Copyright 1994-2010 CD Technologies Asia, Inc.

Student Edition 2009 1

SECOND DIVISION
[G.R. No. 128703. October 18, 2000.]
TEODORO BAAS,
*
C. G. DIZON CONSTRUCTION, INC., and
CENEN DIZON, petitioners, vs. ASIA PACIFIC FINANCE
CORPORATION,
1
substituted by INTERNATIONAL
CORPORATE BANK now known as UNION BANK OF THE
PHILIPPINES, respondent.
Quiason Makalintal Barot Torres & Ibarra for petitioners.
A.M. Perez & Associates for private respondent.
Macalino and Associates for respondent Union Bank.
SYNOPSIS
Sometime in August 1980, Teodoro Baas 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." Later, C. G. Dizon Construction endorsed with recourse the said
Promissory Note to ASIA PACIFIC FINANCE CORPORATION. To secure the
payment thereof, C. G. Dizon Construction, through its corporate officers, executed a
Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar
Bulldozer Crawler Tractors, and Cenen Dizon executed a Continuing Undertaking
wherein he bound himself to pay the obligation jointly and severally with C. G. Dizon
Construction. In compliance therewith, C. G. Dizon Construction made three
installment payments to ASIA PACIFIC. Thereafter, it defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to send a Statement of Account to
Cenen Dizon for the unpaid balance. As the demand was unheeded, ASIA PACIFIC
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 2
filed a complaint for a sum of money against Teodoro Baas, C.G. Dizon
Construction and Cenen Dizon. In their answer, while defendants 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 with usurious interests. During the pendency of this case, Teodoro
Baas died, and ASIA PACIFIC assigned the disputed Promissory Note to
International Corporate Bank (now Union Bank of the Philippines). After trial, the
Regional Trial Court, Branch 157 of Pasig City ruled in favor of ASIA PACIFIC. On
appeal, the Court of Appeals affirmed in toto the decision of the trial court. Hence,
this petition.
The Court ruled that 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.
Moreover, the terms and conditions of the instrument are clear, free from any
ambiguity, and expressive of the real intent and agreement of the parties. 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.
The decision of the Court of Appeals was AFFIRMED.
SYLLABUS
1. MERCANTILE LAW; REVISED SECURITIES ACT; INVESTMENT
COMPANY; DEFINED. An investment company refers to any issuer which is or
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 3
holds itself out as being engaged or proposes to engage primarily in the business of
investing, reinvesting or trading in securities.
2. ID.; ID.; SECURITIES; DEFINED. As defined in Sec. 2, par. (a), of
the Revised Securities Act, securities "shall include . . . 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 . . . ."
3. ID.; GENERAL BANKING ACT; NOT VIOLATED BY PURCHASE
OF RECEIVABLES AT DISCOUNT BY INVESTMENT COMPANY. 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. 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." 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.
4. REMEDIAL LAW; EVIDENCE; DOCUMENTS DULY
ACKNOWLEDGED BEFORE NOTARY PUBLIC HAVE PRESUMPTION OF
REGULARITY. The terms and conditions of the instrument are clear, free from
any ambiguity, and expressive of the real intent and agreement of the parties.
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,
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 4
valid and binding. Notarial documents are evidence of the facts in clear and
unequivocal manner therein expressed.
5. ID.; ID.; ORAL EVIDENCE CANNOT PREVAIL OVER WRITTEN
AGREEMENT OF PARTIES. 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.
6. ID.; SUPREME COURT; JURISDICTION; COURT NOT A TRIER OF
FACTS; EXCEPTION IS WHEN IT LOOKED INTO FACTUAL BASES TO
SATISFY PETITIONERS WHO PURSUED CASE FOR NINETEEN YEARS.
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. 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.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; UNBELIEVABLE
THAT PARTIES ENTIRELY NEGLECTED TO WRITE DOWN IMPORTANT
AGREEMENT. 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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 5
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.
8. ID.; ID.; NO BINDING AND PERFECTED CONTRACT BETWEEN
PARTIES REGARDING SETTLEMENT OF OBLIGATION; CASE AT BAR.
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, which was not enough to cover the unpaid balance of P267,637.50,
petitioners are still liable for the deficiency.
9. ID.; ID.; UNPAID BALANCE SHOULD EARN INTEREST AS
STIPULATED IN PROMISSORY NOTE. 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.
10. ID.; DAMAGES; ATTORNEY'S FEES; NATURE OF LIQUIDATED
DAMAGES AND STIPULATION THEREFOR IS PENAL CLAUSE. 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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 6
entitled to enforce the judgment by execution.
11. ID.; OBLIGATIONS AND CONTRACTS; JUDGE IS EMPOWERED
TO EQUITABLY REDUCE CIVIL PENALTY WHEN PRINCIPAL OBLIGATION
HAS BEEN PARTLY OR IRREGULARLY COMPLIED WITH. 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. AIcECS
12. ID.; ID.; PARTIES BENEFITED FROM TRANSACTION NOT
ALLOWED TO IMPUGN ITS VALIDITY AND LEGALITY TO ESCAPE
FULFILLMENT OF VALID AND BINDING OBLIGATION. 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.
D E C I S I O N
BELLOSILLO, J p:
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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 7
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 Baas, C. G. Dizon Construction and Cenen Dizon. Sometime in August
1980 Teodoro Baas 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 Baas, C. G. Dizon
Construction and Cenen Dizon. CDESIA
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.
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 8
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 Baas 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. IDETCA
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.
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 9
During the pendency of the case, defendant Teodoro Baas 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 . . . In our book, that is not credible. TADaCH
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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 10
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 . . . 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 . . . " 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 (italics 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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 11
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 . . .
Makati, Metro Manila, August 25, 1980.
(Sgd.) Teodoro Baas
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH
RECOURSE, C.G. DIZON CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
President VP/Treasurer
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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 12
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. TAIESD
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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 13
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
Q: You said and is it not a fact that you surrendered the bulldozers to
APCOR by virtue of the seizure order?
A: There was no seizure order. Atty. Carag during that time said if I
surrender the two equipment, we might finally close a deal if the
equipment would come up to the balance of the loan. So I voluntarily
surrendered, I pulled them from the job site and returned them to
APCOR . . .
Q: You mentioned a certain Atty. Carag, who is he?
A: He was the former legal counsel of APCOR. They were handling cases.
In fact, I talked with Atty. Carag, we have a verbal agreement if I
surrender the equipment it might suffice to pay off the debt so I did just
that (italics supplied).
13

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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 14
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. IcDESA
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
ADSIaT
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
Copyright 1994-2010 CD Technologies Asia, Inc. Student Edition 2009 15
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.
Footnotes
* Petitioner Teodoro Baas should not have been included in the caption of this case as
his name was ordered excluded by the trial court on 23 October 1997 since he died
during the pendency of the case thereat.
1. This case was originally titled "Teodoro Baas, C.G. Dizon Construction, Inc., and
Cenen Dizon v. Court of Appeals and Asia Pacific Finance Corporation." The Court
of Appeals, which was inadvertently made party-respondent, was excluded on motion
of petitioners since the court which rendered the decision appealed from is not
required to be joined as party-respondent (Rule 45, 1997 Rules of Civil Procedure).
2. Penned by Justice Hilarion L. Aquino, concurred in by Justices Jainal D. Rasul and
Hector L. Hofilea.
3. Exh. "A".
4. Exh. "C".
5. Exh. "D".
6. This case however continued to be prosecuted and defended in the names of ASIA
PACIFIC and Teodoro Baas, among other defendants, respectively, notwithstanding
the Orders of 22 August 1985 on substitution of party-plaintiff and of 23 October
1987 re dismissal of the case against deceased defendant Teodoro Baas, both issued
by the trial court.
7. Decision penned by Judge Domingo R. Garcia, RTC-Br. 157, Pasig City.
8. See Sec. 4, RA 2629.
9. B.P. Blg. 178.
10. RA 337.
11. Salame v. Court of Appeals, G.R. No. 104373, 22 December 1994, 239 SCRA 356.
12. Remalante v. Tibe, G.R. No. 59514, 25 February 1988, 158 SCRA 138.
13. TSN, 15 November 1988, pp. 7-8.
14. Exh "F".
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15. See South Surety and Insurance Co., Inc. v. Court of Appeals, G.R. No. 102253, 2
June 1995, 244 SCRA 744.