G.R. No. 83086 - Honrado, Jr. vs. Court of Appeals

Case Summary (G.R. No. 83086)

Parties and Setting; Statutory and Doctrinal Anchors

The case originated as a civil action filed before the RTC, and the material legal issues concerned the interpretation and legal effect of a promissory note and a deed of chattel mortgage, and the extent of a co-maker’s liability. The Court resolved the dispute by applying contract principles on the binding force of clear written terms and by treating the promissory note’s wording as establishing individual liability of co-makers. The Court also cited jurisprudence, including Parot vs. Gemora and principles discussed in later cases on contract interpretation, such as Pangilinan vs. Ramos.

Factual Background: The Vehicle Purchase and Loan Documents

On August 21, 1978, Hadd Construction and Trading Corporation (HCTC) purchased on installment basis a Toyota Corolla Hardtop, 2-Door, 1978 Model, from Cressida Sales Corporation (Cressida). The purchase used a promissory note executed by HCTC in favor of Cressida in the amount of P49,120.20, payable in monthly amortizations of P1,364.45 for thirty-six (36) months beginning September 25, 1978 and every 25th day thereafter until full payment. The promissory note contained provisions including a waiver of formal demand and presentment, and notices of protest and dishonor.

Petitioner Reynaldo C. Honrado, Jr., who was then president of HCTC, signed the promissory note as co-maker as well as for HCTC. A chattel mortgage over the vehicle was also executed by HCTC in favor of Cressida.

Assignment of the Promissory Note to the Financing Company

On September 4, 1978, Cressida executed a deed of assignment of the promissory note with warranty of soundness in favor of Jardine-Manila Finance, Inc., for and in consideration of P30,985.54. The deed of assignment was executed with HCTC’s conformity, again represented by petitioner as president. Petitioner likewise signed the deed of assignment as co-maker.

Failure to Pay; Filing of Replevin and Alternative Money Claim

For failure of HCTC to pay the monthly amortizations under the promissory note, private respondent filed on May 22, 1979 an action for replevin and damages before the RTC of Makati, Branch CXL, docketed as Civil Case No. 2096. The action sought seizure and delivery of the motor vehicle to private respondent. In the alternative, private respondent prayed that if delivery could not be effected, judgment be rendered ordering HCTC to pay P41,011.34 with 14% interest per annum from the date the obligation became due and demandable until fully paid.

Private respondent impleaded petitioner as defendant on the theory that he signed the documents as co-maker. Petitioner filed an answer with compulsory counterclaim on November 7, 1981. After pre-trial, private respondent informed the trial court on September 14, 1983 that it was waiving recovery of the motor vehicle and would pursue its alternative monetary prayer, since it had been unable to recover the vehicle and its alleged current value would not be commensurate to the amount claimed. On the same day, private respondent moved to dismiss the case against HCTC without prejudice, citing that summons could not be served because HCTC was no longer holding office at the address given and its present address could not be ascertained. The trial court granted the motion on October 3, 1983.

Trial Court Judgment and Appellate Review

After the procedural developments, the RTC rendered the assailed decision against petitioner. On appeal, the Court of Appeals affirmed the RTC decision in its judgment promulgated on August 5, 1987, prompting the present petition for review on certiorari filed by petitioner.

Petitioner’s Arguments: Signature in Official Capacity and Lack of Co-maker Intent

To obtain reversal, petitioner argued that he signed the promissory note and the chattel mortgage only in his official capacity as president of HCTC. He contended that he did not intend to sign as co-maker and therefore should not be liable as one. In support of these contentions, petitioner pointed to the apparent contractual relationship between HCTC and Cressida indicated in the body of the documents and relied on testimony from Cressida’s sales agent, Mr. George Caruncho, who stated that petitioner was asked to sign in his official capacity as president of HCTC.

Private Respondent’s Position and the Evidentiary Weight of the Documents

The Court found petitioner’s insistence on a limited official-capacity signing to be untenable. The Court held that petitioner could not plausibly deny co-maker liability where the documents themselves showed that he signed not only for HCTC as president but also as co-maker. The Court of Appeals’ factual findings were treated as supported by the record: the promissory note showed petitioner’s signatures twice—once as president and again as co-maker; and petitioner also signed the deed of chattel mortgage and affidavits of good faith multiple times, both as president and as co-maker. The deed of assignment also reflected petitioner’s conformity as president and again his signature as co-maker. The Court emphasized that petitioner admitted the genuineness and due execution of the documents, including the genuineness of his signatures.

Contract Interpretation and Presumption of Knowledge; Absence of Fraud

The Court ruled that petitioner’s signatures had legal effect. It reasoned that a person who signs written instruments several times as co-maker is presumed to have acted with awareness of the consequences of the voluntary act. Given petitioner’s age, business background, and his position as president of HCTC, the Court treated him as having exercised ordinary care by verifying the involvement and obligations assumed. The Court further found no evidence of fraud.

Petitioner’s own testimony on cross-examination confirmed that he signed both the signature line over his name as president and the signature as co-maker on the promissory note. Having admitted the signatures and their due execution, petitioner could not invoke the sales agent’s testimony to negate the express contractual undertakings reflected in the documents. The Court applied the basic doctrine that where contractual terms are clear, their literal meaning must control. It also stated that the intention of the parties must be determined from the contract itself, and where the provisions admit of no doubt, interpretative resort is unnecessary.

Solidary/Individual Liability Under the Promissory Note

The Court further examined the promissory note’s express stipulation. It found that the note contained language showing a solidary obligation, stating: “For value received I/We jointly and severally promised to pay Cressida Motor Sales Corp. x x x. Signed: Hadd Construction & Trading Corporation by Reynaldo C. Honrado, Jr., President and Reynaldo C. Honrado, Jr., Co-maker.” Consistent with Parot vs. Gemora, the Court held that when a promissory note is signed by two or more persons promising to pay either “juntos o separadamente,” the co-makers are individually liable for the full amount of the obligation. On that basis, petitioner was held liable to pay the obligation under the promissory note.

Modification of Monetary Award: Failure to Prove Additional Charges

Although the Court upheld petitioner’s liability, it modified the monetary award. The amount awarded by the RTC was based on a statement of account prepared by private respondent, reflected as P81,325.05 as of December 10, 1983. The Court held that the statement and computation included charges other than the principal obligation, and that these additional charges were not satisfactorily proved at trial. The record allegedly did not show how these charges were computed nor did it establish an adequate basis showing private respondent’s entitlement thereto. A general reference in testimony to an outstanding balance was deemed insufficient without proof of the expenses and other imputed charges.

In equity, the Court restricted liability to the outstanding balance based on the promissory note principal. It computed petitioner’s remaining principal as P40,769.00, derived by deducting payments equivalent to four (4) monthly installments made by HCTC in the amount of P8,351.20 from the original principal of P49,120.20. This principal amount was ordered to earn 14% interest p

Case Syllabus (G.R. No. 83086)

The petition sought the reversal of the Court of Appeals decision dated August 5, 1987, which affirmed the Regional Trial Court decision dated January 22, 1986, both in favor of private respondent.
The controversy arose from an installment purchase transaction secured by a promissory note and a deed of chattel mortgage, and from the failure of the corporate buyer to pay amortizations.
The petitioner, Reynaldo C. Honrado, Jr., anchored his appeal on the claim that he signed only in his official capacity as president of the buyer corporation and not as co-maker.

Parties and Procedural Posture

The petitioner Reynaldo C. Honrado, Jr. filed a petition for review on certiorari challenging the affirmance made by the Court of Appeals.
The respondents were the Court of Appeals and Jardine-Manila Finance, Inc. (later referred to as MB Finance, formerly Jardine-Manila Finance Corporation in the dispositive discussion).
The Regional Trial Court entered judgment against petitioner after the private respondent waived the recovery of the motor vehicle and pursued the alternative monetary relief.
Petitioner seasonably appealed to the Court of Appeals, which affirmed the trial court decision on August 5, 1987.
The present petition aimed to set aside the appellate affirmance, subject to the modification eventually made by the Court.

Transactional Background

On August 21, 1978, Hadd Construction and Trading Corporation (HCTC) purchased on installment basis a Toyota Corolla Hardtop, 2-Door, 1978 Model from Cressida Sales Corporation, identified by specified engine and serial numbers and plate number.
The purchase was financed through a promissory note executed by HCTC in favor of Cressida for P49,120.20, payable at P1,364.45 a month for thirty-six (36) months beginning September 25, 1978 and every 25th day thereafter until full payment.
The promissory note included a waiver of formal demand and presentment as well as notices of protest and dishonor.
Petitioner Reynaldo C. Honrado, Jr. signed the promissory note twice: once in his capacity as president of HCTC and again as co-maker.
A chattel mortgage on the motor vehicle was executed by HCTC in favor of Cressida.
On September 4, 1978, Cressida executed a deed of assignment of the promissory note with warranty of soundness in favor of Jardine-Manila Finance, Inc. for consideration of P30,985.54, with HCTC’s conformity.
Petitioner again signed the deed of assignment as co-maker, after having signed as president for the corporate conformity.

Replevin Suit and Dismissal of HCTC

For HCTC’s failure to pay the stipulated monthly amortizations, Jardine-Manila Finance, Inc. filed, on May 22, 1979, an action for replevin and damages against HCTC in the Regional Trial Court of Makati, Branch CXL, docketed as Civil Case No. 2096.
The complaint sought the seizure and delivery of the motor vehicle, with an alternative prayer for P41,011.34 with 14% interest per annum from the date the obligation became due and demandable until fully paid.
Private respondent impleaded petitioner as defendant based on his signatures as co-maker on the relevant instruments.
Petitioner filed an answer with compulsory counterclaim on November 7, 1981, and the case proceeded to pre-trial.
On September 14, 1983, private respondent informed the trial court that it was waiving recovery of the vehicle and pursuing only the alternative monetary remedy.
On the same date, private respondent moved to dismiss the case against HCTC without prejudice, citing the inability to serve summons because HCTC allegedly no longer held office at its given address and its new address could not be ascertained.
The trial court granted the motion to dismiss HCTC on October 3, 1983.
The trial court then proceeded to render judgment against petitioner, and the Court of Appeals later affirmed.

Issues Raised on Appeal

Petitioner raised whether private respondent was correct in contending that petitioner was a co-maker of HCTC in the execution of the promissory note and deed of chattel mortgage.
Petitioner also raised whether the Court of Appeals was correct in its contractual interpretation of the instruments, as applied against petitioner.

Petitioner’s Contentions

Petitioner denied co-maker liability and argued that his signatures were meant to be executed only in his official capacity as president of HCTC.
Petitioner asserted that the contract documents indicated that the contractual relationship was between HCTC and Cressida only.
Petitioner relied on the testimony of Mr. George Caruncho, Cressida’s sales agent, who allegedly stated that petitioner was asked to si