Case Summary (G.R. No. 228435)
Key Dates and Applicable Law
- Loan and promissory note executed: October 12, 2006; repayment term stated as sixty (60) months (November 12, 2006 to October 12, 2011).
- Demand letter from PSBank: record references include January 3, 2011 (in the factual narrative) and a demand letter dated February 3, 2011 as cited by the Court.
- Controlling legal principles applied: validity and effect of acceleration clauses; burden of proof on payment once indebtedness is established; admissibility and effect of adhesion contracts; enforceability of stipulations for attorney’s fees; jurisdictional limits of judgments (binding only on parties properly before the court) under due process.
Facts
- KT Construction obtained a P2.5 million loan from PSBank evidenced by a promissory note signed by the corporate officers both in representative and personal capacities.
- The promissory note contained an acceleration clause making the entire obligation immediately due upon default in any installment, and it contained a stipulation for attorney’s fees in the event of litigation.
- PSBank sent a demand for payment in early 2011 and subsequently filed a complaint for sum of money for alleged unpaid indebtedness in the amount of P725,438.81 (excluding interest, penalties, legal fees, and other charges).
Procedural History
- RTC (June 11, 2014): ruled for PSBank, found acceleration clause effective, declared KT Construction, Go and Go‑Tan solidarily liable, ordered payment of P725,438.81 with 12% interest per annum from January 13, 2011 until fully paid, and awarded Php50,000 as attorney’s fees.
- Court of Appeals (April 22, 2016): affirmed the RTC with modification — legal interest set at 6% per annum from finality of the CA decision until full payment; CA upheld award of attorney’s fees and the application of the acceleration clause; CA directed assessment of additional docket fees per Rule 141, Section 2. Reconsideration denied (November 23, 2016).
- Supreme Court (G.R. No. 228435): resolved issues on appeal and modified the judgment as to the parties bound by it.
Issues Presented
- Whether William Go and Nancy Go‑Tan can be held jointly and severally liable with KT Construction for the judgment award.
- Whether PSBank’s complaint was prematurely filed.
- Whether the promissory note is a contract of adhesion and thus void.
- Whether the award of attorney’s fees was proper.
Court’s Analysis — Acceleration Clause and Prematurity
- The Court reaffirmed that acceleration clauses are valid and effective to make the entire indebtedness due upon default in any installment. (Premiere Development Bank precedent cited in the decision.)
- Given the clause in the promissory note, KT Construction’s loan obligation became due and demandable upon failure to pay an installment; PSBank’s filing was therefore not premature.
- The Court also observed PSBank’s demand letter in early 2011; in any event, the parties had waived the necessity of demand in the promissory note, so absence of receipt of a demand notice would not prevent acceleration and suit. (Spouses Agner precedent cited.)
Court’s Analysis — Burden of Proof on Payments
- The Court applied the established rule that once indebtedness is established by the creditor, the burden shifts to the debtor to prove payment or discharge of the obligation. (Bognot v. RRI Lending Corp. precedent cited.)
- KT Construction admitted obtaining the loan and alleged regular payments but failed to produce documentary evidence (deposit slips, receipts) to prove payment; thus it did not discharge the burden to show payments that would reduce or extinguish the indebtedness.
Court’s Analysis — Contract of Adhesion
- The Court rejected the argument that the promissory note was void as a contract of adhesion. It noted that adhesion contracts are not void per se; a party is free to reject a standard form, and acceptance constitutes consent. (Norton Resources precedent cited.)
- Accordingly, the promissory note’s terms, including the acceleration clause and other stipulations, were not invalid merely because they were in a standard form.
Court’s Analysis — Attorney’s Fees
- The promissory note expressly provided for payment of attorney’s fees in case of default. The Court treated that stipulation as a valid penal clause incorporated in the parties’ contract. (Baron Marketing precedent cited.)
- Article 2208 of the Civil Code (referenced by KT Construction) was inapplicable because that provision governs the allowance of attorney’s fees where there is no contractual stipulation; here the parties did stipulate attorney’s fees.
Court’s Analysis — Jurisdiction and Liability of Co‑makers (Go and Go‑Tan)
- The Supreme Court found error in the RTC and CA insofar as they declared Go and Go‑Tan solidarily liable. Go and Go‑Tan were not impleaded as defendants in the
Case Syllabus (G.R. No. 228435)
Facts of the Case
- On October 12, 2006, KT Construction Supply, Inc. (KT Construction) obtained a loan of P2,500,000.00 from Philippine Savings Bank (PSBank).
- The loan was evidenced by a Promissory Note executed on the same date.
- The Promissory Note was signed by William K. Go (Go) and Nancy Go-Tan (Go-Tan) in their capacities as Vice-President/General Manager and Secretary/Treasurer of KT Construction, respectively, and both also signed in their personal capacities.
- The promissory note provided that the loan was payable within sixty (60) months, from November 12, 2006 to October 12, 2011.
- The promissory note included an acceleration clause declaring the entire obligation immediately due and demandable upon default in any installment, and it stipulated payment of attorney’s fees in case of litigation.
- PSBank sent a demand letter to KT Construction requesting payment of the outstanding obligation in the amount of P725,438.81 (excluding interest, penalties, legal fees, and other charges); the source contains references to a demand letter dated January 3, 2011 and a demand letter dated February 3, 2011 (rollo, p. 74).
- PSBank filed a complaint for sum of money after KT Construction allegedly failed to pay despite demand.
Procedural History
- Regional Trial Court (RTC), Branch 133, Makati City: Trial court rendered a decision dated June 11, 2014 in Civil Case No. 11-060 in favor of PSBank.
- Court of Appeals (CA): CA issued a Decision on April 22, 2016 in CA-G.R. CV No. 103037 affirming the RTC decision with modification (reduction of interest to 6% per annum as legal interest from finality of decision) and issued a Resolution on November 23, 2016 denying reconsideration.
- Supreme Court (SC): Petition for review on certiorari filed by KT Construction; SC rendered decision on June 21, 2017 (reported at 811 Phil. 626; 114 OG No. 6, 898 (February 5, 2018) Second Division, G.R. No. 228435).
Promissory Note: Terms and Stipulations
- Principal amount: P2,500,000.00 loaned to KT Construction.
- Duration and payment schedule: payable within sixty (60) months from November 12, 2006 to October 12, 2011.
- Acceleration clause: default in any installment makes the entire obligation immediately due and demandable without notice or demand.
- Attorney’s fees: the note expressly provided for the payment of attorney’s fees in case of default/litigation.
- Signatories: William K. Go and Nancy Go-Tan signed both as corporate officers and in their personal capacities.
RTC Ruling (June 11, 2014)
- The RTC ruled in favor of PSBank, holding that the promissory note’s acceleration clause rendered the entire obligation due and demandable upon default in any installment.
- The trial court found the stipulated interest unconscionable and reduced it, ordering twelve percent (12%) interest per annum.
- The trial court declared KT Construction, Go, and Go-Tan solidarily liable.
- The dispositive (fallo) ordered:
- Payment of P725,438.81 plus 12% interest per annum from January 13, 2011 until fully paid.
- Payment of P50,000.00 as attorney’s fees.
- The RTC concluded that the plaintiffs (PSBank) were entitled to judgment on the complaint for sum of money.
Court of Appeals Ruling (April 22, 2016) and Reconsideration (November 23, 2016)
- The CA affirmed the RTC decision but modified the interest award:
- The CA held that because of the acceleration clause the loan became due and demandable upon failure to pay an installment.
- The CA rejected the contention that the promissory note was a contract of adhesion, finding that KT Construction was not compelled to accept its terms.
- The CA upheld the award of attorney’s fees as stipulated in the promissory note and characterized such stipulation as a valid penal clause binding on the parties.
- The CA agreed that Go and Go-Tan were co-makers and that the parties themselves stipulated solidary liability in the note.
- The CA modified the interest award to 6% per annum of the monetary awards from finality of its Decision until full payment, as legal interest.
- The CA directed the Clerk of Court to assess and collect additional docket fees from PSBank in accordance with Section 2, Rule 141 of the Rules of Court.
- KT Construction’s motion for reconsideration was denied by the CA on November 23, 2016.
Issues Raised by KT Construction in the Petition
- I: Whether the CA and RTC gravely erred in holding William Go and Nancy Go-Tan jointly and severally liable with KT Construction to PSBank.
- II: Whether the CA and RTC erred in not finding that PSBank’s complaint was prematurely filed.
- III: Whether the CA and RTC erred in failing to declare the promissory note null and void for being a contract of adhesion.
- IV: Whether the CA and RTC erred in awarding attorney’s fees in favor of PSBank.
Arguments of the Parties
- KT Construction’s contentions:
- Go and Go-Tan could not be held solidarily liable because they were neither impleaded nor served with summons and did not vo