G.R. No.

L-49494 May 31, 1979

NELIA G. PONCE and VICENTE C. PONCE, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, and JESUSA B. AFABLE, respondents.

Romeo L. Mendoza & Gallardo S. Tongohan for petitioners.

Ramon M. Velayo for private respondent.

MELENCIO-HERRERA, J.:

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. Diñ o 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 pay ment 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. Diñ o'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. Diñ o 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 counterclaim, she prayed that plaintiffs be
ordered to account for all the interests paid.

Plaintiffs filed their Answer to defendant Mendoza'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. Diñ o , 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, by 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.

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 ASIAN 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 reconconsideration 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.

xxx xxx xxx

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. donors. The in.
tent of the parties prevails over the bare words of the written contracts.

xxx xxx xxx

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 were 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 foreign currency stipulated
to be payable in the 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 d 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) (Empahsis 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 ... 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., took no part.