GR 128703; (October, 2000) (Digest)
G.R. No. 128703 ; October 18, 2000
TEODORO BAÑAS, C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners, vs. ASIA PACIFIC FINANCE CORPORATION, substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE PHILIPPINES, respondent.
FACTS
Petitioners C.G. Dizon Construction, Inc. and its President, Cenen Dizon, obtained financing from respondent Asia Pacific Finance Corporation (ASIA PACIFIC). The transaction was structured through a Promissory Note executed by Teodoro Bañas in favor of Dizon Construction, which Dizon Construction then endorsed with recourse to ASIA PACIFIC. To secure payment, Dizon Construction executed a Deed of Chattel Mortgage over three bulldozers, and Cenen Dizon signed a Continuing Undertaking for joint and several liability. After making partial payments, petitioners defaulted. ASIA PACIFIC sued for sum of money and replevin, leading to the foreclosure and sale of two bulldozers.
Petitioners admitted executing the documents but defended that they were a mere subterfuge to conceal a usurious loan, as ASIA PACIFIC, a non-bank entity, could not legally extend such credit. They alleged the scheme involved a discounted interest deducted upfront, leaving them with a net amount less than the face value of the note. They further claimed a subsequent verbal accord and satisfaction, wherein ASIA PACIFIC agreed to accept surrender of the equipment as full payment.
ISSUE
Whether the Promissory Note, Deed of Chattel Mortgage, and Continuing Undertaking are valid and binding obligations, notwithstanding petitioners’ allegations of usury and a subsequent verbal compromise.
RULING
The Supreme Court affirmed the validity of the obligations and denied the petition. On the defense of usury, the Court held that even assuming the transaction was a loan with usurious interest, petitioners cannot invoke its illegality to avoid payment. The principle of in pari delicto applies; both parties being equally at fault for an illegal contract, the law will leave them where they are and will not aid either to recover. Petitioners, having benefited from the proceeds, cannot repudiate their written undertakings.
Regarding the alleged verbal compromise, the Court found petitioners’ evidence insufficient to prove that ASIA PACIFIC agreed to accept the equipment as full payment, thereby novating the original written agreements. The parol evidence rule bars such oral testimony that would alter the terms of the written contracts. The subsequent foreclosure of the chattel mortgage was a remedy for default, not an accord and satisfaction. The Court, however, equitably reduced the awarded attorney’s fees from 25% to 15% of the unpaid balance. Petitioners were held jointly and severally liable for the unpaid principal of ₱87,637.50 with 14% interest.