Facts:

This case involves Teodoro BaAas, C.G. Dizon Construction, Inc., and Cenen Dizon as petitioners against Asia Pacific Finance Corporation, which has since been substituted by International Corporate Bank, currently known as Union Bank of the Philippines. The case arose when Asia Pacific Finance Corporation filed a complaint on 20 March 1981 for a sum of money, seeking a writ of replevin against the petitioners. In August 1980, Teodoro BaAas executed a Promissory Note in favor of C. G. Dizon Construction for P390,000.00, payable in installments of P32,500.00 starting from September 25, 1980, up to August 25, 1981. The construction company later endorsed the Note to Asia Pacific, which was secured by a Deed of Chattel Mortgage involving three heavy equipment units. Cenen Dizon executed a Continuing Undertaking to be liable jointly and severally with C.G. Dizon Construction. While C.G. Dizon Construction made several payments totaling P130,000.00, they defaulted on their remaining o

...

Facts:

Transaction and Issuance of Documents

• In August 1980, Teodoro BaAas executed a promissory note in favor of C.G. Dizon Construction, Inc. committing to pay P390,000.00 in installments of P32,500.00 every 25th day of the month from September 25, 1980 to August 25, 1981.
• C.G. Dizon Construction endorsed this promissory note with recourse to Asia Pacific Finance Corporation (ASIA PACIFIC).
• To secure payment, corporate officers of C.G. Dizon Construction executed two additional documents:
• A Deed of Chattel Mortgage covering three heavy equipment units (bulldozer crawler tractors with model numbers D8-14A, D8-2U, and D8H).
• A Continuing Undertaking executed by President Cenen Dizon, where he agreed to pay the obligation jointly and severally with the corporation.

Payment, Default, and Allegations of Usury

• C.G. Dizon Construction made installment payments totaling P130,000.00 (P32,500.00 on September 25, 1980, P32,500.00 on October 27, 1980, and P65,000.00 on February 27, 1981).
• The remaining balance of P267,737.50 (inclusive of interests and charges) plus attorney’s fees (P66,909.38) was demanded by ASIA PACIFIC when the defendants defaulted on subsequent payments.
• Although defendants admitted the genuineness and due execution of the promissory note, Deed of Chattel Mortgage, and Continuing Undertaking, they contended that these documents were a mere subterfuge to disguise a contract of loan (purportedly at usurious rates) designed to circumvent banking laws.

Alleged Illegal Banking Transaction and Verbal Agreement

• Petitioners argued that ASIA PACIFIC, purportedly organized as an investment house, could not legally engage in lending funds—since funds obtained through deposits are exclusive to banking institutions—and thus claimed the transaction was null and void.
• They further alleged that there was a verbal agreement wherein surrendering two of the bulldozer crawler tractors to ASIA PACIFIC would extinguish the debt.
• Evidence showed that only two of the three tractors (models D8-14A and D8-2U) were turned over, leading ASIA PACIFIC to foreclose and sell them.

Procedural Developments and Party Substitutions

• On March 20, 1981, ASIA PACIFIC initiated legal proceedings by filing a complaint for a sum of money with a writ of replevin against Teodoro BaAas, C.G. Dizon Construction and Cenen Dizon.
• While defendant Teodoro BaAas later passed away and his case was dismissed, the case continued against C.G. Dizon Construction and Cenen Dizon.
• After the trial court decision and subsequent appeals, ASIA PACIFIC underwent a series of party substitutions—from being represented by International Corporate Bank to ultimately being known as Union Bank of the Philippines after a merger.

Decisions by Lower Courts

• On September 25, 1992, the Regional Trial Court ruled in favor of ASIA PACIFIC, holding the defendants jointly and severally liable for the unpaid balance of the promissory note (P87,637.50) at 14% interest per annum, along with attorney’s fees amounting to 25% of the monetary award.
• The Court of Appeals affirmed in toto the trial court’s decision on July 24, 1996, rejecting the petitioners’ claim that the instruments were conducted merely to skirt banking laws or that a verbal agreement could extinguish their obligation.

Issue:

• Whether the disputed transaction, involving the promissory note, endorsement, deed of chattel mortgage, and continuing undertaking, violated banking laws by disguising a loan transaction and thus rendered the documents null and void.
• Whether the surrender of the bulldozer crawler tractors to ASIA PACIFIC, as per the alleged verbal agreement, legally resulted in the extinguishment of the parties’ outstanding obligation.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)