TEODORO BAÑAS,[] C. G. DIZON CONSTRUCTION, INC., AND CENEN DIZON, PETITIONERS, VS. ASIA PACIFIC FINANCE CORPORATION, SUBSTITUTED BY INTERNATIONAL CORPORATE BAN NOW KNOWN AS UNIO…

C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review
seek the reversal of the 24 July 1996 Decision of the Court of Appeals
dismissing their appeal for lack of merit and affirming in toto the
decision of the trial court holding them liable to Asia Pacific Finance
Corporation in the amount of P87,637.50 at 14% interest per annum in addition to
attorney’s fees and costs of suit, as well as its 21 March 1997 Resolution
denying reconsideration thereof.^[2]

On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short)
filed a complaint for a sum of money with prayer for a writ of replevin against
Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980
Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon
Construction whereby for value received he promised to pay to the order of C. G.
Dizon Construction the sum of P390,000.00 in installments of “P32,500.00 every
25th day of the month starting from September 25, 1980 up to August 25,
1981.”^[3]

Later, C. G. Dizon Construction endorsed with recourse the Promissory
Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon
Construction, through its corporate officers, Cenen Dizon, President, and
Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel
Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer
Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA
PACIFIC.^[4] Moreover, Cenen Dizon
executed on 25 August 1980 a Continuing Undertaking wherein he bound
himself to pay the obligation jointly and severally with C. G. Dizon
Construction.^[5]

In compliance with the provisions of the Promissory Note, C. G. Dizon
Construction made the following installment payments to ASIA PACIFIC: P32,500.00
on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27
February 1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon
Construction defaulted in the payment of the remaining installments, prompting
ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid
balance of P267,737.50 inclusive of interests and charges, and P66,909.38
representing attorney’s fees. As the demand was unheeded, ASIA PACIFIC sued
Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon.

While defendants (herein petitioners) admitted the genuineness and due
execution of the Promissory Note, the Deed of Chattel Mortgage and
the Continuing Undertaking, they nevertheless maintained that these
documents were never intended by the parties to be legal, valid and binding but
a mere subterfuge to conceal the loan of P390,000.00 with usurious interests.

Defendants claimed that since ASIA PACIFIC could not directly engage in
banking business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC
could extend a loan to them without violating banking laws: first, Cenen
Dizon would secure a promissory note from Teodoro Bañas with a face value of
P390,000.00 payable in installments; second, ASIA PACIFIC would then make
it appear that the promissory note was sold to it by Cenen Dizon with the 14%
usurious interest on the loan or P54,000.00 discounted and collected in advance
by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient
collateral to answer for the loan in case of default in payment and execute a
continuing guaranty to assure continuous and prompt payment of the loan.
Defendants also alleged that out of the loan of P390,000.00 defendants actually
received only P329,185.00 after ASIA PACIFIC deducted the discounted interest,
service handling charges, insurance premium, registration and notarial fees.

Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be
delayed in meeting his monthly amortization on account of business reverses and
promised to pay instead in February 1981. Cenen Dizon made good his promise and
tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly
amortizations. But ASIA PACIFIC attempted to impose a 3% interest for every
month of delay, which he flatly refused to pay for being usurious.

Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to
surrender to it the ownership of the two (2) bulldozer crawler tractors and, in
turn, the latter would treat the former’s account as closed and the loan fully
paid. Cenen Dizon supposedly agreed and accepted the offer. Defendants averred
that the value of the bulldozer crawler tractors was more than adequate to cover
their obligation to ASIA PACIFIC.

Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against
defendant C. G. Dizon Construction for the surrender of the bulldozer crawler
tractors subject of the Deed of Chattel Mortgage. Of the three (3)
bulldozer crawler tractors, only two (2) were actually turned over by defendants
– D8-14A and D8-2U – which units were subsequently foreclosed by ASIA PACIFIC to
satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U for P60,000.00
both to ASIA PACIFIC as the highest bidder.

During the pendency of the case, defendant Teodoro Bañas passed away, and on
motion of the remaining defendants, the trial court dismissed the case against
him. On the other hand, ASIA PACIFIC was substituted as party plaintiff by
International Corporate Bank after the disputed Promissory Note was
assigned and/or transferred by ASIA PACIFIC to International Corporate Bank.
Later, International Corporate Bank merged with Union Bank of the Philippines.
As the surviving entity after the merger, and having succeeded to all the rights
and interests of International Corporate Bank in this case, Union Bank of the
Philippines was substituted as a party in lieu of International Corporate
Bank.^[6]

On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC
holding the defendants jointly and severally liable for the unpaid balance of
the obligation under the Promissory Note in the amount of P87,637.50 at
14% interest per annum, and attorney’s fees equivalent to 25% of the monetary
award.^[7]

On 24 July 1996 the Court of Appeals affirmed in toto the decision of
the trial court thus –

Defendant-appellants’ contention that the instruments were executed merely as
a subterfuge to skirt banking laws is an untenable defense. If that were so then
they too were parties to the illegal scheme. Why should they now be allowed to
take advantage of their own knavery to escape the liabilities that their own
chicanery created?

Defendant-appellants also want us to believe their story that there was an
agreement between them and the plaintiff-appellee that if the former would
deliver their 2 bulldozer crawler tractors to the latter, the
defendant-appellants’ obligation would fully be extinguished. Again, nothing but
the word that comes out between the teeth supports such story. Why did they not
write down such an important agreement? Is it believable that seasoned
businessmen such as the defendant-appellant Cenen G. Dizon and the other
officers of the appellant corporation would deliver the bulldozers without a
receipt of acquittance from the plaintiff-appellee x x x x In our book, that is
not credible.

The pivotal issues raised are: (a) Whether the disputed transaction between
petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and
(b) Whether the surrender of the bulldozer crawler tractors to respondent
resulted in the extinguishment of petitioners’ obligation.

On the first issue, petitioners insist that ASIA PACIFIC was organized as an
investment house which could not engage in the lending of funds obtained from
the public through receipt of deposits. The disputed Promissory Note,
Deed of Chattel Mortgage and Continuing Undertaking were not intended
to be valid and binding on the parties as they were merely devices to conceal
their real intention which was to enter into a contract of loan in violation of
banking laws.

We reject the argument. An investment company refers to any issuer which is
or holds itself out as being engaged or proposes to engage primarily in the
business of investing, reinvesting or trading in securities.^[8] As defined in Sec. 2, par. (a), of the
Revised Securities Act,^[9]
securities “shall include x x x x commercial papers evidencing indebtedness of
any person, financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another with
or without recourse, such as promissory notes x x x x” Clearly, the
transaction between petitioners and respondent was one involving not a loan but
purchase of receivables at a discount, well within the purview of
“investing, reinvesting or trading in securities” which an investment company,
like ASIA PACIFIC, is authorized to perform and does not constitute a violation
of the General Banking Act.^[10] Moreover,
Sec. 2 of the General Banking Act provides in part –

Sec. 2. Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public through the
receipt of deposits of any kind, and all entities regularly conducting such
operations shall be considered as banking institutions and shall be subject to
the provisions of this Act, of the Central Bank Act, and of other pertinent laws
(underscoring supplied).

Indubitably, what is prohibited by law is for investment companies to lend
funds obtained from the public through receipts of deposit, which is a function
of banking institutions. But here, the funds supposedly “lent” to petitioners
have not been shown to have been obtained from the public by way of deposits,
hence, the inapplicability of banking laws.

On petitioners’ submission that the true intention of the parties was to
enter into a contract of loan, we have examined the Promissory Note and
failed to discern anything therein that would support such theory. On the
contrary, we find the terms and conditions of the instrument clear, free from
any ambiguity, and expressive of the real intent and agreement of the parties.
We quote the pertinent portions of the Promissory Note

– FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G. Dizon
Construction, Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390,000.00),
Philippine Currency in the following manner:

P32,500.00 due every 25th of the month starting from September 25, 1980 up to
August 25, 1981.

I/We agree that if any of the said installments is not paid as and when it
respectively falls due, all the installments covered hereby and not paid as yet
shall forthwith become due and payable at the option of the holder of this note
with interest at the rate of 14% per annum on each unpaid installment until
fully paid.

If any amount due on this note is not paid at its maturity and this note is
placed in the hands of an attorney for collection, I/We agree to pay in addition
to the aggregate of the principal amount and interest due, a sum equivalent to
TEN PERCENT (10%) thereof as Attorney’s fees, in case no action is filed,
otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the said principal
amount and interest due x x x x

Makati, Metro Manila, August 25, 1980.

ENDORSED TO ASIA PACIFIC FINANCE CORPORATION
WITH
RECOURSE, C.G. DIZON CONSTRUCTION, INC.

Likewise, the Deed of Chattel Mortgage and Continuing
Undertaking were duly acknowledged before a notary public and, as such, have
in their favor the presumption of regularity. To contradict them there must be
clear, convincing and more than merely preponderant evidence. In the instant
case, the records do not show even a preponderance of evidence in favor of
petitioners’ claim that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal, valid and
binding. Notarial documents are evidence of the facts in clear and unequivocal
manner therein expressed.^[11]

Interestingly, petitioners’ assertions were based mainly on the self-serving
testimony of Cenen Dizon, and not on any other independent evidence. His
testimony is not only unconvincing, as found by the trial court and the Court of
Appeals, but also self-defeating in light of the documents presented by
respondent, i.e., Promissory Note, Deed of Chattel Mortgage and
Continuing Undertaking, the accuracy, correctness and due execution of
which were admitted by petitioners. Oral evidence certainly cannot prevail over
the written agreements of the parties. The courts need only rely on the faces of
the written contracts to determine their true intention on the principle that
when the parties have reduced their agreements in writing, it is presumed that
they have made the writings the only repositories and memorials of their true
agreement.

The second issue deals with a question of fact. We have ruled often enough
that it is not the function of this Court to analyze and weigh the evidence all
over again, its jurisdiction being limited to reviewing errors of law that might
have been committed by the lower court.^[12] At any rate, while we are not a trier of
facts, hence, not required as a rule to look into the factual bases of the
assailed decision of the Court of Appeals, we did so just the same in this case
if only to satisfy petitioners that we have carefully studied and evaluated the
case, all too mindful of the tenacity and vigor with which the parties, through
their respective counsel, have pursued this case for nineteen (19) years.

Petitioners contend that the parties already had a verbal understanding
wherein ASIA PACIFIC actually agreed to consider petitioners’ account closed and
the principal obligation fully paid in exchange for the ownership of the two (2)
bulldozer crawler tractors.

We are not persuaded. Again, other than the bare allegations of petitioners,
the records are bereft of any evidence of the supposed agreement. As correctly
observed by the Court of Appeals, it is unbelievable that the parties entirely
neglected to write down such an important agreement. Equally incredulous is the
fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to
deliver the bulldozers to respondent without a corresponding receipt of
acquittance. Indeed, even the testimony of petitioner Cenen Dizon himself
negates the supposed verbal understanding between the parties –

In other words, there was no binding and perfected contract between
petitioners and respondent regarding the settlement of the obligation, but only
a conditional one, a mere conjecture in fact, depending on whether the value of
the tractors to be surrendered would equal the balance of the loan plus
interests. And since the bulldozer crawler tractors were sold at the foreclosure
sale for only P180,000.00,^[14] which was
not enough to cover the unpaid balance of P267,637.50, petitioners are still
liable for the deficiency.

Barring therefore a showing that the findings complained of are totally
devoid of support in the records, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, we see no valid reason to discard them.
More so in this case where the findings of both the trial court and the
appellate court coincide with each other on the matter.

With regard to the computation of petitioners’ liability, the records show
that petitioners actually paid to respondent a total sum of P130,000.00 in
addition to the P180,000.00 proceeds realized from the sale of the bulldozer
crawler tractors at public auction. Deducting these amounts from the principal
obligation of P390,000.00 leaves a balance of P80,000.00, to which must be added
P7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid
balance of P87,637.50 for which petitioners are jointly and severally liable.
Furthermore, the unpaid balance should earn 14% interest per annum as stipulated
in the Promissory Note, computed from 20 March 1981 until fully paid.

On the amount of attorney’s fees which under the Promissory Note is
equivalent to 25% of the principal obligation and interests due, it is not,
strictly speaking, the attorney’s fees recoverable as between the attorney and
his client regulated by the Rules of Court. Rather, the attorney’s fees here are
in the nature of liquidated damages and the stipulation therefor is aptly called
a penal clause. It has been said that so long as such stipulation does not
contravene the law, morals and public order, it is strictly binding upon the
obligor. It is the litigant, not the counsel, who is the judgment creditor
entitled to enforce the judgment by execution.^[15]

Nevertheless, it appears that petitioners’ failure to fully comply with their
part of the bargain was not motivated by ill will or malice, but due to
financial distress occasioned by legitimate business reverses. Petitioners in
fact paid a total of P130,000.00 in three (3) installments, and even went to the
extent of voluntarily turning over to respondent their heavy equipment
consisting of two (2) bulldozer crawler tractors, all in a bona fide
effort to settle their indebtedness in full. Article 1229 of the New Civil Code
specifically empowers the judge to equitably reduce the civil penalty when the
principal obligation has been partly or irregularly complied with.
Upon the foregoing premise, we hold that the reduction of the attorney’s fees
from 25% to 15% of the unpaid principal plus interests is in order.

Finally, while we empathize with petitioners, we cannot close our eyes to the
overriding considerations of the law on obligations and contracts which must be
upheld and honored at all times. Petitioners have undoubtedly benefited from the
transaction; they cannot now be allowed to impugn its validity and legality to
escape the fulfillment of a valid and binding obligation.

WHEREFORE, no reversible error having been committed by the Court of
Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21 March
1997 are AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen
Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance
Corporation, substituted by International Corporate Bank (now known as Union
Bank of the Philippines), P87,637.50 representing the unpaid balance on the
Promissory Note, with interest at fourteen percent (14%) per annum
computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the
principal obligation and interests due by way of attorney’s fees. Costs against
petitioners.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.