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G.R. No. 180144. September 24, 2014.*

LEONARDO BOGNOT, petitioner, vs. RRI LENDING

CORPORATION, represented by its General Manager, DARIO J.
BERNARDEZ, respondent.

Remedial Law; Civil Procedure; Appeals; Petition for Review on

Certiorari; As a rule, the Court’s jurisdiction in a Rule 45 petition is limited
to the review of pure questions of law.—As a rule, the Court’s jurisdiction in
a Rule 45 petition is limited to the review of pure questions of law.
Appreciation of evidence and inquiry on the correctness of the appellate
court’s factual findings are not the functions of this Court; we are not a trier
of facts. A question of law exists when the doubt or dispute relates to the
application of the law on given facts. On the other hand, a question of fact
exists when the doubt or dispute relates to the truth or falsity of the parties’
factual allegations.
Same; Evidence; Burden of Proof; Payment; Jurisprudence tells us that
one who pleads payment has the burden of proving it; the burden rests on
the defendant to prove payment, rather than on the plaintiff to prove
nonpayment.—Jurisprudence tells us that one who pleads payment has the
burden of proving it; the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove nonpayment. Indeed, once the existence
of an indebtedness is duly

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* SECOND DIVISION.

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established by evidence, the burden of showing with legal certainty that

the obligation has been discharged by payment rests on the debtor.
Same; Civil Procedure; Appeals; It is a settled principle of law that no
issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration.—It has not escaped the Court’s attention that
the petitioner raised the argument that the obligation had been extinguished
by novation. The petitioner never raised this issue before the lower courts. It

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is a settled principle of law that no issue may be raised on appeal unless it

has been brought before the lower tribunal for its consideration. Matters
neither alleged in the pleadings nor raised during the proceedings below
cannot be ventilated for the first time on appeal before the Supreme Court.
Civil Law; Obligations; Novation; Words and Phrases; Novation is a
mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.—Novation is a mode
of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.
Same; Same; Same; Depending on who took the initiative, novation by
substitution of debtor has two forms — substitution by expromision and
substitution by delegacion.—To give novation legal effect, the original
debtor must be expressly released from the obligation, and the new debtor
must assume the original debtor’s place in the contractual relationship.
Depending on who took the initiative, novation by substitution of debtor has
two forms — substitution by expromision and substitution by delegacion.
The difference between these two was explained in Garcia v. Llamas, 417
SCRA 292 (2003): “In expromision, the initiative for the change does not
come from — and may even be made without the knowledge of — the
debtor, since it consists of a third person’s assumption of the obligation. As
such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes

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the obligation; thus, the consent of these three persons are necessary.”
Same; Same; Solidary Obligations; Words and Phrases; A solidary
obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors.—A solidary obligation
is one in which each of the debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the satisfaction of the whole
obligation from any or all of the debtors. There is solidary liability when the
obligation expressly so states, when the law so provides, or when the nature
of the obligation so requires. Thus, when the obligor undertakes to be
“jointly and severally” liable, the obligation is solidary.
Remedial Law; Evidence; Best Evidence Rule; Under the best evidence
rule, when the subject of inquiry is the contents of a document, no evidence
is admissible other than the original document itself except in the instances
mentioned in Section 3, Rule 130 of the Revised Rules of Court.—Under the
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best evidence rule, when the subject of inquiry is the contents of a

document, no evidence is admissible other than the original document itself
except in the instances mentioned in Section 3, Rule 130 of the Revised
Rules of Court. The records show that the respondent had the custody of the
original promissory note dated April 1, 1997, with a superimposed rubber
stamp mark “June 30, 1997,” and that it had been given every opportunity to
present it. The respondent even admitted during pre-trial that it could not
present the original promissory note because it is in the custody of its
cashier who is stranded in Bicol. Since the respondent never produced the
original of the promissory note, much less offered to produce it, the
photocopy of the promissory note cannot be admitted as evidence.
Civil Law; Interest Rates; Loans; Although parties to a loan agreement
have wide latitude to stipulate on the applicable interest rate under Central
Bank Circular No. 905, s. 1982 (which suspended the Usury Law ceiling on
interest effective January 1, 1983), the Supreme Court (SC) stresses that
unconscionable interest rates may still be declared illegal.—On the issue of
interest, while we agree with the CA that the petitioner is liable to the
respondent for the

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unpaid loan, we find the imposition of the 5% monthly interest to be

excessive, iniquitous, unconscionable and exorbitant, and hence, contrary to
morals and jurisprudence. Although parties to a loan agreement have wide
latitude to stipulate on the applicable interest rate under Central Bank
Circular No. 905, s. 1982 (which suspended the Usury Law ceiling on
interest effective January 1, 1983), we stress that unconscionable interest
rates may still be declared illegal.

PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.
The facts are stated in the opinion of the Court.
Nelson A. Loyola for petitioner.
Terencia Erni-Rivera for respondent.

BRION,  J.:

Before the Court is the petition for review on certiorari1 filed by

Leonardo Bognot (petitioner) assailing the March 28, 2007 decision2
and the October 15, 2007 resolution3 of the Court of Appeals (CA)
in C.A.-G.R. CV No. 66915.

Background Facts

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RRI Lending Corporation (respondent) is an entity engaged in

the business of lending money to its borrowers within Metro Manila.
It is duly represented by its General Manager, Mr. Dario J.
Bernardez (Bernardez).

_______________

1 Under Rule 45 of the Rules of Court; Rollo, pp. 8-61.

2 Rollo, pp. 270-283; penned by Associate Justice Ramon R. Garcia, and
concurred in by Associate Justices Josefina Guevara-Salonga and Vicente Q. Roxas.
3 Id., at pp. 312-313.

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Sometime in September 1996, the petitioner and his younger

brother, Rolando A. Bognot (collectively referred to as the “Bognot
siblings”), applied for and obtained a loan of Five Hundred
Thousand Pesos (P500,000.00) from the respondent, payable on
November 30, 1996.4 The loan was evidenced by a promissory note
and was secured by a postdated check5 dated November 30, 1996.
Evidence on record shows that the petitioner renewed the loan
several times on a monthly basis. He paid a renewal fee of
P54,600.00 for each renewal, issued a new postdated check as
security, and executed and/or renewed the promissory note
previously issued. The respondent on the other hand, cancelled and
returned to the petitioner the postdated checks issued prior to their
renewal.
Sometime in March 1997, the petitioner applied for another loan
renewal. He again executed as principal and signed Promissory Note
No. 97-0356 payable on April 1, 1997; his comaker was again
Rolando. As security for the loan, the petitioner also issued BPI
Check No. 0595236,7 postdated to April 1, 1997.8
Subsequently, the loan was again renewed on a monthly basis
(until June 30, 1997), as shown by the Official Receipt No. 7979
dated May 5, 1997, and the Disclosure Statement dated May 30,
1997 duly signed by Bernardez. The petitioner purportedly paid the
renewal fees and issued a postdated check dated June 30, 1997 as
security. As had been done in the past, the respondent superimposed
the date “June 30, 1997” on the upper right portion of Promissory
Note No. 97-035 to make it appear that it would mature on the said
date.

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4 Id., at p. 271.
5 Id., at p. 97.
6 Id., at pp. 67-68.
7 Id., at p. 97.
8 Id., at p. 272.
9 Id., at p. 83.

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Several days before the loan’s maturity, Rolando’s wife, Julieta

Bognot (Mrs. Bognot), went to the respondent’s office and applied
for another renewal of the loan. She issued in favor of the
respondent Promissory Note No. 97-051, and International Bank
Exchange (IBE) Check No. 00012522, dated July 30, 1997, in the
amount of P54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents
for the Bognot siblings’ signatures and replacement, Mrs. Bognot
asked the respondent’s clerk to release to her the promissory note,
the disclosure statement, and the check dated July 30, 1997. Mrs.
Bognot, however, never returned these documents nor issued a new
postdated check. Consequently, the respondent sent the petitioner
follow-up letters demanding payment of the loan, plus interest and
penalty charges. These demands went unheeded.
On November 27, 1997, the respondent, through Bernardez, filed
a complaint for sum of money before the Regional Trial Court
(RTC) against the Bognot siblings. The respondent mainly alleged
that the loan renewal payable on June 30, 1997 which the Bognot
siblings applied for remained unpaid; that before June 30, 1997,
Mrs. Bognot applied for another loan extension and issued IBE
Check No. 00012522 as payment for the renewal fee; that Mrs.
Bognot convinced the respondent’s clerk to release to her the
promissory note and the other loan documents; that since Mrs.
Bognot never issued any replacement check, no loan extension took
place and the loan, originally payable on June 30, 1997, became due
on this date; and despite repeated demands, the Bognot siblings
failed to pay their joint and solidary obligation.
Summons were served on the Bognot siblings. However, only the
petitioner filed his answer.

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10
In his Answer, the petitioner claimed that the complaint states
no cause of action because the respondent’s claim had been paid,
waived, abandoned or otherwise extinguished. He denied being a
party to any loan application and/or renewal
in May 1997. He also denied having issued the BPI check postdated
to June 30, 1997, as well as the promissory note dated June 30,
1997, claiming that this note had been tampered. He claimed that the
one (1) month loan contracted by Rolando and his wife in November
1996 which was lastly renewed in March 1997 had already been
fully paid and extinguished in April 1997.11
Trial on the merits thereafter ensued.

The Regional Trial Court’s Ruling

In a decision12 dated January 17, 2000, the RTC ruled in the

respondent’s favor and ordered the Bognot siblings to pay the
amount of the loan, plus interest and penalty charges. It considered
the wordings of the promissory note and found that the loan they
contracted was joint and solidary. It also noted that the petitioner
signed the promissory note as a principal (and not merely as a
guarantor), while Rolando was the comaker. It brushed the
petitioner’s defense of full payment aside, ruling that the respondent
had successfully proven, by preponderance of evidence, the
nonpayment of the loan. The trial court said:

Records likewise reveal that while he claims that the obligation had been
fully paid in his Answer, he did not, in order to protect his right filed (sic) a
cross-claim against his codefendant Rolando Bognot despite the fact that the
latter did not file any responsive pleading.

_______________

10 Id., at pp. 70-74.

11 Id., at p. 70.
12 Id., at pp. 156-165.

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In fine, defendants are liable solidarily to plaintiff and must pay the loan
of P500,000.00 plus 5% interest monthly as well as 10% monthly penalty
charges from the filing of the complaint on December 3, 1997 until fully
paid. As plaintiff was constrained to engage the services of counsel in order
to protect his right, defendants are directed to pay the former jointly and
severally the amount of P50,000.00 as and by way of attorney’s fee.

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The petitioner appealed the decision to the Court of Appeals.

The Court of Appeals’ Ruling

In its decision dated March 28, 2007, the CA affirmed the RTC’s
findings. It found the petitioner’s defense of payment untenable and
unsupported by clear and convincing evidence. It observed that the
petitioner did not present any evidence showing that the check dated
June 30, 1997 had, in fact, been encashed by the respondent and the
proceeds applied to the loan, or any official receipt evidencing the
payment of the loan. It further stated that the only document relied
upon by the petitioner to substantiate his defense was the April 1,
1997 check he issued which was cancelled and returned to him by
the respondent.
The CA, however, noted the respondent’s established policy of
cancelling and returning the postdated checks previously issued, as
well as the subsequent loan renewals applied for by the petitioner, as
manifested by the official receipts under his name. The CA thus
ruled that the petitioner failed to discharge the burden of proving
payment.
The petitioner moved for the reconsideration of the decision, but
the CA denied his motion in its resolution of October 15, 2007,
hence, the present recourse to us pursuant to Rule 45 of the Rules of
Court.

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The Petition

The petitioner submits that the CA erred in holding him

solidarily liable with Rolando and his wife. He claimed that based
on the legal presumption provided by Article 1271 of the Civil
Code,13 his obligation had been discharged by virtue of his
possession of the postdated check (stamped “CANCELLED”) that
evidenced his indebtedness. He argued that it was Mrs. Bognot who
subsequently assumed the obligation by renewing the loan, paying
the fees and charges, and issuing a check. Thus, there is an entirely
new obligation whose payment is her sole responsibility.
The petitioner also argued that as a result of the alteration of the
promissory note without his consent (e.g., the superimposition of the
date “June 30, 1997” on the upper right portion of Promissory Note
No. 97-035 to make it appear that it would mature on this date), the
respondent can no longer collect on the tampered note, let alone,
hold him solidarily liable with Rolando for the payment of the loan.
He maintained that even without the proof of payment, the material
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alteration of the promissory note is sufficient to extinguish his

liability.
Lastly, he claimed that he had been released from his
indebtedness by novation when Mrs. Bognot renewed the loan and
assumed the indebtedness.

The Case for the Respondents

The respondent submits that the issues the petitioner raised hinge
on the appreciation of the adduced evidence and of the factual lower
courts’ findings that, as a rule, are not reviewable by this Court.

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13 Art. 1271. The delivery of a private document evidencing a credit, made

voluntarily by the creditor to the debtor, implies the renunciation of the action which
the former had against the latter.

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The Issues

The case presents to us the following issues:

1. Whether the CA committed a reversible error in holding the
petitioner solidarily liable with Rolando;
2. Whether the petitioner is relieved from liability by reason of
the material alteration in the promissory note; and
3. Whether the parties’ obligation was extinguished by: (i)
payment; and (ii) novation by substitution of debtors.

Our Ruling

We find the petition partly meritorious.

As a rule, the Court’s jurisdiction in a Rule 45 petition is limited
to the review of pure questions of law.14 Appreciation of evidence
and inquiry on the correctness of the appellate court’s factual
findings are not the functions of this Court; we are not a trier of
facts.15
A question of law exists when the doubt or dispute relates to the
application of the law on given facts. On the other hand, a question
of fact exists when the doubt or dispute relates to the truth or falsity
of the parties’ factual allegations.16

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14 Section 1, Rule 45 of the Rules of Court provides: Section 1. Filing of

petition with Supreme Court.—A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth. [Italics supplied]
15 First Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc., et.
al., 420 Phil. 902, 914; 369 SCRA 99, 111 (2001).
16 Land Bank of the Philippines v. Yatco Agricultural Enterprises, G.R. No.
172551, January 15, 2014, 713 SCRA 370.

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As the respondent correctly pointed out, the petitioner’s

allegations are factual issues that are not proper for the petition he
filed. In the absence of compelling reasons, the Court cannot
reexamine, review or reevaluate the evidence and the lower courts’
factual conclusions. This is especially true when the CA affirmed the
lower court’s findings, as in this case. Since the CA’s findings of
facts affirmed those of the trial court, they are binding on this Court,
rendering any further factual review unnecessary.
If only to lay the issues raised — both factual and legal — to rest,
we shall proceed to discuss their merits and demerits.

No Evidence Was Presented to Establish the Fact of Payment

Jurisprudence tells us that one who pleads payment has the

burden of proving it;17 the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment.18 Indeed,
once the existence of an indebtedness is duly established by
evidence, the burden of showing with legal certainty that the
obligation has been discharged by payment rests on the debtor.19
In the present case, the petitioner failed to satisfactorily prove
that his obligation had already been extinguished by payment. As
the CA correctly noted, the petitioner failed to present any evidence
that the respondent had in fact encashed his check and applied the
proceeds to the payment of the loan. Neither did he present official
receipts evidencing payment, nor any proof that the check had been
dishonored.

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17 Vitarich Corporation v. Losin, G.R. No. 181560, November 15, 2010, 634
SCRA 671, 680-681.

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18 Bank of the Philippine Islands v. Spouses Royeca, G.R. No. 176664, 581 Phil.
188, 195; 559 SCRA 207, 216 (2008).
19 Spouses Deo Agner and Maricon Agner v. BPI Family Savings Bank, Inc.,
G.R. No. 182963, June 3, 2013, 697 SCRA 89, 97.

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We note that the petitioner merely relied on the respondent’s

cancellation and return to him of the check dated April 1, 1997. The
evidence shows that this check was issued to secure the
indebtedness. The acts imputed on the respondent, standing alone,
do not constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:

xxxx
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor they
have been impaired. (Emphasis supplied)

Also, we held in Bank of the Philippine Islands v. Spouses

Royeca:20

Settled is the rule that payment must be made in legal tender. A check is
not legal tender and, therefore, cannot constitute a valid tender of payment.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment.
Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized. (Emphasis
supplied)

Although Article 1271 of the Civil Code provides for a legal

presumption of renunciation of action (in cases where a private
document evidencing a credit was voluntarily returned by the
creditor to the debtor), this presumption is merely prima facie and is
not conclusive; the presumption loses efficacy when faced with
evidence to the contrary.

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20 Supra note 18 at p. 196; p. 217.

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Moreover, the cited provision merely raises a presumption, not of

payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally would
be called for to prove payment.21 Thus, reliance by the petitioner on
the legal presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by the petitioner. The
cancellation and return of the check dated April 1, 1997, simply
established his renewal of the loan — not the fact of payment.
Furthermore, it has been established during trial, through repeated
acts, that the respondent cancelled and surrendered the postdated
check previously issued whenever the loan is renewed. We trace
what would amount to a practice under the facts of this case, to the
following testimonial exchanges:

Civil Case No. 97-0572

TSN, December 14, 1998, Page 13.
Atty. Almeda:
Q: In the case of the renewal of the loan you admitted that a renewal fee is
charged to the debtor which he or she must pay before a renewal is allowed.
I show you Exhibit “3” official receipt of plaintiff dated July 3, 1997, would
this be your official receipt which you issued to your client which they make
renewal of the loan?
A: Yes, sir.
x x x    x x x    x x x
Q: And naturally when a loan has been renewed, the old one which is
replaced by the renewal has already been cancelled, is that correct?
A: Yes, sir.

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21 Trans-Pacific Industrial Supplies, Inc. v. Court of Appeals, G.R. No. 109172,

August 19, 1994, 235 SCRA 494, 502.

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Q: It is also true to say that all promissory notes and all postdated
checks covered by the old loan which have been the subject of the
renewal are deemed cancelled and replaced is that correct?
A: Yes, sir. x x x22
Civil Case No. 97-0572
TSN, November 27, 1998, Page 27.
Q: What happened to the check that Mr. Bognot issued?
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Court: There are two Bognots. Who in particular?

Q: Leonardo Bognot, Your Honor.
A: Every month, they were renewed, he issued a new check, sir.
Q: Do you have a copy of the checks?
A: We returned the check upon renewing the loan.23

In light of these exchanges, we find that the petitioner failed to

discharge his burden of proving payment.

The Alteration of the Promissory Note Did Not Relieve the

Petitioner From Liability

We now come to the issue of material alteration. The petitioner

raised as defense the alleged material alteration of Promissory Note
No. 97-035 as basis to claim release from his loan. He alleged that
the respondent’s superimposition of the due date “June 30, 1997” on
the promissory note without his consent effectively relieved him of
liability.
We find this defense untenable.

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22 Rollo, p. 251.
23 Id., at p. 240.

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Although the respondent did not dispute the fact of alteration, he

nevertheless denied that the alteration was done without the
petitioner’s consent. The parties’ Pre-Trial Order dated November 3,
199824 states that:

x x x There being no possibility of a possible compromise agreement,

stipulations, admissions, and denials were made, to wit:
FOR DEFENDANT LEONARDO BOGNOT
13. That the promissory note subject of this case marked as Annex “A”
of the complaint was originally dated April 1, 1997 with a superimposed
rubber stamp mark “June 30, 1997” to which the plaintiff admitted the
superimposition.
14. The superimposition was done without the knowledge, consent or
prior consultation with Leonardo Bognot which was denied by plaintiff.25
(Emphasis supplied)

Significantly, the respondent also admitted in the Pre-Trial Order

that part of its company practice is to rubber stamp, or make a
superimposition through a rubber stamp, the old promissory note
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which has been renewed to make it appear that there is a new loan
obligation. The petitioner did not rebut this statement. To our mind,
the failure to rebut is tantamount to an admission of the respondent’s
allegations:

“22. That it is the practice of plaintiff to just rubber stamp or make

superimposition through a rubber stamp on old promissory note which has
been renewed to make it appear that there is a new loan obligation to which
the plaintiff admitted.” (Emphasis Supplied)26

_______________

24 Id., at pp. 86-91.

25 Id.
26 Id., at p. 89.

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Even assuming that the note had indeed been tampered without
the petitioner’s consent, the latter cannot totally avoid payment of
his obligation to the respondent based on the contract of loan.
Based on the records, the Bognot Siblings had applied for and
were granted a loan of P500,000.00 by the respondent. The loan was
evidenced by a promissory note and secured by a postdated check27
dated November 30, 1996. In fact, the petitioner himself admitted
his loan application was evidenced by the Promissory Note dated
April 1, 1997.28 This loan was renewed several times by the
petitioner, after paying the renewal fees, as shown by the Official
Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997,
respectively. These official receipts were issued in the name of the
petitioner. Although the petitioner had insisted that the loan had
been extinguished, no other evidence was presented to prove
payment other than the cancelled and returned postdated check.
Under this evidentiary situation, the petitioner cannot validly
deny his obligation and liability to the respondent solely on the
ground that the Promissory Note in question was tampered. Notably,
the existence of the obligation, as well as its subsequent renewals,
have been duly established by: first, the petitioner’s application for
the loan; second, his admission that the loan had been obtained from
the respondent; third, the postdated checks issued by the petitioner
to secure the loan; fourth, the testimony of Mr. Bernardez on the
grant, renewal and nonpayment of the loan; fifth, proof of
nonpayment of the loan; sixth, the loan renewals; and seventh, the
approval and receipt of the loan renewals.

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27 Id., at p. 97.
28 Id., at pp. 86-91.
29 Id., at p. 83.
30 Id.

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Bognot vs. RRI Lending Corporation

In Guinsatao v. Court of Appeals,31 this Court pointed out that

while a promissory note is evidence of an indebtedness, it is not the
only evidence, for the existence of the obligation can be proven by
other documentary evidence such as a written memorandum signed
by the parties.
In Pacheco v. Court of Appeals,32 this Court likewise expressly
recognized that a check constitutes an evidence of indebtedness and
is a veritable proof of an obligation. It can be used in lieu of and for
the same purpose as a promissory note and can therefore be
presented to establish the existence of indebtedness.33
In the present petition, we find that the totality of the evidence on
record sufficiently established the existence of the petitioner’s
indebtedness (and liability) based on the contract of loan. Even with
the tampered promissory note, we hold that the petitioner can still be
held liable for the unpaid loan.

The Petitioner’s Belated Claim of Novation by Substitution May

no Longer be Entertained

It has not escaped the Court’s attention that the petitioner raised
the argument that the obligation had been extinguished by novation.
The petitioner never raised this issue before the lower courts.
It is a settled principle of law that no issue may be raised on
appeal unless it has been brought before the lower tribunal for its
consideration.34 Matters neither alleged in the plead-

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31 G.R. No. 95083, February 9, 1993, 218 SCRA 708.

32 377 Phil. 627; 319 SCRA 595 (1999).
33 Rollo, p. 637.
34 Sesbreño v. Central Board of Assessment Appeals, G.R. No. 106588, 337 Phil.
89, 99; 270 SCRA 360, 370 (1997).

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374 SUPREME COURT REPORTS ANNOTATED

Bognot vs. RRI Lending Corporation

ings nor raised during the proceedings below cannot be ventilated

for the first time on appeal before the Supreme Court.35
In any event, we find no merit in the defense of novation as we
discuss at length below.

Novation cannot be presumed and must be clearly and

unequivocably proven

Novation is a mode of extinguishing an obligation by changing

its objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights of
the creditor.36
Article 1293 of the Civil Code defines novation as follows:

“Art. 1293. Novation which consists in substituting a new debtor in

the place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned in Articles 1236 and
1237.”

To give novation legal effect, the original debtor must be

expressly released from the obligation, and the new debtor must
assume the original debtor’s place in the contractual relationship.
Depending on who took the initiative, novation by substitution of
debtor has two forms — substitution by expromision and
substitution by delegacion. The difference between these two was
explained in Garcia v. Llamas:37

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35 People v. Echegaray, G.R. No. 117472, 335 Phil. 343, 349; 267 SCRA 682,
689 (1997).
36 Garcia v. Llamas, 462 Phil. 779, 788; 417 SCRA 292, 299-300 (2003); Agro
Conglomerates, Inc. v. Court of Appeals, 401 Phil. 644, 655; 348 SCRA 450, 458
(2000).
37 Id.

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Bognot vs. RRI Lending Corporation

“In expromision, the initiative for the change does not come from — and
may even be made without the knowledge of — the debtor, since it consists
of a third person’s assumption of the obligation. As such, it logically
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requires the consent of the third person and the creditor. In delegacion, the
debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three
persons are necessary.”

In both cases, the original debtor must be released from the

obligation; otherwise, there can be no valid novation.38 Furthermore,
novation by substitution of debtor must always be made with the
consent of the creditor.39
The petitioner contends that novation took place through a
substitution of debtors when Mrs. Bognot renewed the loan and
assumed the debt. He alleged that Mrs. Bognot assumed the
obligation by paying the renewal fees and charges, and by executing
a new promissory note. He further claimed that she issued her own
check40 to cover the renewal fees, which fact, according to the
petitioner, was done with the respondent’s consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to renew
the original loan by executing a new promissory note41 and check.
The purported one month renewal of the loan, however, did not push
through, as Mrs. Bognot did not return the documents or issue a new
post dated check. Since the loan was not renewed for another month,
the original due date, June 30, 1997, continued to stand.

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38 SC Megaworld Construction and Development Corporation v. Parada, G.R.

No. 183804, September 11, 2013, 705 SCRA 584, 599-600.
39 Testate Estate of Mota v. Serra, 47 Phil. 464 (1925).
40 International Bank Exchange (IBE) Check No. 00012522 dated July 30, 1997.
41 Promissory Note No. 97-051.

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376 SUPREME COURT REPORTS ANNOTATED

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More importantly, the respondent never agreed to release the

petitioner from his obligation. That the respondent initially allowed
Mrs. Bognot to bring home the promissory note, disclosure
statement and the petitioner’s previous check dated June 30, 1997,
does not ipso facto result in novation. Neither will this acquiescence
constitute an implied acceptance of the substitution of the debtor.
In order to give novation legal effect, the creditor should consent
to the substitution of a new debtor. Novation must be clearly and
unequivocally shown, and cannot be presumed.
Since the petitioner failed to show that the respondent assented to
the substitution, no valid novation took place with the effect of

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releasing the petitioner from his obligation to the respondent.

Moreover, in the absence of showing that Mrs. Bognot and the
respondent had agreed to release the petitioner, the respondent can
still enforce the payment of the obligation against the original
debtor. Mere acquiescence to the renewal of the loan, when there is
clearly no agreement to release the petitioner from his responsibility,
does not constitute novation.

The Nature of the Petitioner’s Liability

On the nature of the petitioner’s liability, we rule however, that

the CA erred in holding the petitioner solidarily liable with Rolando.
A solidary obligation is one in which each of the debtors is liable
for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of
the debtors.42 There is solidary liability when the obligation
expressly so states, when the law so pro-

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42 PH Credit Corporation v. Court of Appeals, G.R. No. 109648, 421 Phil. 821,
832; 370 SCRA 155, 165 (2001).

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Bognot vs. RRI Lending Corporation

vides, or when the nature of the obligation so requires.43 Thus,

when the obligor undertakes to be “jointly and severally” liable, the
obligation is solidary.
In this case, both the RTC and the CA found the petitioner
solidarily liable with Rolando based on Promissory Note No. 97-035
dated June 30, 1997. Under the promissory note, the Bognot
Siblings defined the parameters of their obligation as follows:

“FOR VALUE RECEIVED, I/WE, jointly and severally, promise to

pay to READY RESOURCES INVESTORS RRI LENDING CORPO. or
Order, its office at Parañaque, M.M. the principal sum of Five Hundred
Thousand PESOS (P500,000.00), Philippine Currency, with interest thereon
at the rate of Five percent (5%) per month/annum, payable in One
Installment (01) equal daily/weekly/semi-monthly/monthly of PESOS Five
Hundred Thousand Pesos (P500,000.00), first installment to become due on
June 30, 1997. x x x”44 (Emphasis Ours)

Although the phrase “jointly and severally” in the promissory

note clearly and unmistakably provided for the solidary liability of

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the parties, we note and stress that the promissory note is merely a
photocopy of the original, which was never produced.
Under the best evidence rule, when the subject of inquiry is the
contents of a document, no evidence is admissible other than the
original document itself except in the instances mentioned in Section
3, Rule 130 of the Revised Rules of Court.45

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43 Querubin L. Alba and Rizalinda D. de Guzman v. Robert L. Yupangco, G.R.

No. 188233, June 29, 2010, 622 SCRA 503, 507.
44 Rollo, pp. 67-68.
45 Section 3, Rule 130 of the Revised Rules of Court provides: 1. Best Evidence
Rule, Section 3. Original document must be produced; exceptions.—When the
subject of inquiry is the contents of a document, no evidence shall be admissible other
than the original document itself, except in the following cases:

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378 SUPREME COURT REPORTS ANNOTATED

Bognot vs. RRI Lending Corporation

The records show that the respondent had the custody of the
original promissory note dated April 1, 1997, with a superimposed
rubber stamp mark “June 30, 1997,” and that it had been given every
opportunity to present it. The respondent even admitted during
pretrial that it could not present the original promissory note because
it is in the custody of its cashier who is stranded in Bicol.46 Since the
respondent never produced the original of the promissory note,
much less offered to produce it, the photocopy of the promissory
note cannot be admitted as evidence.
Other than the promissory note in question, the respondent has
not presented any other evidence to support a finding of solidary
liability. As we earlier noted, both lower courts completely relied on
the note when they found the Bognot siblings solidarily liable.
The well-entrenched rule is that solidary obligation cannot be
inferred lightly. It must be positively and clearly expressed and
cannot be presumed.47
In view of the inadmissibility of the promissory note, and in the
absence of evidence showing that the petitioner had bound himself
solidarily with Rolando for the payment of the

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(a) When the original has been lost or destroyed, or cannot be produced in court,
without bad faith on the part of the offeror;

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(b)  When the original is in the custody or under the control of the party against
whom the evidence is offered, and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which
cannot be examined incourt without great loss of time and the fact sought to be
established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is
recorded in a public office.
46 Rollo, p. 88.
47 Smith, Bell & Co., Inc. v. Court of Appeals, 335 Phil. 194, 203; 267 SCRA
530, 539 (1997).

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Bognot vs. RRI Lending Corporation

loan, we cannot but conclude that the obligation to pay is only

joint.48

The 5% Monthly Interest Stipulated in the Promissory Note is

Unconscionable and Should be Equitably Reduced

Finally, on the issue of interest, while we agree with the CA that

the petitioner is liable to the respondent for the unpaid loan, we find
the imposition of the 5% monthly interest to be excessive,
iniquitous, unconscionable and exorbitant, and hence, contrary to
morals and jurisprudence.
Although parties to a loan agreement have wide latitude to
stipulate on the applicable interest rate under Central Bank Circular
No. 905, S. 1982 (which suspended the Usury Law ceiling on
interest effective January 1, 1983), we stress that unconscionable
interest rates may still be declared illegal.49
In several cases, we have ruled that stipulations authorizing
iniquitous or unconscionable interests are contrary to morals and are
illegal. In Medel v. Court of Appeals,50 we annulled a stipulated
5.5% per month or 66% per annum interest on a P500,000.00 loan,
and a 6% per month or 72% per annum interest on a P60,000.00
loan, respectively, for being excessive, iniquitous, unconscionable
and exorbitant.
We reiterated this ruling in Chua v. Timan,51 where we held that
the stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant, and must
therefore be reduced to 12% per annum.

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48 Escaño v. Ortigas, Jr., G.R. No. 151953, June 29, 2007, 526 SCRA 26, 45.

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49 Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684 SCRA 168,
178; Cuaton v. Salud, G.R. No. 158382, January 27, 2004, 421 SCRA 278, 282.
50 G.R. No. 131622, 358 Phil. 820; 299 SCRA 481 (1998).
51 G.R. No. 170452, 584 Phil. 144; 562 SCRA 146 (2008).

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380 SUPREME COURT REPORTS ANNOTATED

Bognot vs. RRI Lending Corporation

Applying these cited rulings, we now accordingly hold that the

stipulated interest rate of 5% per month, (or 60% per annum) in the
promissory note is excessive, unconscionable, contrary to morals
and is thus illegal. It is void ab initio for violating Article 130652 of
the Civil Code. We accordingly find it equitable to reduce the
interest rate from 5% per month to 1% per month or 12% per annum
in line with the prevailing jurisprudence.
WHEREFORE, premises considered, the Decision dated March
28, 2007 of the Court of Appeals in C.A.-G.R. CV No. 66915 is
hereby AFFIRMED with MODIFICATION, as follows:
1. The petitioner Leonardo A. Bognot and his brother, Rolando
A. Bognot are JOINTLY LIABLE to pay the sum of P500,000.00
plus 12% interest per annum from December 3, 1997 until fully
paid.
2. The rest of the Court of Appeals’ dispositions are hereby
AFFIRMED.
Costs against petitioner Leonardo A. Bognot.
SO ORDERED.

Carpio (Chairperson), Del Castillo, Mendoza and Leonen, JJ.,

concur.

Judgment and resolution affirmed with modification.

Notes.—Novation may only prevent the rise of criminal liability

if it occurs prior to the filing of the Information in court. (Medalla
vs. Laxa, 663 SCRA 461 [2012])

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52 Article 1306 of the Civil Code provides:

The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

381

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Bognot vs. RRI Lending Corporation

The primary purpose of the Best Evidence Rule is to ensure that

the exact contents of a writing are brought before the court. (Heirs of
Margarita Prodon vs. Heirs of Maximo S. Alvarez and Valentina
Clave, 704 SCRA 465 [2013])
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