Republic of the Philipppines

SUPREME COURT
Manila

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.

DECISION

BELLOSILLO, J.: chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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.
chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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

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?chanroblesvirtuallawlibrary

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.chanroblesvirtuallawlibrary

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.
chanroblesvirtuallawlibrary

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.
chanroblesvirtuallawlibrary

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 - chanroblesvirtuallawlibrary

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).chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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 - chanroblesvirtuallawlibrary

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:chanroblesvirtuallawlibrary

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

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.chanroblesvirtuallawlibrary

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 xchanroblesvirtuallawlibrary

Makati, Metro Manila, August 25, 1980.chanroblesvirtuallawlibrary

(Sgd) Teodoro Baaschanroblesvirtuallawlibrary

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

DIZON CONSTRUCTION, INC.chanroblesvirtuallawlibrary
 By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizonchanroblesvirtuallawlibrary
President VP/Treasurerchanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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.
chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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 - chanroblesvirtuallawlibrary

Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the
seizure order?chanroblesvirtuallawlibrary
 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
x x x xchanroblesvirtuallawlibrary

Q: You mentioned a certain Atty. Carag, who is he?chanroblesvirtuallawlibrary

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 (underscoring ours).[13] chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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] chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

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.
chanroblesvirtuallawlibrary

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. chanroblesvirtuallawlibrary

SO ORDERED. chanroblesvirtuallawlibrary

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

Endnotes:
* 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.