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LEONARDO BOGNOT v. RRI LENDING CORPORATION

FACTS:

RRI Lending Corporation (respondent) is engaged in the business of lending money and is represented by its General Manager, Mr. Dario J. Bernardez. Leonardo Bognot (petitioner) and his brother, Rolando Bognot, applied for and obtained a loan of P500,000.00 from the respondent. The loan was renewed several times, with the petitioner paying a renewal fee and issuing a new post-dated check as security. In March 1997, the petitioner applied for another loan renewal and issued Promissory Note No. 97-035 and BPI Check No. 0595236 as security. The loan was subsequently renewed until June 30, 1997. A few days before the loan's maturity, Rolando's wife, Julieta Bognot, applied for another renewal and issued Promissory Note No. 97-051 and IBE Check No. 00012522 as renewal fee. However, Julieta never returned the loan documents nor issued a new post-dated check. The respondent sent follow-up letters demanding payment but received no response. The respondent filed a complaint for sum of money against the Bognot siblings, alleging non-payment of the loan and failure to issue a replacement check. Only the petitioner filed his answer, claiming payment of the loan and denial of liability. The trial court ruled in favor of the respondent, and the CA affirmed the ruling. The petitioner filed a petition for review on certiorari, arguing that he should not be held solidarily liable with Rolando, that his liability is extinguished due to material alteration of the promissory note, and that novation occurred when Julieta renewed the loan and assumed the indebtedness.

ISSUES:

  1. Whether the petitioner presented sufficient evidence to prove payment of his obligation.

  2. Whether the alleged material alteration of the promissory note relieves the petitioner from liability.

  3. Whether the alteration of the promissory note without the petitioner's consent can serve as a defense for the release from his loan.

  4. Whether the petitioner can avoid payment of his obligation to the respondent based on the contract of loan due to the alleged tampering of the promissory note.

  5. Whether the petitioner's claim of novation by substitution can be entertained, despite not being raised before the lower courts.

  6. Whether novation took place through a substitution of debtors when Mrs. Bognot renewed the loan and assumed the debt.

  7. Whether the petitioner is solidarily liable with Rolando for the obligation.

  8. Whether the petitioner is solidarily or jointly liable with Rolando for the payment of the loan.

  9. Whether the 5% monthly interest stipulated in the promissory note is unconscionable and should be equitably reduced.

RULING:

  1. The petitioner failed to present evidence to establish the fact of payment. The cancellation and return of the check issued by the petitioner does not by itself constitute sufficient evidence of payment. The petitioner did not present any official receipts or proof that the check was encashed or dishonored. Therefore, the burden of proving payment was not satisfactorily discharged by the petitioner.

  2. The alteration of the promissory note does not relieve the petitioner from liability. The defense of material alteration was not proven, and even if it was, it does not automatically release the petitioner from his loan obligation. The petitioner remained liable for the loan unless the obligation was extinguished by payment.

  3. The defense of release from the loan based on the alteration of the promissory note without the petitioner's consent is untenable. While the respondent did not dispute the alteration, it was stated in the Pre-Trial Order that the superimposition was done with the petitioner's consent. Additionally, the respondent's admission that rubber stamping or superimposition through a rubber stamp is part of its company practice further supports the notion that the alteration was not done without the petitioner's knowledge. Therefore, even if the note had been tampered with, the petitioner cannot avoid payment of his obligation based on the contract of loan.

  4. The petitioner's obligation and liability to the respondent have been duly established through various evidence, such as his loan application, admission of obtaining the loan, issuance of post-dated checks, testimony of a witness, and proof of non-payment and loan renewals. The tampered promissory note does not invalidate the existence of the obligation and the subsequent renewals. Hence, the petitioner can still be held liable for the unpaid loan.

  5. The petitioner's claim of novation by substitution cannot be entertained since it was not raised before the lower courts. It is a settled principle that no issue may be raised on appeal if it was not brought before the lower tribunal for its consideration. Matters that were neither alleged in the pleadings nor raised during the proceedings cannot be presented for the first time on appeal before the Supreme Court.

  6. Novation did not take place through a substitution of debtors. Mrs. Bognot merely attempted to renew the original loan but did not substitute the petitioner as debtor. Novation by substitution of debtor requires the consent of the creditor, which was not given in this case. Therefore, no valid novation took place and the petitioner is not released from his obligation.

  7. The Court held that the CA erred in holding the petitioner solidarily liable with Rolando. The promissory note, which states that the parties are "jointly and severally" liable, could not be admitted as evidence because only a photocopy was presented and the original was not produced. Without any other evidence to support solidary liability, the Court ruled that the petitioner is not solidarily liable with Rolando.

  8. The obligation to pay the loan is only joint, as there is no evidence showing that the petitioner had bound himself solidarily with Rolando.

  9. The 5% monthly interest stipulated in the promissory note is excessive, iniquitous, unconscionable, and exorbitant. It is contrary to morals and is therefore illegal. The interest rate is reduced to 1% per month or 12% per annum in accordance with prevailing jurisprudence.

PRINCIPLES:

  • In a Rule 45 petition, the Court's jurisdiction is limited to the review of pure questions of law. Appreciation of evidence and inquiry into factual findings are not within the scope of the Court's functions.

  • The burden of proving payment rests on the defendant, and once the existence of an indebtedness is established, the burden shifts to the debtor to prove with legal certainty that the obligation has been discharged by payment.

  • Delivery of checks does not operate as payment, and payment must be made in legal tender. The mere cancellation and return of a check does not establish the fact of payment.

  • The legal presumption of renunciation of action raised by Article 1271 of the Civil Code is merely prima facie and can be rebutted by evidence to the contrary.

  • Material alteration of a promissory note does not automatically relieve the debtor from his/her loan obligation. The debtor remains liable unless the obligation is extinguished by payment.

  • A promissory note is evidence of indebtedness, but its absence or alteration does not negate the existence of the obligation, which can be proven through other documentary evidence or testimony.

  • A check can serve as evidence of indebtedness and can be presented to establish the existence of an obligation, similar to a promissory note.

  • Novation, as a mode of extinguishing an obligation, requires the express release of the original debtor and the assumption of the obligation by a new debtor, with the consent of the creditor. Novation cannot be presumed and must be clearly and unequivocally proven.

  • Novation by substitution of debtor requires the consent of the creditor and the release of the original debtor.

  • Solidary liability must be clearly and expressly stated, and cannot be inferred lightly. It must be positively and clearly expressed and cannot be presumed.

  • The best evidence rule applies when the subject of inquiry is the contents of a document, and no evidence is admissible other than the original document itself unless certain exceptions apply.

  • Unconscionable interest rates may be declared illegal, even if parties have the freedom to stipulate on interest rates under Central Bank Circular No. 905 s. 1982.

  • Stipulations authorizing iniquitous or unconscionable interests are contrary to morals and are, thus, illegal.

  • Excessive, iniquitous, unconscionable, and exorbitant interest rates can be annulled.

  • Violation of Article 1306 (mutual agreement) of the Civil Code renders a stipulated interest rate void ab initio.