Prudencio V.
CA (1986) no stipulation in the deed making it obligatory on the part of
G.R. No. L-34539 July 14, 1986
Lessons Applicable: Consideration and Accomodation Party;
Holder in Due Course (Negotiable Instruments)
FACTS:
Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of
a parcel of land mortgaged to Philippine National Bank
(PNB) to guarantee a loan of P1,000.00 extended to Domingo
Prudencio
1955: Concepcion & Tamayo Construction Company
(Concepcion) had a pending contract with the Bureau of
Public Works (Bureau) for the construction of the municipal
building in Puerto Princess, Palawan amounting to
P36,800.00 
In need of funds, Jose Toribio, Concepcions' relative, and
attorney-in-fact of the Company, approached PNB to
mortgage their property to secure the loan of P10,000.00 w/
PNB.
The terms and conditions of the original mortgage for
Pl,000.00 were made integral part of the new mortgage for
P10,000.00 and both documents were registered with the
Register of Deeds
Dec 23 1955:
promissory note covering the loan of P10,000.00 dated Dec 29
1955, maturing on Apr 27 1956, was signed by Jose Toribio, as
attorney-in-fact of the Company, and by the Prudencios'
Deed of Assignment assigning all payments to be made by the
Bureau to the Co. on account of the contract for the
construction in favor of the PNB.
PNB approved the Bureau's release of 3 payments directly to
Concepcion for material and labor instead of paying the same
to the Bank on account of the contract price totalling
P11,234.40 without the knowledge of the Prudencios'
PNB did not apply the initial and subsequent payments to the
Prudencios' debt as provided for in the deed of assignment
Jun 30 1956: Concepcion abandoned their work so Bureau
rescinded the construction contract and assumed the work of
completing
Jun 27 1959: Concepcion filed to cancelled their mortgage
complaint was amended to exclude the Company as
defendant, it having been shown that its life as a partnership
had already expired and, in lieu thereof, Ramon Concepcion
and Manuel M. Tamayo, partners of the defunct Company,
were impleaded in their private capacity as defendants.
CA affirmed  RTC: Denied
the PNB to notify the petitioners everytime it authorizes
payment to the Company
Prudencios' contend that as accommodation makers, the
nature of their liability is only that of mere sureties instead of
solidary co-debtors such that "a material alteration in the
principal contract, effected by the creditor without the
knowledge and consent of the sureties, completely discharges
the sureties from all liability on the contract of suretyship. 
ISSUE: 
W/N the Prudencios' as accomodating party are liable as
solidary debtors so real estate mortgage executed by them
CANNOT be cancelled
W/N PNB was a holder in due course
HELD: Petition is Granted.  CA reversed.
1. YES
Section 29 of the Negotiable Instrument Law
Liability of accommodation party. —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.
Philippine Bank of Commerce v. Aruego: liability of the
accommodation party remains not only primary but also
unconditional to a holder for value
remedy is a matter of concern exclusively between
accommodation indorser and accommodated party
2. NO
payee PNB is an immediate party and, therefore, is NOT a
holder in due course and stands on no better footing than a
mere assignee
holder in due course - payee either acquired the note from
another holder or has not directly dealt with the maker
thereof
PNB, in effect, waived payments of the first three releases
PNB can not 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 Negotiable Instruments Law
It was only when the deed of assignment was shown to the
spouses that they consented to the mortgage and signed the
promissory note in the Bank's favor.
 There is 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
PRUDENCIO V. CA
such distinction would be entirely immaterial and
143 SCRA 7 inconsequential as far  as  a  holder  for  value  is  concerned.   
Consequently,  the  petitioners cannot claim to have been
  released from their obligation simply because at the  time  of 
payment  of  such  obligation  was  temporarily  deferred  by 
FACTS:
the
Appellants  are  the  owners  of  a  property,  which  they  PNB without their knowledge and consent.  There has to be
mortgaged  to  help secure a loan of a certain Domingo another basis for  their  claim  of  having  been  freed  from 
Prudencio.  On a later date, they were approached by their their  obligation.    It  has  to  be determined if PNB was a
relative who was the attorney-in-fact of a construction holder for value.
company, which was in dire need of funds for the completion
of a municipal building.    After  some  persuasion,  the 
 
appellants  amended  the  mortgage wherein  the  terms  and 
A holder for value is one who meets the requirement of being
conditions  of  the  original  mortgage  was  made  an integral 
a holder in due course except the notice for want of
part  of  the  new  mortgage.    The  promissory  note 
consideration.  In the case at bar, PNB  may  not be 
covering  the “second  loan”  was  signed  by  their  relative.   
considered  as  a  holder for  value.   Not  only  was  PNB  an
It  was  also  signed  by  them, indicating the request that the
immediate  party  or  privy  to  the  promissory  note, 
check be released by the bank.   
knowing  fully  well  that petitioners only signed as
After the amendment of the mortgage was executed, a deed accommodation parties, but more importantly it was  the 
of assignment was  made  by  Toribio,  assigning  all  the  Deed  of  Assignment  which  moved  the  petitioners  to  sign 
payments  to  the  Bureau  to  the construction company.  This the promissory note.  Petitioners also relied on the belief that
notwithstanding, the Bureau with approval of the bank, there will be no
conditioned however that they should be for labor and alterations to the terms of the agreement.  The deed provided
materials, that there will no further conditions which could possibly alter
made three payments to the company.  The last request was the agreement without the  consent  of  the  petitioner  such 
denied by the bank, averring that the account was long as  the  grant  of  greater  priority  to obligations other than
overdue, the remaining balance of the contract price should the payment of the loan.  This notwithstanding, the bank 
be applied to the loan. approved  the  release  of  payments  to  the  Company 
  instead  of  the same  to  the  bank.    This  was  in  violation 
The  company  abandoned  the  work  and  as  consequence,  of  the  deed  of  assignment  and prejudiced  the  rights  of 
the  Bureau rescinded  the  contract  and  assumed  the  petitioners.    The  bank  was  not  in  good  faith—a requisite
work.    Later  on,  the  appellants wrote  to  the  PNB  that  for a holder to be one in due course.
since  the  latter  has  authorized  payments  to  the company 
instead  of  on  account  of  the  loan  guaranteed  by  the 
mortgage, there was a change in the conditions of the
contract without the knowledge of appellants, which entitled
the latter to cancel the mortgage contract.   

The trial court held them still liable together with their co-
makers.  It has also been held that if the judgment is not
satisfied within a period of time, the mortgaged properties
would be foreclosed and sold in public auction.
 
In  their  appeal,  petitioners  contend  that  as 
accommodation  makers,  the nature of their liability is only
that of mere sureties instead of solidary co-debtors such that
a material alteration in the principal contract, effected by the
creditor without the knowledge and consent of the sureties,
completely discharges the sureties from all liabilities on the
contract of suretyship. 

HELD: