SECOND DIVISION
[ G.R. No. 147758, June 26, 2002 ]SPS. ARSENIO R. REYES AND NIEVES S. REYES v. CA +
SPOUSES ARSENIO R. REYES AND NIEVES S. REYES, PETITIONERS, VS. COURT OF APPEALS AND PABLO V. REYES, RESPONDENTS.
D E C I S I O N
SPS. ARSENIO R. REYES AND NIEVES S. REYES v. CA +
SPOUSES ARSENIO R. REYES AND NIEVES S. REYES, PETITIONERS, VS. COURT OF APPEALS AND PABLO V. REYES, RESPONDENTS.
D E C I S I O N
BELLOSILLO, J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals promulgated on 14 July 2000 in CA-G.R. CV No. 51437 and its Resolution[2] of 2 April 2001 denying reconsideration.
This petition arose from a civil case for collection of a sum of money with preliminary attachment filed by respondent Pablo V. Reyes against his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the Complaint. The loan was to be used supposedly to buy a lot in Parañaque. It was evidenced by an acknowledgment receipt[3] dated 15 July 1990 signed by the petitioner-spouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda, which read:
In their Answer petitioners admitted their loan from respondent but averred that there was a novation so that the amount loaned was actually converted into respondent's contribution to a partnership formed between them on 23 March 1990. [8] According to petitioner Nieves, sometime in 1989 respondent Pablo went to their house and proposed to petitioner Arsenio the formation of a partnership to develop the property petitioners planned to buy. He agreed and on 23 March 1990 they executed their Articles of Partnership of Feliz Casa Realty Development, Ltd. Each partner was to contribute a capital of P2,000,000.00. Arsenio's contribution was his P1,000,000.00 investment with the owner of the real property to be purchased. Respondent Pablo contributed only P500,000.00.[9]
While the partnership existed, respondent received a total amount of P84,000.00 in BPI Family Bank checks as advances from the partnership funds.[10] In October 1990 respondent wanted to withdraw from the partnership and asked for the return of his investment. Petitioners agreed to convert his contribution into a non-interest-bearing loan of petitioners. In view of the conversion, the advances to respondent through the BPI Family Bank checks would be deducted from his investment. Petitioners were also forced to turn over their Nissan pickup truck to respondent to pay the obligation.[11]
Prior to the conversion of respondent's contribution into a loan, respondent approached petitioner Nieves and asked her to write an acknowledgment receipt dated 15 July 1990 for the sum of P500,000.00. According to respondent, the receipt would be shown only to his family to assure them that he had invested the money with petitioners. Petitioner Nieves agreed and respondent dictated the words of the receipt to her. The five percent (5%) interest in the receipt would reflect the amount respondent would receive in the profits of the investment. Later, respondent intercalated the date "7/19/90" and the figures "P100,000.00" and "chk. 168514," to reflect the check he issued to petitioner Nieves. Two (2) days later, respondent retrieved the amount of P100,000.00 in cash from Nieves.[12]
On 30 August 1995 the trial court decided in favor of respondent Pablo V. Reyes. It found that petitioners had incurred an obligation in his favor in the amount of P600,000.00 evidenced by the promissory note dated 15 July 1990. The evidence presented by petitioners failed to convince the trial court that the loan obligation was novated into a contribution to the partnership. Petitioners were ordered to pay respondent the amount of P1,472,850.00 with legal interest from the date of filing of the complaint, P15,000.00 as attorney's fees plus P600.00 as appearance fee for every hearing of the case, plus costs of suit.[13]
The Court of Appeals likewise found petitioners liable and held that they secured a loan of P500,000.00 from respondent which was delivered to them on two (2) separate occasions as reflected in their acknowledgment receipt: P300,000.00 on 16 March 1990 and P200,000.00 on 14 July 1990. On 15 July 1990 petitioner Nieves wrote an acknowledgment receipt of the same date at respondent Pablo's request.
When the partnership was formed on 23 March 1990 the loan of P300,000.00 became part of respondent's capital contribution to the partnership. However, the amount remained a loan as evidenced by the acknowledgment receipt and the bank checks received from petitioners. The receipt was executed months after the partnership was formed and was clearly valid and binding. The amounts of the checks respondent received on 16 April 1990 and 13 July 1990, each for P15,000.00, were equivalent to the five percent (5%) interest of the loan of P300,000.00. The amounts received on 17 May 1990 and 15 June 1990, each for P9,000.00, were substantial payments for the interest. At the time these payments were made, the interest for the loan of P200,000.00 was not yet due. The appellate court further ruled that the interest of five percent (5%) per month was not usurious as it was freely agreed upon by the parties and expressly stipulated in writing.[14]
Hence, the Court of Appeals ordered petitioners to pay respondent P500,000.00 with interest at five percent (5%) per month from 15 July 1990. The amount of P400,000.00 was to be deducted from the principal loan beginning 5 February 1993, less the interest payments in the total amount of P69,000.00 when final payment of the total amount would be made.[15]
In this petition for review, petitioners allege that there was a grave misapprehension of facts on the part of the appellate court because it failed to consider the following established facts and events and relate these events to the dates when they occurred: (a) That as of 23 March 1990, a partnership was forged between the parties; (b) That the P500,000.00 given by respondent to petitioners was originally his capital contribution to the partnership; (c) That the receipt dated 15 July 1990 is a simulated document and therefore should not be given any evidentiary weight and should be declared invalid and legally non-existent; (d) That the checks issued from 16 April 1990 to 13 July 1990 in the total amount of P48,000.00 should be considered as advances from petitioners to respondent during the time the partnership was existing and there was no conversion yet of respondent's contribution of P500,000.00 into a loan obligation of petitioners; (e) That respondent's initial capital contribution of P500,000.00 was converted into a non-interest- bearing loan only in October 1990; (f) Hence, the check for P36,000.00 issued to respondent by petitioners on 3 May 1991 was plainly in payment of subject loan agreed on by the parties after respondent's withdrawal of his mentioned investment in the partnership in October 1990; (g) That during the existence of the partnership from 23 March 1990 to September 1990, there was definitely no loan to speak of; and, (h) That the total amount of the payments made by petitioners to respondent as of the date of filing of the complaint is P484,000.00 and therefore the unpaid balance is only P16,000.00.[16]
In opposing the petition, respondent states that it raises questions of fact which are not allowed in a petition for review on certiorari. The findings of fact of the Court of Appeals are final and conclusive and cannot be reviewed by the Court. Petitioners are changing their theory of defense this late in the proceedings because they have alleged different defenses before the courts below.
Petitioners alleged in their Answer that there was originally a loan of P600,000.00 which was later converted into respondent's contribution to the partnership. But in their appeal to the appellate court and in the present petition, they contend that the amount involved is only P500,000.00 which was respondent's contribution to the partnership, later converted into a non-interest-bearing loan. Further, petitioners are precluded from arguing that the promissory note does not reflect the true intent of the parties since this issue was not raised in their answer but only for the first time on appeal to the Court of Appeals.[17]
While it is true that petitioners failed to raise the question of the genuineness of the acknowledgment receipt, respondent also failed to timely object to the parol evidence consisting of the testimony of petitioner Nieves during the trial to prove that the acknowledgment receipt was a simulated document. In fact, respondent participated in the trial and even cross-examined petitioner Nieves on this point.
Under the Rules of Court, any objection to the admissibility of evidence should be made at the time such evidence is offered or soon thereafter as the objection to its admissibility becomes apparent,[18] otherwise the objection will be considered waived and such evidence will form part of the records of the case as competent and admissible.[19] Failure to object to the parol evidence constitutes a waiver to its admissibility.[20] By his cross-examination, respondent has waived his right to object to parol evidence.[21] He cannot now contend that this issue was not raised before the trial court as this was threshed out during the trial.
The general rule is that only questions of law may be raised in a petition for review on certiorari. The appellate jurisdiction of this Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law incurred by the latter, the findings of fact of the Court of Appeals being final as to the former. Its only power will be to determine if the legal conclusions drawn from the findings of fact are correct. Barring a showing that the findings complained of are totally devoid of support in the record, such findings must stand, for the Court is not expected or required to examine or refute the oral and documentary evidence submitted by the parties.[22] This is the general rule, which in the instant case, we are not inclined to disturb.
In civil cases, the party having the burden of proof must establish his case by preponderance of evidence,[23] or that evidence which is of greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the testimony of one side is more believable than the other side, and that the probability of truth is on one side than on the other.[24] In the case at bar, respondent has successfully overcome the burden of proof.
The Court of Appeals relied on the acknowledgment receipt to hold petitioners liable for the amount of money loaned, finding it to be a valid and binding promissory note. We agree. It is valid and binding between the parties who executed it, as a document evidencing the loan agreement they had entered into. Petitioners' defense that it is a simulated document which does not reflect the true intent and agreement of the parties is not persuasive. Petitioners' testimonial evidence cannot stand against the acknowledgment receipt presented by respondent.
In their Answer in the court below, petitioners alleged that they first obtained a loan and this was subsequently converted to respondent's contribution to the partnership.[25] Nieves' testimony that the amount was originally respondent's partnership contribution which was later converted into a loan contradicts this. It has been ruled that an allegation in a pleading is not evidence but is a declaration that has to be proved by evidence.[26] If evidence contrary to the allegation is presented, such evidence controls, not the allegation in the pleading itself, although admittedly it may dent the credibility of the witness,[27] as in this case. Variance between petitioners' allegations and Nieves' testimony convinced the trial court that she was an unreliable witness. It was precisely for this reason that the trial court rejected her testimony on this point and resolved that the evidence did not support petitioners' allegation that there was a novation of the loan.[28] The trial court concluded that the money in question was the object of a loan between the parties and this loan was never the subject of any novation.
The Court of Appeals likewise found that there was no novation, which is defined as the extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or principal conditions, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.[29] For novation to take place, the following requisites must concur: (a) there must be a previous valid obligation; (b) there must be an agreement of the parties concerned to a new contract; (c) there must be the extinguishment of the old contract; and, (d) there must be the validity of the new contract.[30]
In the case at bar, the third requisite is not present. The parties did agree that the amount loaned would be converted into respondent's contribution to the partnership, but this conversion did not extinguish the loan obligation. The date when the acknowledgment receipt/promissory note was made negates the claim that the loan agreement was extinguished through novation since the note was made while the partnership was in existence.
Significantly, novation is never presumed. It must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken for anything else. An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one.[31]
When questioned as to why she executed the acknowledgment receipt, Nieves answered that she did so only at respondent's request, allowing the latter to dictate the contents of the receipt. The execution of the receipt was supposedly for the reason that respondent needed to reassure his family that he had indeed invested his money in a profitable venture. If that was the case, Nieves should have objected to the inclusion of the statement of interest payments in the receipt. There was no need to disguise the intended profits as interest payments. Using petitioners' reasoning, they belonged to the same family so there was no need to conceal the true nature of the transaction. The statement of the interest payments negates the allegation that it is merely an acknowledgment receipt and not a promissory note. The appellate court was correct in concluding that the amount remained a loan despite the partnership agreement.
But as to the amount of the loan, the trial court and the Court of Appeals differed. The trial court held it to be P600,000.00 while the appellate court fixed it at P500,000.00. We agree with the appellate court. The promissory note shows that the amount of P100,000.00 was merely intercalated by respondent in his own handwriting and was not initialed by petitioners to show their conformity thereto.
However, we cannot agree with the disposition of the appellate court to apply the payment of P400,000.00 to the principal of the loan. Instead, the amount should first be applied to the unpaid interest in accordance with the application of payments provided in Art. 1253 of the Civil Code.[32]
WHEREFORE, the assailed Decision of 14 July 2000 in CA-G.R. CV No. 51437 and the Resolution of 2 April 2001 of respondent Court of Appeals are MODIFIED. Petitioner-spouses Arsenio R. Reyes and Nieves S. Reyes are ordered to pay respondent Pablo V. Reyes P500,000.00 with interest at five percent (5%) per month from 15 July 1990, minus the P484,000.00 corresponding to the value of the pickup truck of P400,000.00 and the interest payments of P84,000.00 previously paid. No costs.
SO ORDERED.
Mendoza, and Corona, JJ., concur.
Quisumbing, J., on official business.
[1] Decision penned by Associate Justice Mariano M. Umali, concurred in by Associate Justices Conrado M. Vasquez, Jr. and Eriberto U. Rosario, Jr. of the Sixteenth Division.
[2] Resolution penned by Associate Justice Eriberto U. Rosario, concurred in by Associate Justices Conrado M. Vasquez Jr., and Romeo A. Brawner, Special Former Sixteenth Division
[3] Exh. "A," Original Records, p. 117.
[4] Exhs. "2," "2-a," "2-b," "2-c" and "2-d;" id., pp. 157-158.
[5] Exh. "B;" id, p. 118.
[6] Exh. "C;" id, p. 119.
[7] Exh. "I;" id, p. 122.
[8] Id, p. 10.
[9] TSN, 6 July 1995, pp. 6-13.
[10] Id, pp. 14-15.
[11] Id, pp. 13-14.
[12] Id., pp. 16-19.
[13] Decision penned by Judge Gil P. Fernandez, Sr., RTC-Br. 217, Quezon City; id., pp. 186-190.
[14] Security Bank and Trust Co. v. RTC of Makati, Br. 61, G.R. No. 113926, 23 October 1996, 263 SCRA 483; People v. Dizon, G.R. No. 120957, 22 August 1996, 260 SCRA 851.
[15] Rollo, pp. 25-38; CA Records, pp. 89-102.
[16] Rollo, pp. 20-21.
[17] Id., pp. 53-58.
[18] Sec. 36, Rule 132, Revised Rules of Court.
[19] Chua v. Court of Appeals, G.R. No. 109840, 21 January 1999, 301 SCRA 356, 362.
[20] Macfarlane v. Green, 54 Phil. 551, 556 (1930); Abrenica v. Gonda and De Garcia, 34 Phil. 739, 748 (1916).
[21] Talosig v. Vda. de Nieba, No. L-29557, 29 February 1972, 43 SCRA 472, 476.
[22] Santa Ana, Jr. v. Hernandez, No. L-16394, 17 December 1966, 18 SCRA 973, 978-979.
[23] Sec. 1, Rule 133, Revised Rules on Evidence.
[24] Rivera v. Court of Appeals, G.R. No. 115625, 23 January 1998, 284 SCRA 673.
[25] See Note 8; Original Records, p. 10.
[26] Concepcion v. Court of Appeals, G.R. No. 120706, 31 January 2000, 324 SCRA 85, 93.
[27] Ibid.
[28] Original Records, p. 189; CA Records, p. 47.
[29] Lim Tay v. Court of Appeals, G.R. No. 126891, 5 August 1998, 293 SCRA 634.
[30] Ong v. Court of Appeals, G.R. No. 97347, 6 July 1999, 310 SCRA 1, 13.
[31] Ocampo-Paule v. Court of Appeals and People, G.R. No. 145872, 4 February 2002, citing Velasquez v. Court of Appeals, 309 SCRA 539.
[32] Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
This petition arose from a civil case for collection of a sum of money with preliminary attachment filed by respondent Pablo V. Reyes against his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the Complaint. The loan was to be used supposedly to buy a lot in Parañaque. It was evidenced by an acknowledgment receipt[3] dated 15 July 1990 signed by the petitioner-spouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda, which read:
This is to acknowledge receipt (of) the sum of Five hundred thousand pesos (P500,000.00) from (?) broken down as follows:Petitioners paid the interests on the loan with the following BPI Family Bank checks[4] drawn against their personal account:
3/16/90 -- P300,000.00 7/19/90 chk.168514
7/14/90 -- P200,000.00 + P100,000
Total amt. P500,000.00, with corresponding interest at five percent per month (5%) due and payable every 15th day of the month for a period of six months.
Petitioners also turned over to private respondent their Nissan pickup truck worth P400,000.00 in partial payment of the loan, and on 30 January 1993 petitioner Arsenio executed a deed of absolute sale[5] over the vehicle in favor of respondent. Respondent's wife Araceli Reyes issued an acknowledgment receipt[6] therefor. Subsequently, petitioners failed to make any further payments despite written demand for payment on 24 August 1993.[7]
Check No. 147749 16 April 1990 Check No. 147827 17 May 1990 Check No. 147877 15 June 1990 Check No. 147862 13 July 1990 Check No. 159586 3 May 1991
In their Answer petitioners admitted their loan from respondent but averred that there was a novation so that the amount loaned was actually converted into respondent's contribution to a partnership formed between them on 23 March 1990. [8] According to petitioner Nieves, sometime in 1989 respondent Pablo went to their house and proposed to petitioner Arsenio the formation of a partnership to develop the property petitioners planned to buy. He agreed and on 23 March 1990 they executed their Articles of Partnership of Feliz Casa Realty Development, Ltd. Each partner was to contribute a capital of P2,000,000.00. Arsenio's contribution was his P1,000,000.00 investment with the owner of the real property to be purchased. Respondent Pablo contributed only P500,000.00.[9]
While the partnership existed, respondent received a total amount of P84,000.00 in BPI Family Bank checks as advances from the partnership funds.[10] In October 1990 respondent wanted to withdraw from the partnership and asked for the return of his investment. Petitioners agreed to convert his contribution into a non-interest-bearing loan of petitioners. In view of the conversion, the advances to respondent through the BPI Family Bank checks would be deducted from his investment. Petitioners were also forced to turn over their Nissan pickup truck to respondent to pay the obligation.[11]
Prior to the conversion of respondent's contribution into a loan, respondent approached petitioner Nieves and asked her to write an acknowledgment receipt dated 15 July 1990 for the sum of P500,000.00. According to respondent, the receipt would be shown only to his family to assure them that he had invested the money with petitioners. Petitioner Nieves agreed and respondent dictated the words of the receipt to her. The five percent (5%) interest in the receipt would reflect the amount respondent would receive in the profits of the investment. Later, respondent intercalated the date "7/19/90" and the figures "P100,000.00" and "chk. 168514," to reflect the check he issued to petitioner Nieves. Two (2) days later, respondent retrieved the amount of P100,000.00 in cash from Nieves.[12]
On 30 August 1995 the trial court decided in favor of respondent Pablo V. Reyes. It found that petitioners had incurred an obligation in his favor in the amount of P600,000.00 evidenced by the promissory note dated 15 July 1990. The evidence presented by petitioners failed to convince the trial court that the loan obligation was novated into a contribution to the partnership. Petitioners were ordered to pay respondent the amount of P1,472,850.00 with legal interest from the date of filing of the complaint, P15,000.00 as attorney's fees plus P600.00 as appearance fee for every hearing of the case, plus costs of suit.[13]
The Court of Appeals likewise found petitioners liable and held that they secured a loan of P500,000.00 from respondent which was delivered to them on two (2) separate occasions as reflected in their acknowledgment receipt: P300,000.00 on 16 March 1990 and P200,000.00 on 14 July 1990. On 15 July 1990 petitioner Nieves wrote an acknowledgment receipt of the same date at respondent Pablo's request.
When the partnership was formed on 23 March 1990 the loan of P300,000.00 became part of respondent's capital contribution to the partnership. However, the amount remained a loan as evidenced by the acknowledgment receipt and the bank checks received from petitioners. The receipt was executed months after the partnership was formed and was clearly valid and binding. The amounts of the checks respondent received on 16 April 1990 and 13 July 1990, each for P15,000.00, were equivalent to the five percent (5%) interest of the loan of P300,000.00. The amounts received on 17 May 1990 and 15 June 1990, each for P9,000.00, were substantial payments for the interest. At the time these payments were made, the interest for the loan of P200,000.00 was not yet due. The appellate court further ruled that the interest of five percent (5%) per month was not usurious as it was freely agreed upon by the parties and expressly stipulated in writing.[14]
Hence, the Court of Appeals ordered petitioners to pay respondent P500,000.00 with interest at five percent (5%) per month from 15 July 1990. The amount of P400,000.00 was to be deducted from the principal loan beginning 5 February 1993, less the interest payments in the total amount of P69,000.00 when final payment of the total amount would be made.[15]
In this petition for review, petitioners allege that there was a grave misapprehension of facts on the part of the appellate court because it failed to consider the following established facts and events and relate these events to the dates when they occurred: (a) That as of 23 March 1990, a partnership was forged between the parties; (b) That the P500,000.00 given by respondent to petitioners was originally his capital contribution to the partnership; (c) That the receipt dated 15 July 1990 is a simulated document and therefore should not be given any evidentiary weight and should be declared invalid and legally non-existent; (d) That the checks issued from 16 April 1990 to 13 July 1990 in the total amount of P48,000.00 should be considered as advances from petitioners to respondent during the time the partnership was existing and there was no conversion yet of respondent's contribution of P500,000.00 into a loan obligation of petitioners; (e) That respondent's initial capital contribution of P500,000.00 was converted into a non-interest- bearing loan only in October 1990; (f) Hence, the check for P36,000.00 issued to respondent by petitioners on 3 May 1991 was plainly in payment of subject loan agreed on by the parties after respondent's withdrawal of his mentioned investment in the partnership in October 1990; (g) That during the existence of the partnership from 23 March 1990 to September 1990, there was definitely no loan to speak of; and, (h) That the total amount of the payments made by petitioners to respondent as of the date of filing of the complaint is P484,000.00 and therefore the unpaid balance is only P16,000.00.[16]
In opposing the petition, respondent states that it raises questions of fact which are not allowed in a petition for review on certiorari. The findings of fact of the Court of Appeals are final and conclusive and cannot be reviewed by the Court. Petitioners are changing their theory of defense this late in the proceedings because they have alleged different defenses before the courts below.
Petitioners alleged in their Answer that there was originally a loan of P600,000.00 which was later converted into respondent's contribution to the partnership. But in their appeal to the appellate court and in the present petition, they contend that the amount involved is only P500,000.00 which was respondent's contribution to the partnership, later converted into a non-interest-bearing loan. Further, petitioners are precluded from arguing that the promissory note does not reflect the true intent of the parties since this issue was not raised in their answer but only for the first time on appeal to the Court of Appeals.[17]
While it is true that petitioners failed to raise the question of the genuineness of the acknowledgment receipt, respondent also failed to timely object to the parol evidence consisting of the testimony of petitioner Nieves during the trial to prove that the acknowledgment receipt was a simulated document. In fact, respondent participated in the trial and even cross-examined petitioner Nieves on this point.
Under the Rules of Court, any objection to the admissibility of evidence should be made at the time such evidence is offered or soon thereafter as the objection to its admissibility becomes apparent,[18] otherwise the objection will be considered waived and such evidence will form part of the records of the case as competent and admissible.[19] Failure to object to the parol evidence constitutes a waiver to its admissibility.[20] By his cross-examination, respondent has waived his right to object to parol evidence.[21] He cannot now contend that this issue was not raised before the trial court as this was threshed out during the trial.
The general rule is that only questions of law may be raised in a petition for review on certiorari. The appellate jurisdiction of this Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law incurred by the latter, the findings of fact of the Court of Appeals being final as to the former. Its only power will be to determine if the legal conclusions drawn from the findings of fact are correct. Barring a showing that the findings complained of are totally devoid of support in the record, such findings must stand, for the Court is not expected or required to examine or refute the oral and documentary evidence submitted by the parties.[22] This is the general rule, which in the instant case, we are not inclined to disturb.
In civil cases, the party having the burden of proof must establish his case by preponderance of evidence,[23] or that evidence which is of greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the testimony of one side is more believable than the other side, and that the probability of truth is on one side than on the other.[24] In the case at bar, respondent has successfully overcome the burden of proof.
The Court of Appeals relied on the acknowledgment receipt to hold petitioners liable for the amount of money loaned, finding it to be a valid and binding promissory note. We agree. It is valid and binding between the parties who executed it, as a document evidencing the loan agreement they had entered into. Petitioners' defense that it is a simulated document which does not reflect the true intent and agreement of the parties is not persuasive. Petitioners' testimonial evidence cannot stand against the acknowledgment receipt presented by respondent.
In their Answer in the court below, petitioners alleged that they first obtained a loan and this was subsequently converted to respondent's contribution to the partnership.[25] Nieves' testimony that the amount was originally respondent's partnership contribution which was later converted into a loan contradicts this. It has been ruled that an allegation in a pleading is not evidence but is a declaration that has to be proved by evidence.[26] If evidence contrary to the allegation is presented, such evidence controls, not the allegation in the pleading itself, although admittedly it may dent the credibility of the witness,[27] as in this case. Variance between petitioners' allegations and Nieves' testimony convinced the trial court that she was an unreliable witness. It was precisely for this reason that the trial court rejected her testimony on this point and resolved that the evidence did not support petitioners' allegation that there was a novation of the loan.[28] The trial court concluded that the money in question was the object of a loan between the parties and this loan was never the subject of any novation.
The Court of Appeals likewise found that there was no novation, which is defined as the extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or principal conditions, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.[29] For novation to take place, the following requisites must concur: (a) there must be a previous valid obligation; (b) there must be an agreement of the parties concerned to a new contract; (c) there must be the extinguishment of the old contract; and, (d) there must be the validity of the new contract.[30]
In the case at bar, the third requisite is not present. The parties did agree that the amount loaned would be converted into respondent's contribution to the partnership, but this conversion did not extinguish the loan obligation. The date when the acknowledgment receipt/promissory note was made negates the claim that the loan agreement was extinguished through novation since the note was made while the partnership was in existence.
Significantly, novation is never presumed. It must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken for anything else. An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one.[31]
When questioned as to why she executed the acknowledgment receipt, Nieves answered that she did so only at respondent's request, allowing the latter to dictate the contents of the receipt. The execution of the receipt was supposedly for the reason that respondent needed to reassure his family that he had indeed invested his money in a profitable venture. If that was the case, Nieves should have objected to the inclusion of the statement of interest payments in the receipt. There was no need to disguise the intended profits as interest payments. Using petitioners' reasoning, they belonged to the same family so there was no need to conceal the true nature of the transaction. The statement of the interest payments negates the allegation that it is merely an acknowledgment receipt and not a promissory note. The appellate court was correct in concluding that the amount remained a loan despite the partnership agreement.
But as to the amount of the loan, the trial court and the Court of Appeals differed. The trial court held it to be P600,000.00 while the appellate court fixed it at P500,000.00. We agree with the appellate court. The promissory note shows that the amount of P100,000.00 was merely intercalated by respondent in his own handwriting and was not initialed by petitioners to show their conformity thereto.
However, we cannot agree with the disposition of the appellate court to apply the payment of P400,000.00 to the principal of the loan. Instead, the amount should first be applied to the unpaid interest in accordance with the application of payments provided in Art. 1253 of the Civil Code.[32]
WHEREFORE, the assailed Decision of 14 July 2000 in CA-G.R. CV No. 51437 and the Resolution of 2 April 2001 of respondent Court of Appeals are MODIFIED. Petitioner-spouses Arsenio R. Reyes and Nieves S. Reyes are ordered to pay respondent Pablo V. Reyes P500,000.00 with interest at five percent (5%) per month from 15 July 1990, minus the P484,000.00 corresponding to the value of the pickup truck of P400,000.00 and the interest payments of P84,000.00 previously paid. No costs.
SO ORDERED.
Mendoza, and Corona, JJ., concur.
Quisumbing, J., on official business.
[1] Decision penned by Associate Justice Mariano M. Umali, concurred in by Associate Justices Conrado M. Vasquez, Jr. and Eriberto U. Rosario, Jr. of the Sixteenth Division.
[2] Resolution penned by Associate Justice Eriberto U. Rosario, concurred in by Associate Justices Conrado M. Vasquez Jr., and Romeo A. Brawner, Special Former Sixteenth Division
[3] Exh. "A," Original Records, p. 117.
[4] Exhs. "2," "2-a," "2-b," "2-c" and "2-d;" id., pp. 157-158.
[5] Exh. "B;" id, p. 118.
[6] Exh. "C;" id, p. 119.
[7] Exh. "I;" id, p. 122.
[8] Id, p. 10.
[9] TSN, 6 July 1995, pp. 6-13.
[10] Id, pp. 14-15.
[11] Id, pp. 13-14.
[12] Id., pp. 16-19.
[13] Decision penned by Judge Gil P. Fernandez, Sr., RTC-Br. 217, Quezon City; id., pp. 186-190.
[14] Security Bank and Trust Co. v. RTC of Makati, Br. 61, G.R. No. 113926, 23 October 1996, 263 SCRA 483; People v. Dizon, G.R. No. 120957, 22 August 1996, 260 SCRA 851.
[15] Rollo, pp. 25-38; CA Records, pp. 89-102.
[16] Rollo, pp. 20-21.
[17] Id., pp. 53-58.
[18] Sec. 36, Rule 132, Revised Rules of Court.
[19] Chua v. Court of Appeals, G.R. No. 109840, 21 January 1999, 301 SCRA 356, 362.
[20] Macfarlane v. Green, 54 Phil. 551, 556 (1930); Abrenica v. Gonda and De Garcia, 34 Phil. 739, 748 (1916).
[21] Talosig v. Vda. de Nieba, No. L-29557, 29 February 1972, 43 SCRA 472, 476.
[22] Santa Ana, Jr. v. Hernandez, No. L-16394, 17 December 1966, 18 SCRA 973, 978-979.
[23] Sec. 1, Rule 133, Revised Rules on Evidence.
[24] Rivera v. Court of Appeals, G.R. No. 115625, 23 January 1998, 284 SCRA 673.
[25] See Note 8; Original Records, p. 10.
[26] Concepcion v. Court of Appeals, G.R. No. 120706, 31 January 2000, 324 SCRA 85, 93.
[27] Ibid.
[28] Original Records, p. 189; CA Records, p. 47.
[29] Lim Tay v. Court of Appeals, G.R. No. 126891, 5 August 1998, 293 SCRA 634.
[30] Ong v. Court of Appeals, G.R. No. 97347, 6 July 1999, 310 SCRA 1, 13.
[31] Ocampo-Paule v. Court of Appeals and People, G.R. No. 145872, 4 February 2002, citing Velasquez v. Court of Appeals, 309 SCRA 539.
[32] Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.