G.R. No. 184565, November 20, 2013
Manolito De Leon and Lourdes E. De Leon, Petitioners, vs. Bank of the Philippine Islands, Respondent.

FACTS

Petitioner-spouses Manolito and Lourdes de Leon executed a Promissory Note on June 13, 1995, binding themselves to pay Nissan Gallery Ortigas ₱458,784.00 in 36 monthly installments, secured by a Chattel Mortgage over a Nissan Sentra vehicle. On the same day, Nissan Gallery Ortigas assigned its rights under the note and mortgage to Citytrust Banking Corporation. Citytrust was later merged with and absorbed by respondent Bank of the Philippine Islands (BPI). Petitioner-spouses failed to pay their monthly amortizations from August 10, 1997, to June 10, 1998. BPI sent a demand letter and subsequently filed a Complaint for Replevin and Damages before the Metropolitan Trial Court (MeTC) of Manila.
In their Answer, petitioner-spouses alleged that their obligation was extinguished because the mortgaged vehicle was stolen while the insurance policy was still in force. They claimed they informed Citytrust of the theft through its employee, Meldy Endaya, and that BPI should have collected the insurance proceeds to apply to the remaining obligation. During trial, petitioner Manolito testified that he sent the necessary documents (an Alarm Sheet and a Sinumpaang Salaysay) to Citytrust via fax to report the loss.
The MeTC ruled in favor of BPI, declaring petitioner-spouses liable for the remaining obligation. The court found petitioner Manolito’s testimony dubious and self-serving, noting the absence of a facsimile report or formal letter to prove transmission, and the lack of a formal police report to substantiate the theft. On appeal, the Regional Trial Court (RTC) reversed the MeTC, giving credence to petitioner Manolito’s testimony and holding that sufficient notice of the theft was given, thus BPI should have collected the insurance proceeds. The Court of Appeals (CA) subsequently reversed the RTC and reinstated the MeTC Decision, later amending it to reduce the late payment interest charge from 5% to 1% per month.

ISSUE

Whether the Court of Appeals erred in not giving weight and credence to petitioner Manolito’s testimony that he sent notice and proof of loss of the mortgaged vehicle to Citytrust, thereby finding that petitioner-spouses failed to satisfy the required notice to extinguish their obligation.

RULING

The Supreme Court denied the petition and affirmed the amended Decision of the Court of Appeals. The Court held that petitioner-spouses failed to discharge their burden of proof to establish that Citytrust or BPI was duly notified of the theft of the vehicle as required under the Chattel Mortgage contract. The contract stipulated that the mortgagor must “immediately notify the Mortgagee of any loss, theft or damage” and “file proof of loss with the insurer.” The Court found petitioner Manolito’s claim of having faxed the documents unsupported by evidence, such as a facsimile transmission report. His testimony alone, being uncorroborated and self-serving, was insufficient to prove that the required notice and proof of loss were submitted. Consequently, petitioner-spouses remained liable for their unpaid obligation under the Promissory Note. The CA correctly reinstated the MeTC judgment, as modified, ordering petitioner-spouses to pay the sum of ₱130,018.08 plus 1% interest per month as late payment charges from the date of default, attorney’s fees, and costs.