G.R. No. L-34539 July 14, 1986
EULALIO PRUDENCIO and ELISA T. PRUDENCIO, petitioners, vs. THE HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK, RAMON C. CONCEPCION and MANUEL M. TAMAYO, partners of the defunct partnership Concepcion & Tamayo Construction Company, JOSE TORIBIO, Atty-in-Fact of Concepcion & Tamayo Construction Company, and THE DISTRICT ENGINEER, Puerto Princesa, Palawan, respondents.

FACTS

Petitioners Eulalio and Elisa Prudencio owned land mortgaged to the Philippine National Bank (PNB). In 1955, they were persuaded by a relative, Jose Toribio, attorney-in-fact for Concepcion & Tamayo Construction Company, to amend their existing mortgage to secure a P10,000.00 loan for the Company’s construction contract in Puerto Princesa. The petitioners signed the amendment and the corresponding promissory note as accommodation makers. A Deed of Assignment was also executed, assigning the contract payments from the Bureau of Public Works directly to PNB.
Despite this assignment, PNB, with the Bureau’s approval, authorized three direct payments totaling P11,234.40 to the Construction Company for labor and materials. PNB later denied a subsequent payment request because the loan was overdue. The Company abandoned the project, the contract was rescinded, and PNB demanded payment from the petitioners.

ISSUE

The primary issue is whether the petitioners, as accommodation makers, were released from their obligation due to PNB’s act of authorizing direct payments to the principal debtor, thereby violating the terms of the Deed of Assignment.

RULING

The Supreme Court reversed the Court of Appeals and absolved the petitioners from liability. The legal logic centers on the relationship between the accommodation party, the principal debtor, and the creditor. While an accommodation maker is generally solidarily liable with the principal debtor on the promissory note, this liability is not absolute and can be extinguished by acts of the creditor that materially alter the contract or prejudice the accommodation party without its consent.
Here, the execution of the Deed of Assignment, which channeled contract payments directly to PNB, was a crucial security feature for the petitioners. It was the principal reason they agreed to accommodate the loan, as it ensured the loan would be paid from the assigned funds. By unilaterally authorizing direct payments to the Construction Company, PNB violated the very terms of this security arrangement. This act prejudiced the petitioners by diverting the funds earmarked for loan payment, ultimately leading to the loan’s default. As the assignee and the creditor were one and the same entity (PNB), its violation of the assignment directly caused the non-payment of its own credit.
The Court rejected PNB’s defense that the payments were for laborers and materials, noting such claims constituted a lien on the building, not a preference over the mortgage, and those parties had already been paid. The loss must be borne by the party whose act caused it. Since PNB’s unauthorized amendment of the payment scheme, done without petitioners’ knowledge or consent, fundamentally altered the risk they undertook, the petitioners were rightfully discharged from their obligation as accommodation makers and the corresponding real estate mortgage.