G.R. No. L-49494 - Ponce vs. Court of Appeals

Case Summary (G.R. No. L-49494)

Key Individuals and Context
Petitioner: Nelia G. Ponce (with husband Vicente C. Ponce) — creditors and original payees of the promissory note.
Respondent: Jesusa B. Afable (with co-debtors Felisa L. Mendoza and Ma. Aurora C. Dino) — makers and alleged accommodation parties of the promissory note.
Context: Petition for certiorari seeking to set aside successive Resolutions of the Court of Appeals that reversed a trial court judgment in favor of petitioners and dismissed their complaint.

Petitioner / Respondent Roles
Petitioners sued to recover on a promissory note executed by Afable, Mendoza and Dino. Afable appealed the trial court judgment; petitioners then sought relief from the Supreme Court by certiorari after the Court of Appeals altered its prior decision.

Key Dates
Execution of promissory note: June 3, 1969.
Complaint filed: July 27, 1970.
Trial court judgment: March 9, 1972.
Court of Appeals decision (affirming trial court): December 13, 1977; denied reconsideration February 27, 1978.
Court of Appeals reversal (second reconsideration): June 8, 1978; subsequent denials of reconsideration July 6, 1978 and November 27, 1978.
Supreme Court decision reinstating trial court judgment: May 31, 1979.

Applicable Law
Primary statute at issue: Republic Act No. 529 (as amended by RA 4100), governing domestic obligations and prohibition against stipulating payment in a foreign currency; relevant statutory text quoted and applied.
Precedents relied upon in the decision: Eastboard Navigation, Ltd. v. Juan Ysmael & Co. Inc., Arrieta v. National Rice & Corn Corp., and Octavio A. Kalalo v. Alfredo J. Luz.
Constitutional framework in force at the time of this decision: the 1973 Philippine Constitution.

Terms of the Promissory Note
The note, dated June 3, 1969, acknowledged indebtedness in the sum of P814,868.42, payable (without interest) on or before July 31, 1969; provided that if unpaid at maturity interest would run at 12% per annum; included a clause for attorney’s fees equal to 10% of the amount due; and contemplated, upon default, the execution of a first mortgage over properties. The face of the instrument expressed the principal amount in Philippine pesos.

Complaints, Defenses and Counterclaim
Petitioners sued for the principal, interest and damages. Dino denied borrowing and claimed signature was obtained as a formality. Afable contended the promissory note failed to express the true agreement — alleging Mendoza alone would assume payment and that Afable signed only as president of Carmen Planas Memorial, Inc., without personal liability. Mendoza admitted the note’s execution but characterized Afable and Dino as accommodation parties and asserted an affirmative defense of usury, counterclaiming for an accounting of interests. Petitioners denied the usury allegations under oath.

Trial Proceedings and First Instance Judgment
After petitioners rested, Afable and her co-debtors repeatedly failed to appear to present evidence; the trial court deemed the case submitted and, on March 9, 1972, rendered judgment ordering Afable, Mendoza and Dino, jointly and severally, to pay P814,868.42 plus 12% annual interest from July 31, 1969 until full payment, and attorney’s fees equivalent to 10% of the total amount due, plus costs.

Court of Appeals Proceedings and reversal
Only Afable appealed. Initially, the Court of Appeals affirmed the trial court on December 13, 1977 and denied reconsideration on February 27, 1978. On a second motion for reconsideration, however, the Court of Appeals (June 8, 1978) reversed its earlier ruling and dismissed the complaint, concluding that the parties intended payment in U.S. dollars, rendering the transaction illegal under RA 529 and invoking the doctrine of in pari delicto to deny recovery. The Court of Appeals asserted that the parties’ intent to pay in dollars prevailed over the written peso-denominated terms of the note.

Assignments of Error Presented to the Supreme Court
Petitioners assigned errors alleging, among other points:

The Court of Appeals erred in determining payment was in U.S. dollars contrary to the clear peso denomination of the note and without proof the instrument failed to express the parties’ true intent.
The Court of Appeals misapplied RA 529.
Afable could not raise RA 529 or in pari delicto on appeal when these defenses had not been pleaded or adopted at trial.
Even if RA 529 applied, in pari delicto should not bar recovery and the agreement would not be null under the Kalalo v. Luz precedent.

Supreme Court’s Statutory Interpretation of RA 529
The Supreme Court reproduced Section 1 of RA 529 (as amended), observing that RA 529 declares void any provision in a domestic obligation that purports to give the obligee the right to require payment in gold or foreign currency other than Philippine currency, subject to enumerated exceptions. The Court emphasized that RA 529 does not nullify the creditor’s claim; rather, it prescribes that domestic obligations be discharged by payment in the legal tender at the time of payment (with transitional rules for obligations contracted before the Act).

Application of RA 529 to the Promissory Note
The Supreme Court noted three dispositive poi

Case Syllabus (G.R. No. L-49494)

Case Caption and Citation

Reported in 179 Phil. 425, First Division, G.R. No. L-49494, decided May 31, 1979.
Parties: Nelia G. Ponce and Vicente C. Ponce (petitioners) versus The Honorable Court of Appeals and Jesusa B. Afable (respondents).
Decision authored by Justice Melencio-Herrera; opinion announces reversal of Court of Appeals' resolutions and reinstatement of the Court of First Instance of Manila decision.
Concurrences: Justices Teehankee (Chairman), Fernandez, Guerrero, and De Castro concur. Justice Makasiar took no part.
Special Divisions noted in source: Special Fifth Division (JJ. L. B. Reyes, M. V. Agcaoili and H. E. Gutierrez, ponente) and Special Fourth Division (JJ. L. B. Reyes, H. E. Gutierrez, ponente, and R. C. Climaco) referenced in Court of Appeals proceedings.

Factual Background — Parties and Instrument

On June 3, 1969, Jesusa B. Afable, Felisa L. Mendoza and Ma. Aurora C. Dino executed a promissory note in favor of Nelia G. Ponce.
The promissory note recited a principal sum of P814,868.42, Philippine currency, payable without interest on or before July 31, 1969.
Note contained provisions: if indebtedness not paid at maturity, it would draw interest at 12% per annum without demand; in case suit is necessary to enforce payment, debtors shall pay an amount equivalent to 10% of total amount due for attorney's fees; and, upon failure to pay indebtedness plus interest, debtors shall execute a first mortgage in favor of the creditor over their properties or of the Carmen Planas Memorial, Inc.
Parties had an underlying transaction involving dollars: petitioners expected to be paid US$194,016.29 and the parties had contemplated dollar dealings, with conversion at P4.20 to $1.00 noted in the record (T.s.n., September 3, 1971, p. 40).

Pleadings — Admissions, Denials, and Counterclaims

Petitioners (Nelia and Vicente Ponce) filed a Complaint on July 27, 1970 in the Court of First Instance of Manila for recovery of P814,868.42 plus interest and damages.
Defendant Ma. Aurora C. Dino: Answered with general denial and alleged she did not borrow money; claimed her signature was obtained as "formality only."
Defendant Jesusa B. Afable: Answer asserted the promissory note did not express the true intent and that the true agreement was that Felisa L. Mendoza would assume and pay the obligation; Afable claimed she signed only as President of Carmen Planas Memorial, Inc., and would not incur personal liability.
Defendant Felisa L. Mendoza: In Amended Answer admitted authenticity and execution of the promissory note but characterized Mendoza and others as principal debtor with Afable and Dino as accommodation parties; pleaded usury as an affirmative defense and counterclaimed for accounting of interest paid.
Plaintiffs denied Mendoza’s usury allegations under oath in their Answer to the counterclaim.

Trial Proceedings and Lower Court Judgment

Petitioners rested their case; the trial was deemed submitted because respondents Afable and co-debtors repeatedly failed to appear to present evidence.
On March 9, 1972, the Court of First Instance of Manila rendered judgment ordering Afable, Mendoza and Dino, jointly and severally, to pay petitioners P814,868.42, plus 12% interest per annum from July 31, 1969 until full payment, and a sum equivalent to 10% of the total amount due as attorney's fees, plus costs.
From that judgment, only respondent Afable appealed to the Court of Appeals.

Appeal and Phase One Court of Appeals Disposition

On December 13, 1977, the Court of Appeals rendered judgment affirming the trial court decision.
A Motion for Reconsideration by Afable was denied by the Court of Appeals in a Resolution dated February 27, 1978.

Second Motion for Reconsideration and Court of Appeals Reversal

Afable filed a second Motion for Reconsideration which led the Court of Appeals, in a Resolution dated June 8, 1978, to set aside its December 13, 1977 Decision, reverse the trial court judgment, and dismiss the Complaint.
The Court of Appeals’ June 8, 1978 Resolution stated: while convinced the amount awarded was owed, the dispositive issue was the legality of the contract’s subject matter.
The Court of Appeals concluded the promissory note was payable in U.S. dollars because plaintiff-appellee Ponce allegedly admitted there was an agreement to be paid in dollars; the Court held intent of the parties may prevail over the bare written words.
On the basis that the agreement was payable in dollars, the Court of Appeals found the agreement null and void under Republic Act No. 529 and applied the doctrine of in pari delicto, ruling that neither party could recover.
Subsequent Motions for Reconsideration by petitioners were denied in Resolutions dated July 6, 1978 and November 27, 1978.

Relief Sought in the Petition for Certiorari

Petitioners filed a Petition for Certiorari to set aside the Court of Appeals’ June 8, 1978 Resolution (and subsequent denials of motions for reconsideration), seeking reinstatement of the trial court judgment in their favor.
The Petition raised four assignments of error challenging (1) the Court of Appeals’ conclusion that the promissory note was payable in U.S. dollars; (2) the Court of Appeals’ application of Republic Act No. 529 to the parties’ transacti