Bognot v. RRI Lending Corporation
REITERATIONFacts
The Antecedents: Respondent RRI Lending Corporation, engaged in money lending, granted a loan of P500,000.00 to petitioner Leonardo Bognot and his brother, Rolando A. Bognot, payable on November 30, 1996. The loan was evidenced by a promissory note and secured by a post-dated check. The loan was repeatedly renewed on a monthly basis, with petitioner paying renewal fees and issuing new post-dated checks as security. During one renewal in March 1997, petitioner executed Promissory Note No. 97-035, payable April 1, 1997, secured by BPI Check No. 0595236. This loan was further renewed until June 30, 1997. Subsequently, Rolando's wife, Julieta Bognot, applied for another renewal, issuing a new promissory note and a check for the renewal fee. She obtained the original loan documents and the check from respondent's clerk on the pretext of obtaining signatures, but never returned them nor issued a replacement check. Respondent then demanded payment, which went unheeded, leading to the filing of a complaint for sum of money. Procedural History: Respondent RRI Lending Corporation filed a complaint for sum of money against the Bognot siblings before the Regional Trial Court (RTC). Petitioner Leonardo Bognot filed an answer, denying liability and claiming payment, waiver, abandonment, or extinguishment of the claim, and alleging tampering of the promissory note. After trial, the RTC ruled in favor of the respondent, ordering the Bognot siblings to pay the loan amount with interest and penalties, finding their obligation to be joint and solidary. Petitioner appealed to the Court of Appeals (CA), which affirmed the RTC's decision, finding petitioner's defense of payment untenable and unsupported by evidence. The CA also noted the established practice of renewing loans and returning post-dated checks. Petitioner's motion for reconsideration was denied, prompting the present petition for review on certiorari under Rule 45 of the Rules of Court. The Petition: Petitioner seeks review of the CA's decision, arguing that the CA erred in holding him solidarily liable. He invokes the legal presumption under Article 1271 of the Civil Code, asserting his obligation was discharged by his possession of the cancelled post-dated check. He contends that Julieta Bognot assumed the obligation through a subsequent renewal, creating a new obligation solely her responsibility. Petitioner further argues that the material alteration of Promissory Note No. 97-035, specifically the superimposition of the June 30, 1997 due date without his consent, extinguished his liability. He also claims novation by substitution occurred when Julieta Bognot renewed the loan and assumed the indebtedness. The Supreme Court, however, found the petition partly meritorious, affirming the petitioner's liability but modifying the nature of his liability from solidary to joint, and reducing the stipulated monthly interest rate from 5% to 1% (12% per annum) due to its unconscionable nature. The Court also noted that the original promissory note was not presented, rendering the photocopy inadmissible under the best evidence rule, thus precluding a finding of solidary liability.
Issue(s)
Whether the CA committed a reversible error in holding the petitioner solidarily liable with Rolando, and whether the stipulated interest rate was unconscionable. Whether the petitioner is relieved from liability by reason of the material alteration in the promissory note. Whether the parties' obligation was extinguished by: (i) payment; and (ii) novation by substitution of debtors.
Ruling
The Court found the petition partly meritorious. It affirmed the CA's decision regarding the petitioner's liability for the unpaid loan but modified the ruling on the nature of the liability and the interest rate. The Court held that the petitioner and Rolando are jointly liable, not solidarily, for the principal loan amount. The stipulated 5% monthly interest was reduced to 1% per month (12% per annum) for being unconscionable. The rest of the CA's dispositions were affirmed.
Ratio Decidendi
On the issue of the nature of the petitioner's liability (solidary vs. joint): The Court found that the CA erred in holding the petitioner solidarily liable. While the photocopy of the promissory note contained the phrase "jointly and severally," the original document was not presented, and the photocopy was inadmissible under the best evidence rule. The respondent failed to present any other evidence to establish solidary liability. Therefore, the obligation was deemed joint, as solidary liability cannot be presumed and must be clearly expressed. On the unconscionable interest rate: The Court found the stipulated 5% monthly interest rate (60% per annum) to be excessive, iniquitous, unconscionable, and exorbitant, thus illegal and void ab initio. Applying jurisprudence, the Court reduced the interest rate to 1% per month (12% per annum), which is considered equitable and in line with prevailing rulings. On the issue of material alteration: The Court found the defense of material alteration untenable. While the respondent admitted the superimposition of the due date on Promissory Note No. 97-035, it denied that it was done without the petitioner's consent. The Court noted that the respondent admitted it was their practice to rubber stamp or superimpose dates on old promissory notes for renewed loans. Even assuming the alteration was without consent, the petitioner could not avoid liability as the existence of the obligation and its renewals were sufficiently established by other evidence, including the petitioner's loan application, admission of obtaining the loan, post-dated checks, testimony of the general manager, proof of non-payment, and loan renewals. On the issue of payment: The Court reiterated that the burden of proving payment rests on the debtor. The petitioner failed to present evidence of actual payment, such as an encashed check or official receipts. The cancellation and return of a post-dated check, in accordance with the respondent's practice during loan renewals, did not constitute proof of payment but merely indicated a renewal. The presumption under Article 1271 of the Civil Code, regarding the voluntary return of a private document evidencing a credit, is merely prima facie and can be overcome by contrary evidence, which was present in this case. On the issue of novation: The Court ruled that the petitioner's claim of novation by substitution of debtors was not substantiated and was raised belatedly. Novation requires the express release of the original debtor and the consent of the creditor to the substitution. Mrs. Bognot's attempt to renew the loan did not push through, and there was no clear agreement from the respondent to release the petitioner from his obligation. Mere acquiescence to a renewal attempt does not constitute novation.
Main Doctrine
The Court held that while the existence of an indebtedness was established, the petitioner failed to discharge the burden of proving payment. The Court also found that the material alteration of the promissory note did not extinguish the petitioner's liability, as the obligation was sufficiently proven by other evidence. However, the Court modified the ruling on solidary liability, finding the obligation to be joint due to the inadmissibility of the photocopy of the promissory note. Lastly, the Court reduced the stipulated monthly interest rate from 5% to 1% for being unconscionable.