A makes note payable to bearer which is delivered to B bearer
B can negotiate note by mere delivery and his liability and warranties would be those stated in SEC 65 But if he indorses the note, his liabilities and warranties would be
1. Stated in 66 if he indorses generally 2. Stated in 65 if he indorses qualifiedly Accommodat
ion party SEC 29. Liability of accommodation party—one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value 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 taking of instrument, knew him to be only an accommodation party.
The liability of an accommodation party depends on how they participate in the instrument.
NOTE: A corporation cannot act as an accommodation party. Issue or endorsement of negotiable instrument by a corporation without consideration and for accommodation of another is ultra vires.
Who is an accommodation party? What is the nature of his liability?
A: An accommodation party is one who meets 3 REQUISITES:
1. He must be a party to the instrument, signing as maker, drawer, acceptor or indorser.
2. He must not receive value for his receiving and lending his name
3. He must sign for the purpose of lending his name or credit to some other person.
He is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation. The relation between an accommodation party and the accommodated party is one of principle and surety.
In accommodation transactions, an accommodation party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as HDC who gave full value therefor to the accommodated party. The accommodated party receives or realized full value which it must then repay to the accommodating party, unless the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on check to the HDC who is necessarily a 3rd party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the HDC that he will pay the same according to its tenor.
The accommodated party was allowed extension of payment without consent of accommodation party. Is the accommodation party
liable?
A: YES< since the liability of accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for the payment without the consent of the accommodation party, the accommodation party is still liable for the whole obligation. The extension does not release him because as far as the holder for value is concerned, the accommodation party is a solidary co-debtor.
Spouses Yaki and Soba executed a PN in favor of the lender promising to pay the loan obtained by Yaki’s sister. When the loan fell due, the lender demanded that the spouses be made liable on the said PN but they argued that they are not liable since they did not profit from the loan. Is the contention correct?
A: NO, when a married couple signed a PN in favor of a bank to enable the sister of the husband to obtain a loan, they are considered as accommodation parties who are liable for the payment of the loan.
MEANING OF “WITHOUT RECEIVING VALUE THEREFOR” EFFECT OF “VALUE RECEIVED”
One who signs for purpose of lending his name is given P150 for and in consideration of lending his name but not for the instrument he signs.
Would he cease to be an accommodation party?
NO. “without receive value therefor” means without receiving value by virtue of instrument; NOT without receiving payment for lending his name.
Suppose note contains “value received”.
This will not negate the character of note as an accommodation paper.
All accommodation notes imply a valuable consideration prima facie.
RIGHTS AND LEGAL POSITION OF ACCOMMODATION PARTY 1. AP = surety of party accommodated.
2. They have right to sue accommodated party for reimbursement since relation between them is in effect of principal and sureties.
ACCOMMODATED PARTY CANNOT RECOVER FROM ACCOMODATION PARTY Absence of consideration = VALID DEFENSE
Accommodated party is to:
1. Reimburse amount which accommodation party may be obliged to pay 2. Pay instrument directly to the holder
3. Real debtor
4. AP is only secondarily liable; accommodated party is primarily liable
LIABILITY OF ACCOMMODATION PARTY—liable on the instrument to a holder for value, notwithstanding such holder knew him to only be an accommodation party
Holder for value had notice of fact that accommodation party did not receive valuable consideration, he is considered a HDC.
SEC 28 SEC 29
Want of consideration is a valid defense to holder not in due course
Instruments which are not accommodation papers, effect of this notice of absence of consideration is to render the holder for value not a HDC because he has notice of defense of prior parties, namely want of consideration
Want of consideration cannot be a defense between an accommodation party and the accommodated party against a holder for value/HDC
Even if holder has notice that he is an accommodation party and therefore has notice that he did not receive any consideration for the instrument he signed
Illustration #1:
Q: A signs PN as accommodation maker to B, without receiving any consideration for the note. Amount is P1000. Date of maturity is
December 1, 1951. B indorses note to PNB, which discounts the note on basis of A’s signature (has a high credit standing). Indorsement made before maturity. PNB knows that A is only an accommodation party. On date of maturity, A refuses to pay PNB on ground that he did not
receive any consideration from B and PNB is not HDC because it had notice of absence of consideration. Can A interpose defense?
A: NO. Under SEC 29, holder for value can hold accommodation party liable even if he knows him to be an accommodation party.
Credit given to accommodation party is sufficient to bind the accommodation maker.
Illustration #2
Ting issued a check P4000 payable to CASH or BEARER. Bang indorsed it in blank. Ang Tiong presents it to drawee bank for payment but bank dishonored it. He makes a written demand against Ting and Bang. Bang claimed that he signed as accommodation party and not as general indorser.
HELD: Even if Bang is just an accommodation party, he is liable under SEC 29.
Accommodation party is liable to holder for value as if the condtract was not for accommodation. Fact that an accommodation indorser may obtain security from maker to protect himself against danger of insolvency of latter, cannot affect his liability to an HDC. Remedy (provided by SEC 28) is personal and exclusive only between the accommodation indorser and accommodated party.
RIGHTS OF ACCOMMODATION PARTIES AS AGAINST EACH OTHER: Since NEGO INST does not define right of accommodation maker to seek reimbursement from another accommodation maker, ART 2073 CCODE applies. Solidary accommodation maker may:
1. Demand from principal debtor reimbursement of amount he paid on PN
2. Demand contribution from his co-accommodation maker without first directing his action against principal debtor provided that:
a. He made payment by virtue of judicial demand b. Principal debtor is insolvent
Problems
1. On JUNE 1, 1990, A obtained a loan of 100,000 from B, payable not later than DEC 21 1990. B required A to issue him a check for that amount to be dated DEC 20, 1990. Since he does not have any checking account, A, with the knowledge of B, requested his friend C, president of X Banking Corp, to accommodate him. C agreed. He signed a check for the aforesaid amount, dated DEC 20, 1990, drawn by X Banking Corporation with ABC Commercial Banking Corporation as drawee. The by-laws of X Banking Corporate requires that checks issued by it must be signed by the President and Treasurer or VP. Since Treasurer was absent, C requested VP to co-sign the check, which the VP reluctanctly did. The check was delivered to B. The check was dishonored upon presentation on due date for insufficiency of funds. Is X Banking Corporation liable on the check as an accommodation party? If not, who is liable?
A: X Banking Corporation is not liable because the act of accommodating the check is an ultra vires act. It is out side the powers of a corporation to accommodate another not in line with its own business.
President and VP are liable to the instrument in their personal capacities.
2. Santos purchased Vera’s car for 50,000. Not having enough cash at hand, Santos offered to pay in check. Vera refused to accept the check unless it is indorsed by Reyes, their mutual friend. Reyes indorsed Santos’ check and Vero, knowing that Reyes had not received any value for indorsing the check, accepted it. Vera presented the check to the drawee bank for payment. Payment was refused for lack of funds. Vera gave notice of dishonor to Reyes, but Reyes refused to pay saying that he indorsed it merely as a friend. In the event, Reyes voluntarily pays Vera. Does Reyes have a right to recover from Santos?
A: YES, Reyes may recover. Relation between Santos and Reyes is in effect that of principal and surety, accommodation party. Reyes, being the surety of Santos, can recover from Santos whatever amount that he paid to Vera.
Agents signing in behalf of the principal
SEC 19. Signature by agent; authority; how shown—Signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose and the authority of the agent may be established as in other cases of agency.
AUTHORITY TO COLLECT DOES NOT INCLUDE INDORSEMENT
BUT right of an agent to indorse commercial paper will not be lightly inferred.
A salesman with authority to collect money belong to his principal does not have implied authority to indorse checks received in payment.
Person taking checks made payable to corporation which can act only by agents, does at his peril and must abide by consequences if agent indorsing does not have authority.
What factors would negate personal liability on the part of corporate officers who signed a PN for a loan obtained by the corporation?
A: Inference that corporate officers signed in their individual capacities would be negated by the following facts:
1. Name and address of corporation appeared on the space provided for maker/borrower.
2. Officers had only 1 set of signatures on the instrument, when there should have been two, if indeed they had intended to be bound solidarily—the first as representatives of the corporation and the second in their individual capacities
3. They did not sign under the spaces provided for co-maker and neither where their addresses reflected there
4. At the back of the PN, they signed above the words “authorized representative”. (Solidbank Corp. v. Mindanao Ferroalloy Corp.)
SEC 69. Liability of agent or broker—where a broker or other agent negotiates an instrument without indorsement, he incurs all liabilities