In Tomas Ang v. Associated Bank, the Supreme Court affirmed that an accommodation party to a promissory note is liable to a holder for value, even if the holder knows that the party is merely an accommodation party. This ruling underscores the solidary liability of co-makers in promissory notes and clarifies that accommodation parties cannot escape liability based on the creditor’s actions toward the principal debtor. It highlights the importance of understanding one’s obligations when co-signing financial instruments and the potential legal ramifications.

Signing on the Dotted Line: When Does Lending Your Name Mean Losing Your Case?

The case began when Associated Bank filed a collection suit against Antonio Ang Eng Liong and Tomas Ang, seeking to recover amounts due from two promissory notes. Antonio was the principal debtor, and Tomas acted as a co-maker. The bank alleged that despite repeated demands, the defendants failed to settle their obligations, leading to a substantial debt. Tomas Ang, however, raised several defenses, claiming he was merely an accommodation party, that the notes were completed without his full knowledge, and that the bank granted extensions to Antonio without his consent.

The trial court initially dismissed the complaint against Tomas, but the Court of Appeals reversed this decision, holding Tomas liable as an accommodation party. The appellate court emphasized that the bank was a holder of the promissory notes and that Tomas, as a co-maker, could not evade responsibility based on the claim he received no consideration. This led to Tomas Ang’s petition to the Supreme Court, questioning the jurisdiction of the lower courts, the actions of the Court of Appeals, and the validity of his defenses.

At the heart of the matter was the legal status of Tomas Ang as an **accommodation party**. Section 29 of the Negotiable Instruments Law (NIL) defines an accommodation party as someone who signs an instrument as maker, drawer, acceptor, or indorser without receiving value, for the purpose of lending their name to another person. The Supreme Court, citing this provision, affirmed that an accommodation party is liable on the instrument to a holder for value, even if the holder knows that the accommodation party did not directly benefit from the transaction.

The Court further clarified that the relationship between an accommodation party and the accommodated party is akin to that of a surety and principal. This means the accommodation party is considered an original promisor and debtor from the beginning, with their liabilities so interwoven as to be inseparable. Despite the accessory nature of a suretyship, the surety’s liability to the creditor is immediate, primary, and absolute. They are directly and equally bound with the principal.

A key issue raised by Tomas Ang was the applicability of Article 2080 of the Civil Code, which states:

Art. 2080. The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter.

However, the Supreme Court clarified that Article 2080 does not apply in a contract of suretyship. Instead, Article 2047 of the Civil Code governs, stipulating that if a person binds himself solidarily with the principal debtor, the provisions on joint and solidary obligations (Articles 1207 to 1222) apply. This means that Tomas Ang, having agreed to be jointly and severally liable on the promissory notes, could be held responsible for the entire debt, regardless of the bank’s actions toward Antonio Ang Eng Liong.

The Court emphasized the importance of understanding the nature of solidary obligations. In a solidary obligation, each debtor is liable for the entire obligation, and the creditor can demand the whole obligation from any one of them. The choice of whom to pursue for collection rests with the creditor. The Supreme Court cited the case of *Inciong, Jr. v. CA*,

Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection.

This principle underscored the bank’s right to pursue Tomas Ang for the full amount due on the promissory notes, irrespective of any actions or omissions concerning Antonio Ang Eng Liong.

Another argument raised by Tomas Ang was that the bank’s failure to serve the notice of appeal and appellant’s brief to Antonio Ang Eng Liong rendered the judgment of the trial court final and executory with respect to Antonio, thus barring Tomas’s cross-claims. The Court rejected this argument, citing several reasons. First, Antonio Ang Eng Liong was impleaded in the case as his name appeared in the caption of both the notice and the brief. Second, Tomas Ang himself did not serve Antonio a copy of the appellee’s brief. Third, Antonio Ang Eng Liong was expressly named as one of the defendants-appellees in the Court of Appeals’ decision. Finally, it was only in his motion for reconsideration that Tomas belatedly served notice to the counsel of Antonio.

The Court also pointed out that Antonio Ang Eng Liong was twice declared in default, once for not filing a pre-trial brief and again for not answering Tomas Ang’s cross-claims. As a party in default, Antonio had waived his right to participate in the trial proceedings and had to accept the judgment based on the evidence presented by the bank and Tomas. Moreover, Antonio had admitted securing a loan totaling P80,000, and did not deny such liability in his Answer to the complaint, merely pleading for a more reasonable computation.

In conclusion, the Supreme Court found that Tomas Ang, as an accommodation party and a solidary co-maker of the promissory notes, was liable to the bank for the outstanding debt. The Court rejected his defenses based on the creditor’s actions toward the principal debtor, the applicability of Article 2080 of the Civil Code, and the alleged impairment of the promissory notes. The Court emphasized the importance of understanding one’s obligations when co-signing financial instruments and the potential legal ramifications.

FAQs

What is an accommodation party?	An accommodation party is someone who signs a negotiable instrument to lend their name to another party, without receiving value in return. They are liable to a holder for value as if they were a regular party to the instrument.
What is a solidary obligation?	A solidary obligation is one where each debtor is liable for the entire obligation. The creditor can demand full payment from any one of the solidary debtors.
Is an accommodation party considered a guarantor?	No, an accommodation party is more akin to a surety. A surety is directly and equally bound with the principal debtor, whereas a guarantor’s liability arises only if the principal debtor fails to pay.
Can an accommodation party be released from their obligation if the creditor grants an extension to the principal debtor?	No, because the accommodation party is seen as a solidary debtor. Unless there is an expressed agreement in writing between all parties.
What is the significance of Article 2080 of the Civil Code?	Article 2080 of the Civil Code discusses the release of guarantors when the creditor’s actions prevent subrogation to rights, but the Court said that it does not apply to solidary obligors.
What was the main reason the Supreme Court ruled against Tomas Ang?	The Supreme Court ruled against Tomas Ang primarily because he was a solidary co-maker and accommodation party of the promissory notes. As such, he was liable for the entire debt, and his defenses against the bank’s actions toward the principal debtor were not valid.
What should individuals consider before becoming an accommodation party?	Individuals should carefully consider the financial stability of the principal debtor and understand the full extent of their obligations. They should also be aware that they could be held liable for the entire debt, regardless of whether they receive any direct benefit.
If an accommodation party is made to pay the debt, do they have any recourse?	Yes, an accommodation party who pays the debt has the right to seek reimbursement from the accommodated party (the principal debtor).

This case serves as a crucial reminder of the legal responsibilities assumed when signing a promissory note as an accommodation party. Understanding the solidary nature of the obligation and the limitations on defenses is essential for anyone considering co-signing a financial instrument.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Tomas Ang v. Associated Bank, G.R. No. 146511, September 05, 2007