G.R. No. 128703 - Banas vs. Asia Pacific Fice Corp.

On August 1980, Teodoro BaAas executed a Promissory Note in favor of C.G. Dizon Construction, Inc. for P390,000 to be paid in monthly installments of P32,500 from September 25, 1980 to August 25, 1981.
C.G. Dizon Construction later endorsed the Promissory Note with recourse to Asia Pacific Finance Corporation (ASIA PACIFIC). To secure the payment, C.G. Dizon Construction, through its officers President Cenen Dizon and Vice-President Juliette B. Dizon, executed a Deed of Chattel Mortgage over three bulldozer crawler tractors (Caterpillar Models D8-14A, D8-2U, D8H).
On August 25, 1980, Cenen Dizon executed a Continuing Undertaking to pay the obligation jointly and severally with C.G. Dizon Construction.

C.G. Dizon Construction paid three installments totalling P130,000 (September 25, October 27, 1980 and February 27, 1981). Subsequently, installment payments ceased.
ASIA PACIFIC demanded payment of unpaid principal, interest, attorney’s fees, and costs amounting to P267,737.50 plus P66,909.38 attorney’s fees. Accusing ASIA PACIFIC of usurious interest and illegal lending, petitioners denied binding legality of the documents.
Petitioners claimed the Promissory Note and mortgage documents were a subterfuge to hide a usurious loan by ASIA PACIFIC, allegedly prohibited from banking activities. They asserted that ASIA PACIFIC’s actual transaction was purchase of the note with 14% interest discounted in advance and that petitioners only received P329,185 after deductions for various charges.
In October 1980, due to business difficulties, petitioners delayed payments and tendered two months’ amortization by February 1981, refusing ASIA PACIFIC’s attempt to charge 3% interest on delay as usurious.
ASIA PACIFIC allegedly agreed verbally to accept surrender of two bulldozers (D8-14A and D8-2U) in full settlement; petitioners consented and turned over these units.

On March 20, 1981, ASIA PACIFIC filed a complaint for sum of money and prayed for a writ of replevin against petitioners.
The trial court issued writ of replevin; possession of the two bulldozers was turned over, which were later foreclosed and sold at P120,000 and P60,000 respectively, insufficient to cover the unpaid balance.
Teodoro BaAas died during the proceedings and was dismissed as a party. ASIA PACIFIC assigned its rights to International Corporate Bank, which later merged with Union Bank of the Philippines, substituted as respondent.
On September 25, 1992, the Regional Trial Court (RTC) held petitioners jointly and severally liable to pay P87,637.50 plus 14% interest and 25% attorney’s fees.
On July 24, 1996, the Court of Appeals (CA) affirmed the RTC decision, rejecting petitioners’ defenses of illegality and alleged settlement agreement.
Petitioners filed a motion for reconsideration, denied by the CA on March 21, 1997. Hence, the present petition for review.

Whether the transaction between petitioners and ASIA PACIFIC violated banking laws, rendering the contracts null and void.
Whether the surrender of the two bulldozer crawler tractors constituted full extinguishment of petitioners’ obligation to ASIA PACIFIC.