G.R. No. 208254 . March 23, 2022.
RURAL BANK OF CANDELARIA (ZAMBALES), INC. REPRESENTED BY ITS CHAIRMAN-PRESIDENT, ANTONIO MANIKAN, PETITIONER, VS. ROMULO BANLUTA (DECEASED), SUBSTITUTED BY HIS CHILDREN, NAMELY: ROMULO BANLUTA, JR., ET AL., RESPONDENT.

FACTS

Romulo Banluta (respondent) and his wife Nimfa obtained a loan from Rural Bank of Candelaria, Zambales, Inc. (petitioner) on June 11, 1993, secured by a real estate mortgage over two parcels of land. Nimfa died on June 28, 1996. Respondent claimed he fully paid the loan through payments made on August 5, 1995 (P122,400.05), July 3, 1999 (P20,000.00), July 9, 1999 (P50,000.00), and a final payment of P703,279.54 covering the principal, penalties, and interests. He did not secure a Release of Mortgage. In January 2003, petitioner’s armed agents allegedly harassed respondent’s son and daughter-in-law on the property. Respondent discovered that petitioner had filed an Application for Foreclosure of Real Estate Mortgage, and the properties were sold at a public auction without notice to him. Respondent argued that the foreclosure, if valid, should only cover the area originally mortgaged as per the tax declarations, not the larger area in the subsequently issued certificates of title. He also claimed the foreclosure was not registered, so his right of redemption remained. Petitioner countered that the loan was originally executed on January 23, 1984, and renewed several times, with the latest renewal on September 15, 1999, for P683,000.00, which matured on March 14, 2000. Petitioner denied full payment, stating the alleged payments were for loan renewals, and asserted compliance with foreclosure requirements, with the certificate of sale registered on June 29, 2001. The Regional Trial Court (RTC) nullified the foreclosure sale, ordered reconveyance to respondent, but also ordered respondent to pay petitioner P4,228,955.98 representing the principal loan plus compounded interest. Both parties appealed. The Court of Appeals (CA) initially affirmed the RTC Decision but, upon respondent’s partial reconsideration, deleted the order for respondent to pay the bank, finding the Promissory Note dated September 15, 1999, inadmissible due to material alterations and failure to prove due execution.

ISSUE

Whether the Court of Appeals erred in deleting the RTC’s order for respondent to pay the loan obligation to petitioner.

RULING

No, the Court of Appeals did not err. The Supreme Court affirmed the CA’s Amended Decision. The Promissory Note (PN) dated September 15, 1999, which was the basis for petitioner’s claim of an unpaid loan, was inadmissible in evidence. Petitioner failed to prove its due execution as required by the Best Evidence Rule. The PN presented was a mere photocopy, and petitioner did not present the original or provide a sufficient explanation for its absence. Furthermore, the PN contained material alterations—specifically, the typewritten entries for “Date Granted: September 15, 1999” and “Date Due: March 14, 2000” were superimposed over other typewritten text, which petitioner failed to sufficiently explain. Under the Negotiable Instruments Law, a material alteration, unless made with the consent of all parties, avoids the instrument. Petitioner’s sole witness, Antonio Manikan, could not testify to the PN’s execution as he was not present when it was signed and could not authenticate the signatures. Without the PN, petitioner failed to substantiate its claim that respondent obtained a P683,000.00 loan on September 15, 1999, and that it remained unpaid. Consequently, the order for respondent to pay the bank had no legal basis. The Supreme Court upheld the nullification of the foreclosure sale and the order for reconveyance, as the real estate mortgages presented were also inadmissible (being photocopies) and did not sufficiently describe the debt secured.