FACTS:

Town Savings and Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito

G.R. No. 107950, January 30, 1997

Spouses Miguel and Alicia Hipolito applied for and were granted a loan from Town Savings and Loan Bank (TSLB). They executed a promissory note for the loan's amount, with an acceleration clause upon default and corresponding penalties. The Hipolitos failed to make timely payments, causing them to default on the loan. Despite notices and demands for payment, they did not settle their unpaid obligation. TSLB filed a case against them, holding them liable on the promissory note.

The Hipolitos denied their personal liability in the loan, claiming that they were only guarantors for Pilarita H. Reyes, the real borrower. They alleged that they signed the promissory note at the persuasion of TSLB's president, who assured them it was a formality to pressure Pilarita to comply with her obligations. The Regional Trial Court (RTC) ruled in favor of TSLB, declaring the Hipolitos as accommodation parties, and ordered them to pay the outstanding amount owed. On appeal, the Court of Appeals reversed the RTC decision, relieving the Hipolitos of liability. TSLB filed a petition for review to the Supreme Court.

ISSUES:

1. Whether or not the Hipolitos are liable as accommodation parties on the promissory note they signed in favor of TSLB.

RULING:

1. Yes, the Hipolitos are liable as accommodation parties. An accommodation party is one who signs an instrument without receiving value and for the purpose of lending their name to another person. The accommodation party assumes liability to enable the accommodated party to obtain credit or raise money. In this case, it is clear that the Hipolitos signed the promissory note to accommodate Pilarita H. Reyes, Miguel Hipolito's sister, so she could borrow money from TSLB. The actual beneficiary of the loan was Pilarita, and the Hipolitos signed the promissory note to help her obtain the full loan amount she needed. They received no consideration for the instrument and signed it as a favor to Pilarita. Respondent Court of Appeals erred in giving credence to Hipolito's uncorroborated testimony that TSLB induced him to sign the promissory note to avoid violating regulatory limits. The little possibility that the bank would go out of its way to ask the accommodation party to accommodate the borrower is far-fetched. The case of Maulini vs. Serrano, cited by the appellate court, is inapplicable as it involved different circumstances. In the present case, the Hipolitos signed the promissory note as agents of Pilarita, not the bank, and acted as accommodation parties to help her raise the funds she needed. Thus, they are liable on the promissory note.

PRINCIPLES:

An accommodation party signs a financial instrument without receiving value, lending their name to another person for the purpose of obtaining credit or raising money. By signing, they assume liability to enable the accommodated party to obtain the loan. Accommodation parties are liable on the instrument to a holder for value, regardless of whether the holder knew they were only accommodation parties.