G.R. No. 70246 - 1st Integrated Bonding and Insurance Co., Inc. vs. Isi

On February 2, 1977, Marian Realty & Development Corporation (MRDC) obtained a P500,000 export financing loan from Rizal Commercial Banking Corporation (RCBC). The loan was evidenced by a promissory note payable within 148 days (due on June 30, 1977) with 14% compound interest per annum. In case of default, MRDC agreed to pay 6% of the amount due as liquidated damages and 10% as attorney's fees.
The promissory note included a schedule of payments, requiring a 50% partial payment of the principal (P250,000) on April 30, 1977.

As security for the loan, Luis F. Garcia and Soledad F. Garcia, represented by their attorney-in-fact, Ramiro F. Garcia, executed a real estate mortgage on several parcels of land in favor of RCBC.
First Integrated Bonding & Insurance Co., Inc. (FIBIC) executed a surety bond, and Marcelino Agana, Jr., Antonio V. Agcaoili, and Ramiro F. Garcia signed a comprehensive surety agreement, obligating themselves solidarily with MRDC to pay the loan upon its maturity on June 30, 1977.

On April 30, 1977, MRDC signed a second promissory note for P250,000, payable within 61 days (due on June 30, 1977) with 14% interest per annum.

MRDC defaulted on its obligations. RCBC filed a collection suit against MRDC and its sureties, alleging that as of January 30, 1978, the outstanding obligation amounted to P559,438.68.
In April 1978, RCBC extrajudicially foreclosed the real estate mortgage, realizing P223,798 from the foreclosure sale. The deficiency in the obligation amounted to P390,069.18 as of April 11, 1978.

MRDC and FIBIC argued that the loan was usurious and therefore null and void. They claimed that MRDC had paid 50% of the principal on April 30, 1977, as stipulated in the promissory note. They also contended that the real estate mortgage, surety bond, and comprehensive surety agreement were null and void, and that the foreclosure sale was invalid.

The trial court declared MRDC and FIBIC in default for failing to appear at the pre-trial. It ruled in favor of RCBC, ordering MRDC and its sureties to pay P477,305.34 with 14% interest, 6% liquidated damages, and 10% attorney's fees.

The petitioners' motions to set aside the default and reconsider the decision were denied. The Intermediate Appellate Court affirmed the trial court's decision, and the Supreme Court denied the petition for review. The judgment became final and executory on April 22, 1983.

RCBC moved for the issuance of a writ of execution, which was granted on January 22, 1985. The petitioners filed motions to quash the writ, claiming that MRDC had paid 50% of the first promissory note and that the second promissory note was a renewal of the unpaid balance. They argued that the foreclosure proceeds exceeded the remaining obligation, leaving no deficiency.

The trial court denied the motions to quash, ruling that the alleged payments could have been presented during the trial and could not be raised during the execution phase.

Whether the trial court gravely abused its discretion in denying the petitioners' motions to quash the writ of execution and in refusing to allow them to present proof of payment during the execution phase.
Whether the petitioners are entitled to credit for alleged payments made on the loan, which they claim would extinguish or reduce their obligation.