Negotiable Instruments

Rodrigo Rivera Vs. Spouses Salvador C. Chua and Violeta S. Chua/Spouses Salvador C. Chua and Violeta S. Chua Vs. Rodrigo Rivera

G.R. Nos. 184458/184472. January 14, 2015

J. Perez (Commercial Law)

A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.

FACTS:

Petitioner Rodrigo Rivera obtained a load from his friends Spouses Salvador and Violeta Chua:

                                                                 PROMISSORY NOTE

120,000.00            

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (­120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (­120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.

            x x x x

In October 1998, Rivera issued and delivered to the Spouses Chua, as payee, a check numbered 012467, dated 30 December 1998, in the amount of ­25,000.00 and on  21 December 1998, another check numbered 013224, duly signed and dated, but blank as to payee. The second check was issued, as per understanding by the parties, n the amount of ­133,454.00 with “cash” as payee. Both checks were dishonored for the reason “account closed.”

Due to Rivera’s unjustified refusal to pay, respondents were constrained to file a suit on 11 June 1999.

In his Answer with Compulsory Counterclaim, Rivera countered, among others, that the subject Promissory Note was forged and that here was no demand for payment of the amount of ­120,000.00 prior to the encashment of PCIB Check No. 0132224. Respondents presented documentary and oral evidence of NBI Senior Document Examiner Antonio Magbojos who concluded that the questioned signature appearing in the Promissory Note and the Rivera’s specimen signatures on other documents written by one and the same person.

The MeTC ruled in Spouses Chua’s favor. On appeal, the RTC affirmed the MeTC decision but deleted the award of attorney’s fees. The CA also affirmed Rivera’s liability under the Promissory Note but reduced the imposition of interest on the loan from 60% to 12% per annum.

Both parties appealed before the SC. Respondent’s petition for review on certiorari was denied for failure to show any reversible on the CA ruling concerning the correct rate of interest on Rivera’s indebtnesses under the Promissory Note. Rivera continued to deny that he executed the Promissory Note and alleged that the Spouses Chua “never demanded payment for the loan nor interest thereof (sic) from [Rivera] for almost four (4) years from the time of the alleged default in payment.

ISSUES:

1. Whether the CA erred in ruling that there was a valid promissory note.

2. Whether the promissory note is negotiable instrument, thus the Negotiable Instruments Law (NIL) applies to this case.

3. Whether Rivera is still liable under the terms of the Promissory Note assuming that it is not a negotiable instrument.

4. Whether the CA erred in reducing the interest rate from 60% to 12% per annum. 

HELD:

1. Yes.

First, [the court] cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer to the plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the whole case or only to certain issues in the case.

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a handwriting expert from the NBI. While it is true that resort to experts is not mandatory or indispensable to the examination or the comparison of handwriting, the trial courts in this case, on its own, using the handwriting expert testimony only as an aid, found the disputed document valid.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant defense to assail the authenticity and validity of the Promissory Note. Although the burden of proof rested on the Spouses Chua having instituted the civil case and after they established a prima facie case against Rivera, the burden of evidence shifted to the latter to establish his defense. Consequently, Rivera failed to discharge the burden of evidence, refute the existence of the Promissory Note duly signed by him and subsequently, that he did not fail to pay his obligation thereunder. On the whole, there was no question left on where the respective evidence of the parties preponderated—in favor of plaintiffs, the Spouses Chua.

2. No. The subject promissory note is not a negotiable instrument and the provisions of the NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:

(a)It must be in writing and signed by the maker or drawer;

(b)Must contain an unconditional promise or order to pay a sum certain in money;

(c)Must be payable on demand, or at a fixed or determinable future time;

(d)Must be payable to order or to bearer; and 

(e)Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty

On the other hand, Section 184 of the NIL defines what negotiable promissory note is:

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.

3. Yes, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which provides that presentment for payment is not necessary to charge the person liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the amount of ­120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note

Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling motive or the principal inducement for the creation of the obligation; and (4) where demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence.

The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995, demand was not necessary before Rivera could be held liable for the principal amount of ­120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the form of stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the performance of their obligations is laid down on Article 1170 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages when the obligor incurs in delay:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.

4. No.

At the time interest accrued from 1 January 1996, the date of default under the Promissory Note, the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No. 416 in cases involving the loan or forbearance of money. Thus, the legal interest accruing from the Promissory Note is 12% per annum from the date of default on 1 January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June 2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum.  Pursuant to our ruling in Nacar v. Gallery Frames,  BSP Circular No. 799 is prospectively applied from 1 July 2013.  In short, the applicable rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date when this Decision becomes final and executor is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and executory.