FERNANDO MAULINI ET AL., PLAINTIFFS AND APPELLEES, VS. ANTONIO G. SERRANO, DEFENDANT AND APPELLANT.

This is an appeal from a judgment of the Court of First Instance of the city
of Manila in favor of the plaintiff for the sum of P3,000, with interest thereon
at the rate of 1 1/2 per cent per month from September 5, 1912, together with
the costs.

The action was brought by the plaintiff upon the contract of indorsement
alleged to have been made in his favor by the defendant upon the following
promissory note:

“P3,000.

Due 5th of September, 1912.

“We jointly and severally agree to pay to the order of Don Antonio G. Serrano
on or before the 5th day of September, 1912, the sum of three thousand pesos
(P3,000) for value received for commercial operations. Notice and protest
renounced. If the sum herein mentioned is not completely paid on the 5th day of
September, 1912, this instrument will draw interest at the rate of 1 1/2 per
cent per month from the date when due until the date of its complete payment.
The makers hereof agree to pay the additional sum of P500 as attorney’s fees in
case of failure to pay the note.

“Manila, June 5,1912.

(Sgd.) “For Padern, Moreno & Co., by F. Moreno, member of the firm. For
Jose” Padern, by F. Moreno. Angel Gimenez.”

The note was indorsed on the back as follows :

“Pay to the order of Don Fernando Maulini, value received. Manila, June 5,
1912. (Sgd.) A. G. Serrano.”

The first question for resolution on this appeal is whether or not, under the
Negotiable Instruments Law, an indorser of a negotiable promissory note may, in
an action brought by his indorsee, show, by parol evidence, that the indorsement
was wholly without consideration and that, in making it, the indorser acted as
agent for the indorsee, as a mere vehicle of transfer of the naked title from
the maker to the indorsee, for which he received no consideration whatever.

The learned trial court, although it received parol evidence on the subject
provisionally, held, on the final decision of the case, that such evidence was
not admissible to alter, vary, modify or contradict the terms of the contract of
indorsement, and, therefore, refused to consider the evidence thus provisionally
received, which tended to show that, by verbal agreement between the indorser
and the indorsee, the indorser, in making the indorsement, was acting as agent
for the indorsee, as a mere vehicle for the transference of naked title, and
that his indorsement was wholly without consideration. The court also held that
it was immaterial whether there was a consideration for the transfer or not, as
the indorser, under the evidence offered, was an accommodation indorser.

We are of the opinion that the trial court erred in both findings.

In the first place, the consideration of a negotiable promissory note, or of
any of the contracts connected therewith, like that of any other written
instrument, is, between the immediate parties to the contract, open to attack,
under proper circumstances, for the purpose of showing an absolute lack or
failure of consideration.

It seems, according to the parol evidence provisionally admitted on the
trial, that the defendant was a broker doing business in the city of Manila and
that part of his business consisted in looking up and ascertaining persons who
had money to loan as well as those who desired to borrow money and, acting as a
mediary, negotiate a loan between the two. He had done much business with the
plaintiff and the borrower, as well as with many other people in the city of
Manila, prior to the matter which is the basis of this action, and was well
known to the parties interested. According to his custom in transactions of this
kind, and the arrangement made in this particular case, the broker obtained
compensation for his services of the borrower, the lender paying nothing1
therefor. Sometimes this was a certain per cent of the sum loaned; at other
times it was a part of the interest which the borrower was to pay, the latter
paying 1 1/2 per cent per month for the use of the money, the lender taking 1
per cent and the broker 1/2 per cent. According to the method usually followed
in these transactions, and the procedure in this particular case, the broker
delivered the money personally to the borrower, took the note in his own name
and immediately transferred it by indorsement to the lender. In the case at bar
this was done at the special request of the indorsee and simply as a favor to
him, the latter stating to the broker that he did not wish his name to appear on
the books of the borrowing company as a lender of money and that he desired that
the broker take the note in his own name, immediately transferring to him title
thereto by indorsement. This was done, the note being at once
transferred to the lender.

According to the evidence referred to, there never was a moment when Serrano
was the real owner of the note. It was always the note of the indorsee, Maulini,
he having furnished the money which was the consideration for the note directly
to the maker and being the only person who had the slightest interest therein,
Serrano, the broker, acting solely as an agent, a vehicle by which the naked
title to the note passed from the borrower to the lender. The only payment that
the broker received was for his services in negotiating the loan. He
was paid absolutely nothing for becoming responsible as an indorser on the
paper, nor did the indorsee lose, pay or forego anything, or alter
his
position thereby.

Nor was the defendant an accommodation indorser. The learned trial court
quoted that provision of the Negotiable Instruments Law which defines an
accommodation party as “one who has signed the intrument 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 the same to be only an accommodation party.” (Act No.
2031, sec. 29.)

We are of the opinion that the trial court misunderstood this definition. The
accommodation to which reference is made in the section quoted is not one to the
person who takes the note—that is, the payee or indorsee, but one to the maker
or indorser of the note. It is true that in the case at bar it was an
accommodation to the plaintiff, in a popular sense, to have the defendant
indorse the note; but it was not the accommodation described in the law, but,
rather, a mere favor to him and one which in no way bound Serrano. In cases of
accommodation indorsement the indorser makes the indorsement for the
accommodation of the maker. Such an indorsement is generally for the purpose of
better securing the payment of the note—that is, he lends his name to the maker,
not to the holder. Cutting it in another way: An accommodation note is one to
which the accommodation party has put his name, without consideration, for the
purpose of accommodating some other party who is to use it and is expected to
pay it. The credit given to the accommodation party is sufficient consideration
to bind the accommodation maker. Where, however, an indorsement is made as a
favor to the indorsee, who requests it, not the better to secure payment, but to
relieve himself from a distasteful situation, and where the only consideration
for such indorsement passes from the indorser to the indorsee, the situation
does not present one creating an accomodation indorsement, nor one where there
is a consideration sufficient to sustain an action on the indorsement.

The prohibition in section 285 of the Code of Civil Procedure does not apply
to a case like the one before us. The purpose of that prohibition is to prevent
alteration, change, modification or contradiction of the terms of a
written instrument, admittedly existing, by the use of parol evidence, except in
the cases specifically named in the section. The case at bar is not one where
the evidence offered varies, alters, modifies or contradicts the terms
of the contract of indorsement admittedly existing. The evidence was not offered
for that purpose. The purpose was to show that no contract of indorsement ever
existed; that the minds of the parties never met on the terms of such a
contract; that they never mutually agreed to enter into such a contract; and
that there never existed a consideration upon which such an agreement could be
founded. The evidence was not offered to vary, alter, modify, or contradict the
terms of an agreement which it is admitted existed between the parties, but to
deny that there ever existed any agreement whatever; to wipe out all
apparent relations between the parties, and not to vary, alter or contradict the
terms of a relation admittedly existing; in other words, the purpose of the
parol evidence was to demonstrate, not that the indorser did not intend to make
the particular indorsement which he did make; not that he did not
intend to make the indorsement in the terms made; but, rather, to deny the
reality of any indorsement; that a relation of any kind whatever was
created or existed between him and the indorsee by reason of the
writing on the back of the instrument; that no consideration ever passed to
sustain an indorsement of any kind whatsoever.

The contention has some of the appearances of a case in which an indorser
seeks to prove forgery. Where an indorser claims that his name was forged, it is
clear that parol evidence is admissible to prove that fact, and, if he proves
it, it is a complete defense, the fact being that the indorser never made any
such contract, that no such relation ever existed between him and the indorsee,
and that there was no consideration whatever to sustain such a contract. In the
case before us we have a condition somewhat similar. While the indorser does not
claim that his name was forged, he does claim that it was obtained from him in a
manner which, between the parties themselves, renders the contract as completely
inoperative as if it had been forged.

Parol evidence was admissible for the purposes named. There is no
contradiction of the evidence offered by the defense and received provisionally
by the court. Accepting it as true the judgment must be reversed.

The judgment appealed from is reversed and the complaint dismissed on the
merits; no special finding as to costs.

Arellano, C. J., Johnson and Trent, JJ., concur.

TORRES, J., with whom concurs ARAULLO, J.

Act No. 2031, known as the Negotiable Instruments Law, which governs the
present case, establishes various kinds of indorsements by means of which the
liability of the indorser is in some manner limited, distinguishing it from that
of the regular or general indorser, and among those kinds is that of the
qualified indorsement which, pursuant to section 38 of the same Act, constitutes
the indorser a mere assignor of the title to the instrument, and may be made by
adding to the indorser’s signature the words “without recourse” or any words of
similar import.

If the defendant, Antonio G. Serrano, intervened, as he alleged and tried to
prove that he did at the trial, only as a broker or agent between the lender and
plaintiff, Maulini, and the makers of the promissory note, Padern, Moreno &
Co. and Angel Gimenez, in order to afford an opportunity to the former to invest
the amount of the note in such manner that it might bring him interest, the
defendant could have qualified the indorsement in question by adding to his
signature the words “without recourse” or any others’ such as would have made
known in what capacity he intervened in that transaction. As the defendant did
not do so and as he signed the indorsement in favor of the plaintiff Maulini for
value received from the latter, his liability, according to section 66 of the
Act aforecited, is that of a regular or general indorser, who, this same section
provides, engages that if the instrument be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it. And the
evidence which the defendant presented, tending to show what were the conditions
to which he obligated himself and in what capacity he intervened in making that
indorsement and that this latter was absolutely without consideration, should
not have been admitted so that he might elude the aforesaid obligation, or, if
admitted, should not be taken into account, because as a regular indorser he
warranted, pursuant to the said section 66, that the instrument was genuine and
in all respects what it purported to be, that he had a good title to it, and
that it was at the time of his indorsement valid and subsisting. He cannot,
therefore, by means of any evidence, and much less of such as consists of his
own testimony, and as such interested party, alter, modify, contradict or annul,
as he virtually claimed and claims to be entitled to do, what in writing and
with a full and perfect knowledge of the meaning and import of the words
contained in the indorse ment, he set forth therein over his signature.

Section 63 of the Act above cited says that a person placing his signature
upon an instrument otherwise than as maker, drawer, or acceptor is deemed to be
an indorser, unless he clearly indicates by appropriate words his intention to
be bound in some other capacity. This provision of the law clearly indicates
that in every negotiable instrument it is absolutely necessary to specify the
capacity in which the person intervenes who is mentioned therein or takes part
in its negotiation, because only by so doing can it be determined what
liabilities arise from that intervention and from whom, how and when they must
be exacted. And if, in the event of a failure to express the capacity in which
the person who signed the negotiable instrument intended to be bound, he should
be deemed to be an indorser, when the very words of the instrument expressly and
conclusively show that such he is, as occurs in the present case, and when the
indorsement contains no restriction, modification, condition or qualification
whatever, there cannot be attributed to him, without violating the provisions of
the said Act, any other intention than that of being bound in the capacity in
which he appears in the instrument itself, nor can evidence be admitted or, if
already admitted, taken into consideration, for the purpose of proving such
other intention, for the simple reason that if the law has already fixed and
determined the capacity in which it must be considered that the person who
signed the negotiable instrument intervened and the intention of his being bound
in a definite capacity, for no other purpose, undoubtedly, than that there shall
be no evidence given in the matter, when that capacity appears in the instrument
itself and the intention is determined by the very same capacity, as occurs in
this case, the admission of evidence in reference thereto is entirely
unnecessary, useless, and contrary to the purposes of the law, which is clear
and precise in its provisions and admits of no subterfuges or evasions for
escaping obligations contracted upon the basis of credit, with evident and sure
detriment to those who intervened or took part in the negotiation of the
instrument.

However, it is held in the majority opinion, for the purpose of sustaining
the premise that the proofs presented by the defendant could have been admitted
without violating the provisions of section 285 of the Code of Civil Procedure,
that the evidence was not offered to vary, alter, modify, or contradict the
terms of an agreement which it is admitted existed between the parties, but
to deny that there ever existed any agreement whatever; to wipe out all
apparent relations between the parties, and not to vary, alter or contradict the
terms of a relation admittedly existing; in other words, the purpose of the
parol evidence was to demonstrate, not that the indorser did not intend to make
the particular indorsement which he did, not that he did not intend to
make the indorsement in the terms made, but rather to deny the reality of
any indorsement; to deny that a relation of any kind whatsoever
was created or existed between him and the indorsee by
reason of the writing on the back of the instrument; to deny that any
consideration ever passed to sustain an indorsement of any kind whatsoever. It
is stated in the same decision that the contention has some of the appearances
of a case in which an indorser seeks to prove forgery.

First of all, we do not see that there exists any appearance or similarity
whatever between the case at bar and one where forgery is sought to be proved.
The defendant did not, either civilly or criminally, impugn the indorsement as
being false. He admitted its existence, as stated in the majority opinion
itself, and did not disown his signature written in the indorsement. His denial
to the effect that the indorsement was wholly without consideration, aside from
the fact that it is in contradiction to the statements that he over his
signature made in the instrument, does not allow the supposition that the
instrument was forged.

The meaning which the majority opinion apparently wishes to convey, in
calling attention to the difference between what, as it says, was the purpose of
the evidence presented by the defendant and what was sought to be proved
thereby, is that the defendant does not endeavor to contradict or alter the
terms of the agreement, which is contained in the instrument and is admitted to
exist between the parties; but to deny the existence of such an agreement
between them, that is, the existence of any indorsement at all, and that any
consideration ever passed to sustain the said indorsement, or, in other words,
that the defendant acknowledged the indorsement as regards the form in which it
appears to have been drawn up, but not with respect to its essence, that is, to
the truth of the particular facts set forth in the indorsement. It cannot be
denied that the practical result of such evidence is other than to contradict,
modify, alter or even to annul the terms of the agreement contained in the
indorsement: so that, in reality, the distinction does not exist that is
mentioned as a ground of the decision of the majority of the court in support of
the opinion that the evidence in question might have been admitted, without
violating the provisions of the aforementioned section 285 of the Code of Civil
Procedure. This section is based upon the same principle which is taken into
account in the Negotiable Instruments Law to write into it such positive and
definite provisions which purport, without possibility of discussion or doubt,
the uselessness of taking evidence when the capacity of the person who
intervened in a negotiable instrument or his intention of being bound in a
particular way appears in the instrument itself or has been fixed by statute, if
it is not shown that he did so in some other capacity than that of maker, drawer
or acceptor.

But, aside from what the Code of Civil Procedure prescribes with respect to
this matter, as the present case is governed by the Negotiable Instruments Law,
we must abide by its provisions.

Section 24 of this Act, No. 2031, says that every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon, to have become a party thereto
for value. If the Act establishes this presumption for the case where there
might be doubt with respect to the existence of a valuable consideration, in
order to avoid the taking of evidence in the matter, when the consideration
appears from the instrument itself by the expression of the value, the
introduction of evidence is entirely unnecessary and improper.

According to section 25 of the same Act, value is any consideration
sufficient to support a simple contract, and so broad is the scope the law gives
to the meaning of “value” in this kind of instruments that it considers as such
a prior or preexistent debt, whether the instrument be payable on demand or at
some future date.

Section 26 provides that where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties
who became such prior to that time. It is unquestionable that the defendant gave
the P3,000 for the instrument, and, for the purpose of the plaintiff’s being
considered a holder for value, both in respect to the maker and to the defendant
indorser, it is immaterial whether he did so directly to the person who appears
in the promissory note as the maker or whether he delivered the sum to the
defendant in order that this latter might in turn, deliver it to the maker.

The defendant being” the holder of the instrument, he is also unquestionably
the holder in due course. In the first place, in order to avoid doubts with
respect to this matter, which might require the introduction of evidence, the
Act before mentioned has provided, in section 59, that every holder is deemed
prima facie to be a holder in due course, and such is the weight it
gives to this presumption and to the consequences derived therefrom, that it
imposes upon the holder the burden to prove that he or some person under whom he
claims acquired the title in due course, only when it is shown that the title of
any person who has negotiated the instrument was defective. This rule, however,
pursuant to the said section, does not apply in favor of a party who became
bound on the instrument prior to the acquisition of such defective title, in
which case the defendant Serrano is not included, because, in the first place,
he was not bound on the instrument prior to the acquisition of the title by the
plaintiff, but it was the maker of the promissory note who was bound on the
instrument executed in favor of the defendant or indorser prior to the
acquisition of the title by the plaintiff; and, in the second place, it does not
appear, nor was it proved, as will be seen hereinafter, that the title in
question was defective.

According to section 52 of the same Act, the plaintiff is the holder in due
course of the instrument in question, that is, of the promissory note containing
the obligation compliance with which is demanded of him by the defendant,
because he took the instrument under the conditions: (a) That it was
complete and regular upon its face; (b) that he became the holder of it
before it was overdue, and without notice that it had been previously
dishonored; (c) that he took it in good faith and for value; and
(d) that at the time it was negotiated to hini he had no notice of any
deficiency in the instrument or defect in the title of the person negotiating
it.

Pursuant to section 56 of the said Act, to constitute notice of a deficiency
in the instrument or defect in the title of the person negotiating,the same, the
person to whom it is transferred must have had actual knowledge of the
deficiency or defect, or knowledge of such facts that his action in taking the
instrument amounted to bad faith.

In the present case it cannot be said, for it is not proven, that the
plaintiff, upon accepting the instrument from the defendant, had actual
knowledge of any deficiency or defect in the same, for the simple reason that it
contains no deficiency or defect. Its terms are very clear and positive. There
is nothing ambiguous, concealed, or which might give rise to any doubt whatever
with respect to its terms or to the agreement made by the parties. Furthermore,
as stated in the majority opinion, the defendant did not intend to make the
particular indorsement which he did make in the terms, form and manner in which
it was made, nor did he intend to change or alter the terms of the agreement
which is admitted to have existed between the parties. All of which indicates
that, neither as regards the plaintiff nor as regards the defendant, was there
any deficiency or defect in the title or in the instrument, and that the
plaintiff, upon taking or receiving the instrument from the defendant, had no
knowledge of any fact from which bad faith on his part might be implied.
Besides, no evidence was produced of the existence of any such bad faith, nor of
the knowledge of any deficiency or defect.

Moreover, section 55 of Act No. 2031 provides that the title of a person who
negotiates an instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such circumstances as amount to a
fraud. As no evidence was taken on these points, the only ones that may be
proven as regards negotiable instruments, the defendant must be deemed to be the
holder of the instrument in due course, pursuant to the provisions of the
aforecited section 59, and he cannot be required to prove that he or his
predecessor in interest acquired the title as such holder in due course.

Now then, according to section 28 of the same Act, as against the holder of
the instrument in due course absence or failure of consideration is not a matter
of defense; and, pursuant to section 57, a holder in due course holds the
instrument free from any defect of title of prior parties, and free from
defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof against all parties liable thereon.
And the next section, No. 58 prescribes that in the hands of any holder other
than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were nonnegotiable.

So it could not be clearer than that, pursuant to the provisions of the
Negotiable Instruments Law, which governs the case at bar, as the plaintiff is
the holder in due course of the instrument in question, no proof whatever from
the defendant could be admitted, nor if admitted should be taken into account,
bearing on the lack of consideration in the indorsement, as alleged by him, and
for the purpose of denying the existence of any indorsement and that any
relation whatever was created or existed between him and the indorsee; likewise,
that no defenses of any kind could have been admitted from the defendant in
respect to the said instrument, and, finally, that the defendant is obligated to
pay the sum mentioned in the said indorsement, it being immaterial whether or
not he be deemed to be an accommodation party in the instrument, in order that
compliance with the said obligation may be required of him in his capacity of
indorser.

Basing our conclusions on the foregoing grounds, and regretting to dissent
from the opinion of the majority of our colleagues, we believe that the judgment
appealed from should be affirmed, with the costs against the appellant.