Negotiable Instruments Case Digest:Caneda Jr. v. CA (1990)


G.R. No. 81322 February 5, 1990

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments Law)

FACTS:
  • November 8, 1977: Buenaventura Gueson for value received, executed a promissory note for P18,960 in favor of Gregorio Caneda, Jr. promising to pay a monthly installment of P 790 for 24 months with 14% interest/annum

    • Gueson executed a chattel mortgage and used a Toyota Jiffy jeep as a collateral

    • expressly stipulated in the promissory note and chattel mortgage that default in the payment of any installment will make the entire obligation due and demandable

      • promissory note and chattel mortgage was assigned by Gregorio Caneda in favor of Investors Finance Corporation (FNCB). 

  • September 24, 1980: Gueson defaulted in his obligation 

  • December, 1980: FNCB filed a complaint for replevin and/or sum of money against Gueson and John Doe. As relief, FNCB prayed for the seizure of the Toyota Jiffy jeep. In the alternative FNCB also prayed for the payment 

    • Gueson: he did not receive any value for the promissory note he executed as he merely accommodated the real debtor Gregorio Caneda, Jr.; that as the accommodated party Caneda, Jr. executed a deed of sale in Gueson's favor covering the Jiffy jeep subject matter of the chattel mortgage and he also executed a counter deed of sale in favor of Caneda, Jr.; that with the consent of FNCB, Caneda Jr. executed an "undertaking" whereby he bound himself to pay and assume the obligation stipulated in the promissory note and chattel mortgage; that FNCB is not a holder in due course of the promissory note nor an assignee in good faith

  • Trial Court: 

    • Gueson was merely an accommodation party for the benefit of Caneda, Jr.

    • "With recourse to Buenaventura Gueson in case of default" found in the undertaking was inserted only after Caneda and FNCB had already signed the undertaking and without the knowledge of B. Gueson and that Caneda was in bad faith 

ISSUES:
  1. W/N notice was duly served in Caneda Jr.'s office

  2. W/N Caneda Jr. can be held liable even if Gueson is an accommodation party (surety)

HELD:

   1. YES
  • Received by Boy Reyes (neighbor)

    • The statutory requirements of substituted service must be followed strictly, faithfully and fully and any substituted service other than that authorized by statute is considered ineffective (Filmerco Commercial Co., Inc. v. IAC, 149 SCRA 194-196 [1987]).

  • Well-settled is the rule that remanding of a case for the reception of evidence is not necessary if the Supreme Court could resolve the dispute based on the records before it 

    • procedural steps can be dispensed with, which would not anyway affect substantially the merits of their respective claims 

    2. YES
  • No novation

    • CaNeda became a surety as accommodation party

    • In resume, FNCB can go against both Caneda, the principal debtor and Gueson as the surety or either of them

      • But the lower court erred in dismissing the claim against Gueson

        • By not appealing the decision of the lower court, FNCB merely opted to recover its credit from Caneda and waived its right to recover from Gueson

  • "with recourse to Buenaventura Gueson in case of default" is immaterial insofar as the liability of Caneda is concerned

    • merely confirms the fact that Gueson is merely an accommodation party and will not absolve Caneda, the principal debtor, from payment of the indebtedness with FNCB