FACTS:

Laguna  Coconut  Oil  Company  executed  the  following  promissory  note  in favor of the Philippine Vegetable Oil Company:
 

 
After  a  month,  Fidelity  &  Surety  Company  of  the  Philippine  Islands  made the following notation on the note:
 

 
Philippine  Vegetable  Oil  Company  indorsed  the  note  to  BPI,  which  at maturity  date  demanded  payment  from  both  Laguna  Oil  and  Fidelity Surety.  Both having failed to pay, BPI instituted actions against them. PNB pleaded  the  note  with  its  indorsements  by  copy  and  alleged  that  the Fidelity  &  Surety  Company  by  having  undertaken  to  hold  the  Laguna  Oil harmless for having discounted the note, contracted the obligation to pay said note on behalf of the Laguna Oil and to be surety for the latter.  The trial  court  held  against  Fidelity  and  Surety  and  demanded  it  to  pay  the note.    The  trial  court  also  held  that  the  words  “BPI”  should  have  been placed in the indorsement rather than “Laguna Oil”.
 
HELD:

The  trial  court  underestimated  the  importance  of  pleading  the  supposed mistake  in  the  complaint.  The  judgment  as  it  stands  clearly  involves  a reformation of the contract of guaranty and it is elementary that the facts upon  which  relief  by  reformation  is  sought  must  be  put  in  issue  by  the pleadings.    Jurisprudence  states  that  a  court  of  equity  cannot  reform  an instrument except on allegations, which make out a case for the equitable remedy asked. The allegations must show that the instrument sought to be reformed  fails  to  express  the  real  agreement  or  transaction  between  the parties  by  reason  of  their  mutual  mistake  or  on  account  of  fraud  of  one them  or  fraud  or  inequitable  condition  on  one  side  and  mistake  on  the other.
 
The indorsement upon which this action is brought does not in terms show any obligation in favor of PNB and the action can only be maintained upon the theory that the writing does not express the true intent of the parties. It could be speculated that the guarantee in question was intended for the benefit of the party who subsequently discounted the note, but this cannot be certain. The note may have been merely an accommodation not and the guarantee may have been intended for the protection of the maker in the
event  of  the  discounting  of  the  note  or  its  transfer  to  a  third  party.  The appellee  contends  that  this  hypothesis  is  negatived  by  the  fact  that  the words  "value  received"  appear  in  the  note  as  quoted  in  the  stipulation  of facts.  But  that  proves  nothing definitely  or  conclusively.  Unless  otherwise stated in the instrument, a negotiable promissory note implied prima facie valuable  consideration  moving  to  the  maker  whether  the  words  "value received" appear in it or not. 
 
An  accommodation  note  showing  on  its  face  in  express  terms  that  it  had been issued for no consideration would be of little or no use to the payee, and for that reason, if for no other, practically all accommodation notes are so drawn as to either express or imply a valuable consideration prima facie.
There  is  therefore  nothing  in  the  note  here  in  question  to  distinguish  it from an ordinary accommodation note. This being so and the guarantee of the Fidelity & Surety Company by its terms being in favor of the maker of the note, there is at least a possibility that the Fidelity, if called upon to do
so,  might  have  been  able  to  prove  that  the  note  was  given  as  an accommodation to the Vegetable Oil Company. This possibility existing, the court  was  not  justified  in  virtually  reforming  the  document  by  mere construction without proper pleadings. In this connection it should be borne in mind that contracts of suretyship and guarantee are strictly construed in favor of the surety or guarantor.