NELIA G. PONCE AND VICENTE C. PONCE, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS, AND JESUSA B. AFABLE, RESPONDENTS.

This is a Petition for Certiorari seeking to set aside the
Resolution of the Court of Appeals, dated June 8, 1978, reconsidering its
Decision dated December 17, 1977 and reversing the judgment of the Court of
First Instance of Manila in favor of petitioners as well as the Resolutions,
dated July 6, 1978 and November 27, 1978, denying petitioners’ Motion for
Reconsideration.

The factual background of the case is as follows:

On June 3, 1969,
private respondent Jesusa B. Afable,
together with Felisa L. Mendoza and Ma. Aurora
C. Diño, executed a promissory note in favor of
petitioner Nelia G. Ponce in the sum of P814,868.42,
Philippine Currency, payable, without interest, on or before July 31,
1969.  It was further provided therein
that should the indebtedness be not paid at maturity, it shall draw interest at
12% per annum, without demand; that should it be necessary to bring suit to
enforce payment of the note, the debtors shall pay a sum equivalent to 10% of
the total amount due for attor­ney’s fees; and, in the event of failure to pay
the indebtedness plus interest in accordance with its terms, the debtors shall
execute a first mortgage in favor of the creditor over their properties or of
the Carmen Planas Memorial, Inc.

Upon the failure of the debtors to comply with the terms of the
promissory note, petitioners (Nelia G. Ponce and her
husband) filed, on July 27, 1970,
a Complaint against them with the Court of First Instance of Manila for the
recovery of the principal sum of P814,868.42, plus
interest and damages.

Defendant Ma. Aurora C. Diño’s Answer consisted more of a general denial and the
contention that she did not borrow any amount from plaintiffs and that her
signature on the promissory note was obtained by plaintiffs on their assurance
that the same was for “formality only.”

Defendant Jesusa B. Afable,
for her part, asserted in her Answer that the promissory note failed to express
the true intent and agreement of the parties, the true agreement being that the
obli­gation therein mentioned would be assumed and paid entirely by defendant Felisa L. Mendoza; that she had signed said document only
as President of the Carmen Planas Memorial, Inc., and
that she was not to incur any personal obligation as to the payment thereof
because the same would be repaid by defendant Mendoza and/or Carmen Planas Memorial, Inc.

In her Amended Answer, defendant Felisa
L. Mendoza admitted the authenticity and due execution of the promissory note,
but averred that it was a recapitulation of a series of transactions between
her and the plaintiffs, “with defendant Ma. Aurora C. Diño and Jesusa B. Afable coming only as accomo­dation
parties”.  As affirmative
defense, defendant Mendoza contended that the promissory note was the result of
usurious transactions, and, as counter- claim, she prayed that plaintiffs be
ordered to account for all the interests paid.

Plaintiffs filed their Answer to defendant Mandoza’s
counterclaim denying under oath the allegations of usury.

After petitioners had rested, the case was deemed submitted for
decision since respondent Afable and her co-debtors
had repeatedly failed to appear before the trial Court for the presentation of
their evidence.

On March 9, 1972,
the trial Court rendered judgment ordering respondent Afable
and her co-debtors, Felisa L. Mendoza and Ma. Aurora
C. Diño, to pay petitioners, jointly and severally,
the sum of P814,868.42, plus 12% interest per annum from July 31, 1969 until
full payment, and a sum equivalent to 10% of the total amount due as attorney’s
fees and costs.

From said Decision, only respondent Afable
appealed to the Court of Appeals.  She
argued that the contract under consideration involved the payment of US dollars
and was, therefore, illegal; and that under the in pari
delicto rule, since both parties are guilty of
violating the law, neither one can recover. 
It is to be noted that said defense was not raised in her Answer.

On December 13, 1977,
the Court of Appeals*
rendered judgment affirming the decision of the trial Court.  In a Resolution dated February 27, 1978, the Court of Appeals denied
respondent’s Motion for Reconsideration. 
However, in a Resolution dated June
8, 1978, the Court of Appeals,** acting on the Second Motion for Reconsideration
filed by private respondent, set aside the Decision of December 13, 1977, reversed the judgment of the
trial Court and dismissed the Complaint. 
The Court of Appeals opined that the intent of the parties was that the
promissory note was payable in US dollars, and, therefore, the transaction was
illegal, with neither party entitled to recover under the in pari delicto rule.

Their Motions for Reconsideration having been denied in the
Resolutions dated July 6, 1978
and November 27, 1978,
petitioners filed the instant Petition raising the following Assignments of
Error:

“I

THE RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT THE PROMISSORY NOTE EVIDENCING THE TRANSACTION OF THE PARTIES
IS PAYABLE IN U.S. DOLLARS THEREBY DETERMINING THE INTENT OF THE PARTIES
OUTSIDE OF THEIR PROMISSORY NOTE DESPITE LACK OF SHOWING THAT IT FAILED TO
EXPRESS THE TRUE INTENT OR AGREEMENT OF THE PARTIES AND ITS PAYABILITY
IN PHILIPPINE PESOS WHICH IS EXPRESSED, AMONG OTHERS, BY ITS CLEAR AND PRECISE
TERMS.

“II

THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT REPUBLIC ACT 529, OTHERWISE KNOWN AS ‘AN ACT TO ASSURE UNIFORM
VALUE TO PHILIPPINE COINS AND CURRENCY’, COVERS THE TRANSACTION OF THE PARTIES
HEREIN.

“III

THE RESPONDENT COURT OF APPEALS ERRED IN
NOT FINDING THAT PRIVATE RESPONDENT JESUSA B. AFABLE COULD NOT FAVORABLY AVAIL HERSELF OF THE DEFENSE OF
ALLEGED APPLICABILITY OF REPUBLIC ACT 529 AND THE DOCTRINE OF IN PARI DELICTO AS THESE WERE NOT
PLEADED NOR ADOPTED BY HER IN THE TRIAL.

“IV

THE RESPONDENT COURT OF APPEALS ERRED IN
NOT FINDING, ASSUMING ARGUENDO THAT REPUBLIC ACT 529
COVERS THE PARTIES TRANSACTION, THAT THE DOCTRINE OF IN PARI
DELICTO DOES NOT APPLY AND THE PARTIES AGREEMENT WAS
NOT NULL AND VOID PURSUANT TO THE RULING IN OCTAVIO
A. KALALO VS. ALFREDO J. LUZ, NO. 27782, JULY 31, 1970.”

In the Resolution dated June
8, 1978, the Court of Appeals made the following observations:

“We are convinced from the evidence that the amount awarded by
the lower Court was indeed owed by the defendants to the plaintiffs.  However, the sole issue raised in this second
motion for reconsideration is not the existence of the obligation itself but
the legality of the subject matter of the contract.  If the subject matter is
illegal and against public policy, the doctrine of pari
delicto applies.

x x
x x x
x x x

“We are constrained to reverse our December 13, 1977 decision.  While it is true that the promissory note
does not mention any obligation to pay in dollars, plaintiff-appellee Ponce
himself admitted that there was an agreement that he would be paid in dollars
by the defendants.  The promissory note
is payable in U.S. dollars.  The intent
of the parties prevails over the bare words of the written contracts.

x x
x x x
x x x

“The agreement is null and void and of no effect under
Republic Act No. 529.  Under the doctrine
of pari delicto, no
recovery can be made in favor of the plaintiffs for being themselves guilty of
violating the law.”^[1]

We are constrained to disagree.

Reproduced hereunder is Section 1 of Republic Act No. 529, which
was enacted on June 16, 1950:

“Section 1.  Every provision contained in, or made with
respect to, any domestic obligation to wit, any obligation contracted in the
Philippines which provision purports to give the obligee
the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the
Philippines measured thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred.  The above prohibition shall not apply to (a)
transactions where the funds involved are the proceeds of loans or investments
made directly or indirectly, through bona fide intermediaries or agents, by
foreign governments, their agencies and instrumentalities, and international
financial and banking institutions so long as the funds are identifiable, as
having emanated from the sources enumerated above; (b) transactions affecting
high-priority economic projects for agricultural, industrial and power deve­lopment
as may be determined by the National Economic Council which are financed by or
through foreign funds; (c) forward exchange transactions entered into between
banks or between banks and individuals or juridical persons; (d) import-export
and other international banking, financial investment and industrial
transactions.  With the exception of the
cases enumerated in items (a), (b), (c) and (d) in the foregoing provision, in
which cases the terms of the parties’ agreement shall apply, every other
domestic obligation heretofore or hereafter incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto,
shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts:  Provided, That if the obligation was incurred
prior to the enactment of this Act and required payment in a particular kind of
coin or currency other than Philippine currency, it shall be discharged in
Philippine currency measured at the prevailing rates of exchange at the time
the obligation was incurred, except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which case the rate
of exchange prevailing at the time of the stipulated date of payment shall
prevail.  All coin and currency, including
Central Bank notes, heretofore and hereafter issued and declared by the
Government of the Philippines
shall be legal tender for all debts, public and private.” (As amended by
RA 4100, Section 1, approved June 19, 1964) (Underscoring supplied)

It is to be noted that while an agreement to pay in dollars is
declared as null and void and of no effect, what the law specifically prohibits
is payment in currency other than legal tender. 
It does not defeat a creditor’s claim for payment, as it specifically
provides that “every other domestic obligation x x
x x whether or not any such
provision as to pay­ment is contained therein or made with respect thereto,
shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts.” A contrary rule
would allow a person to profit or enrich himself
inequitably at another’s expense.

As the Court of Appeals itself found, the promissory note in
question provided on its face for payment of the obligation in Philippine
currency, i.e., P814,868.42.  So that, while the agreement between the
parties origi­nally involved a dollar transaction and that petitioners expected
to be paid in the amount of US$194,016.29, petitioners are not now insisting on
their agreement with respondent Afable for the
payment of the obligation in dollars.  On
the contrary, they are suing on the basis of the promissory note whereby the parties
have already agreed to convert the dollar loan into Philippine currency at the
rate of P4.20 to $1.00.^[2]
It may likewise be pointed out that the Promissory Note contains no provision
“giving the obligee the right to require payment
in a particular kind of currency other than Philippine currency,” which is
what is specifically prohibited by RA No. 529.

At any rate, even if we were to disregard the promissory note
providing for the payment of the obligation in Philippine currency and consider
that the intention of the parties was really to provide for payment of the
obligation would be made in dollars, petitioners can still recover the amount
of US$194,016.29, which respondent Afable and her
co-debtors do not deny having received, in its peso equivalent.  As held in Eastboard
Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102
Phil. 1 (1957), and Arrieta vs. National Rice &
Corn Corp.,^[3]
if there is any agreement to pay an obligation in a currency other than
Philippine legal tender, the same is null and void as contrary to public
policy, pursuant to Republic Act No. 529, and the most that could be demanded
is to pay said obligation in Philippine currency.  In other words, what is prohibited by RA No.
529 is the payment of an obligation in dollars, meaning that a creditor cannot
oblige the debtor to pay him in dollars, even if the loan were given in said
currency.  In such a case, the indemnity
to be allowed should be expressed in Philippine currency on the basis of the current
rate of exchange at the time of payment.^[4]

The foregoing premises considered, we
deem it unnecessary to discuss the other errors assigned by petitioners.

WHEREFORE, the Resolutions of the Court of Appeals dated June 8, 1978, July 6, 1978 and November 27, 1978 are hereby set aside, and judgment is
hereby rendered reinstating the Decision of the Court of First Instance of
Manila.

No pronouncement as to costs.

SO ORDERED.

Teehankee, (Chairman), Fernandez,
Guerrero, and De Castro, JJ., concur.

Makasiar, J., no part.

* Special Fifth Division, composed of JJ. L. B. Reyes, M. V. Agcaoili and H. E.
Gutierrez, ponente.

** Special Fourth Division,
composed of JJ. L. B. Reyes, H. E.
Gutierrez, ponente, and R. C. Climaco.

^[1] Pp. 24, 25 & 28, Petition, Annex “A”.

^[2] T.s.n., September
3, 1971, p. 40.

^[3] 10 SCRA 79 (1964).

^[4] Kalalo vs.
Luz, 34 SCRA 337 (1970).