel of land located in Sampaloc, Manila with TCT
35161. Sometime in 1955, the Concepcion & Tamayo Construction Company (Company) had a
pending contract with the Bureau of Public Works (Bureau) for the construction of the municipal
building in Puerto Princess, Palawan and, as said Company needed funds for said construction,
Jose Toribio, appellants' relative, and attorney-in-fact of the Company, approached the appellants
asking them to mortgage their property to secure the loan of P10,000.00 which the Company was
negotiating with the PNB.
After several persuasion attempts by Toribio, the appellants finally agreed to mortgage
their said property to the PNB to guaranty the loan of P10,000.00 extended to the Company. The
promissory note covering the loan of P10,000.00 maturing on April 27, 1956, was signed by
Toribio, as attorney-in-fact of the Company, and by the appellants. A Deed of Assignment was
made assigning all payments to be made by the Bureau to the Company on account of the
contract for the construction of the Puerto Princesa building in favor of the PNB.
Notwithstanding the Deed of Assignment, the Bureau, with approval of the PNB, made
three payments for labor and materials (not for the promissory note) to the Company on account
of the contract price totaling P11,234.40. The Bureau's last request for P5,000.00 on June 20,
1956, was denied by the PNB for the reason that since the loan was already overdue as of April
28, 1956, the remaining balance of the contract price should be applied to the loan.
The Company abandoned the work, and consequently, the Bureau rescinded the
construction contract and assumed the work of completing the building. Appellants wrote the
PNB contending that since the PNB authorized payments to the Company instead of on account
of the loan guaranteed by the mortgage as per the Deed of Assignment there was a change in the
conditions of the contract without the knowledge of appellants, which entitled the latter to a
cancellation of their mortgage contract.
The trial court denied the petition that the petitioners be absolved from their obligation
under the mortgage contract and that the said mortgage be released or cancelled. CA affirmed.
ISSUE:
Whether the appellants are solidary co-debtors instead of sureties. YES
Whether the petitioners are released from their obligation to the respondent PNB, when
the PNB, without the knowledge and consent of petitioners, changed the tenor and condition of
the assignment of payments made by the principal debtor. YES
HELD:
Section 29 of the NIL provides An accommodation party is one 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. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder at the time of taking the instrument knew him
to be only an accommodation party.
In the case of Philippine Bank of Commerce v. Aruego, we held that "... in lending his
name to the accommodated party, the accommodation party is in effect a surety. ... . " However,
unlike in a contract of suretyship, the liability of the accommodation party remains not only
primary but also unconditional to a holder for value such that even if the accommodated party

receives an extension of the period for payment without the consent of the accommodation party,
the latter is still liable for the whole obligation and such extension does not release him because
as far as a holder for value is concerned, he is a solidary co-debtor.
There is, therefore, no question that as accommodation makers, petitioners would be
primarily and unconditionally liable on the promissory note to a holder for value, regardless of
whether they stand as sureties or solidary co-debtors since such distinction would be entirely
immaterial and inconsequential as far as a holder for value is concerned. The question which
should be resolved in this instant petition, therefore, is whether or not PNB can be considered a
holder for value.
PNB had dealt directly with the petitioners knowing fully well that the latter only signed
as accommodation makers but more important, that it was the Deed of Assignment executed by
the Construction Company in favor of PNB which principally moved the petitioners to sign the
promissory note also in favor of PNB. Petitioners were made to believe and on that belief entered
into the agreement that no other conditions would alter the terms thereof and yet, PNB altered
the same.
This, notwithstanding, PNB approved the Bureau's release of three payments directly to
the Company instead of paying the same to the Bank. This approval was in violation of the Deed
of Assignment and without any notice to the petitioners who stood to lose their property once the
promissory note falls due without the same having been paid because the PNB, in effect, waived
payments of the first three releases. From the foregoing circumstances, PNB cannot be regarded
as having acted in good faith which is also one of the requisites of a holder in due course under
Section 52 of the NIL.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the
petitioners can validly set up their personal defense of release from the real estate mortgage
against PNB. The latter, in authorizing the third payment to the Company after the promissory
note became due, in effect, extended the term of the payment of the note without the consent of
the accommodation makers who stand as sureties to the accommodated party and to all other
parties who are not holders in due course or who do not derive their right from the same,
including PNB.
WHEREFORE, the petition is GRANTED.