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TEODORO BAÑAS v. ASIA PACIFIC FINANCE CORPORATION

FACTS:

Asia Pacific Finance Corporation (ASIA PACIFIC) filed a complaint for a sum of money against Teodoro Bañas, C. G. Dizon Construction, and Cenen Dizon. C. G. Dizon Construction endorsed a Promissory Note to ASIA PACIFIC, and Cenen Dizon executed a Deed of Chattel Mortgage and a Continuing Undertaking to secure payment. C. G. Dizon Construction made several installment payments but later defaulted. ASIA PACIFIC sued the defendants for the remaining balance. The defendants admitted the genuineness and execution of the documents but claimed they were not intended to be legal and binding, and that they were only used to conceal a usurious loan. Defendants also alleged that they received less than the loan amount due to deductions. ASIA PACIFIC attempted to impose additional interest for delay in payment, which defendants refused to pay. Defendants claimed that ASIA PACIFIC offered to surrender ownership of two bulldozer crawler tractors in exchange for the account being treated as fully paid. The trial court ruled in favor of ASIA PACIFIC, and the Court of Appeals affirmed the decision. The defendants argued that the transaction violated banking laws, while ASIA PACIFIC argued it was a purchase of receivables.

ISSUES:

  1. Whether the transaction between the petitioners and respondent constitutes a loan or the purchase of receivables at a discount.

  2. Whether the Deed of Chattel Mortgage and the Continuing Undertaking were intended to be legal, valid, and binding.

  3. Whether there was a binding and perfected contract between petitioners and respondent regarding the settlement of the obligation.

  4. Whether petitioners are liable for the deficiency.

RULING:

  1. The transaction between the petitioners and respondent involves the purchase of receivables at a discount, which falls within the purview of "investing, reinvesting, or trading in securities" that an investment company is authorized to perform. Therefore, it does not constitute a violation of the General Banking Act.

  2. The Deed of Chattel Mortgage and Continuing Undertaking are duly acknowledged notarial documents, which have the presumption of regularity. Without clear and convincing evidence to contradict them, it cannot be proven that the parties did not intend for these documents to be legal, valid, and binding.

  3. The Supreme Court held that there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation. The alleged verbal understanding between the parties was conditional and dependent on whether the value of the bulldozer crawler tractors surrendered by petitioners would equal the balance of the loan. Since there was no evidence of a written agreement and the bulldozers were sold at a foreclosure sale for only a portion of the unpaid balance, petitioners are still liable for the deficiency.

  4. Petitioners are liable for the deficiency in the unpaid balance of the obligation. They paid a total sum of P130,000.00 in addition to the proceeds from the sale of the bulldozer crawler tractors. Deducting these amounts from the principal obligation, there is still an unpaid balance of P87,637.50, for which petitioners are jointly and severally liable.

PRINCIPLES:

  • An investment company refers to any issuer primarily engaged in investing, reinvesting, or trading in securities.

  • The General Banking Act prohibits investment companies from lending funds obtained from the public through the receipt of deposits.

  • The court relies on the written contracts of the parties to determine their true intention.

  • Without clear and convincing evidence, notarial documents are considered as evidence of the facts expressed therein.

  • The Supreme Court's jurisdiction is limited to reviewing errors of law committed by lower courts, not to analyzing and weighing the factual bases of the decision.

  • A conditional contract is merely conjecture until the fulfillment of the condition, and is not binding and perfected until then.

  • A party cannot escape an obligation by impugning its validity and legality after benefiting from the transaction.

  • Article 1229 of the New Civil Code empowers the judge to equitably reduce civil penalties when the principal obligation has been partly or irregularly complied with.

  • Liquidated damages stipulated in a contract, as long as they do not contravene the law, morals, and public order, are strictly binding upon the obligor.