ASIATRUST DEVELOPMENT BANK, petitioner, vs.

CONCEPTS
TRADING CORPORATION, respondent.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of

[1]

Appeals and its Resolution in CA-G.R. CV No. 44211 affirming on appeal with
modification the Decision of the Regional Trial Court of Makati, Branch 68, in
[2]

Civil Case No. 89-3789.

As culled from the records, the facts of the case are as follows:
In March 1996, respondent Concepts Trading Corporation obtained from
petitioner Asiatrust Development Corporation a credit accommodation in the
amount of P2,000,000 covered by a loan agreement and secured by real and
[3]

chattel mortgages. The amount was drawn from an Industrial Guarantee Loan
[4]

Fund (IGLF) account opened by the petitioner in favor of the respondent. On

March 4, 1986, the respondent executed Promissory Note (PN) No. 3574 in [5]

favor of the petitioner. Under the promissory note, the principal amount
of P2,000,000 would be charged an interest of 23% per annum, inclusive of 1%
service fee. Attached to and made part of the promissory note was the schedule
of amortization agreed upon by the parties. As set forth in the schedule, the
[6]

payment of the loan was to be amortized quarterly over a period of ten years
with a two-year grace period on the principal payment. The first payment fell
due on May 15, 1986 and the subsequent installments were to be paid every
three months thereafter.
In the event that the respondent defaulted in the payment of any installment
or interest thereof, paragraph 4 of the promissory note provided that:

... the entire amount outstanding under this Note shall immediately, without need for
any notice, demand, presentment, protest, or of any other act or deed, the right to all
of which is hereby waived by the undersigned: (i) become due, payable and defaulted;
(ii) be subject to a penalty equivalent to thirty-six percent (36%) per annum thereof;
(iii) together with said penalty, commence to earn interest as [sic] the rate of twenty-
three percent (23%) per annum counted from the date of default until full payment
thereof.

The respondent failed to pay the amortizations due on August 15 and

November 15, 1987, prompting the petitioner to enforce the aforementioned
acceleration clause. On January 25, 1988, the petitioner sent a letter to the [7]
respondent demanding payment of its outstanding loan obligation, amounting
to P3,203,049 under PN No. 3574 and PN No. 4132. [8]

In its Letter to the petitioner dated February 3, 1988, the respondent

expressed its willingness to settle its obligation and, due to its tight financial
situation, negotiated for a modified payment scheme. Thereafter, on March 30,
[9]

1988, the parties entered into a Memorandum of Agreement (MOA), the

pertinent provisions of which read:

WHEREAS, CONCEPTS hereby acknowledges and affirms that it has applied and
was granted by the Bank a credit accommodation consisting of an Industrial
Guarantee Loan Fund (IGLF) Account in the amount of P2.0 Million dated 4 March
1986 (hereinafter, the LOAN OBLIGATION) which, to date, is already overdue and
demandable in its entirety including all interests, penalties, service and other
miscellaneous charges.

...

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN
OBLIGATION in the following manner, to wit:

a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check

for the same amount to be issued by CONCEPTS; and

b) On 5 June 1988 and every 5th of every succeeding month, P150,000.00 until the
LOAN OBLIGATION shall have been fully paid. CONCEPTS hereby undertakes to
cover the above-mentioned payments by post-dated checks, by first delivering to the
BANK five (5) checks covering the first five (5) month period, without prejudice to
the BANKs right to demand the delivery of another set of five (5) checks covering the
subsequent five (5) month period, 15 days prior to the due date of the last check in the
BANKs possession, and so on and so forth, until the LOAN OBLIGATION shall have
been fully paid.

It is likewise understood that upon payment of ten (10) monthly amortizations as

above-indicated or upon updating of payments of the LOAN OBLIGATION,
CONCEPTS shall have the right to re-negotiate with the Bank the reinstatement of the
original terms of payment under Promissory Note No. 3574.

3. The BANK and CONCEPTS hereby further agree that all other provisions and
stipulations in the existing Promissory Notes and other documents evidencing the
LOAN OBLIGATION shall remain in force and effect, except those which are
inconsistent with the above-mentioned Mode of Payment.
4. CONCEPTS hereby waives notice of dishonor and/or default of its LOAN
OBLIGATION: provided, however, that the BANK reserves the right to grant a grace
period of (15) days for settlement of the obligation; provided, further, that such grant
of a grace period shall not constitute waiver of any right of the BANK. It shall also be
understood that CONCEPTS default in this mode of payment shall likewise
automatically accelerate the entire LOAN OBLIGATION.

5. It shall likewise be understood that this mode of payment arises out of the BANKs
liberality and is without prejudice and without waiver of the BANKs accrued rights
under the existing chattel and real estate mortgages as well as the Continuing
Suretyship Agreement pertinent to the LOAN OBLIGATION, all of which mortgages
and Agreement are hereby expressly continued to be in force and effect. [10]

In compliance with its undertaking under the MOA, the respondent delivered
the first check dated May 5, 1988 in the amount of P159,259.14 and four other
checks in the sum ofP150,000 each or for the total amount of P759,259.14. This
was followed by another batch of five checks covering the months of October
1988 to February 1989, also in the amount ofP150,000 each or for a total
amount of P750,000.
On March 30, 1989, the petitioner wrote to the respondent requesting for
the delivery of the last checks to completely rehabilitate its account in
accordance with the MOA. When the respondent failed to make the said
payments, the petitioner on April 25, 1989 sent a final demand on the
respondent to pay its entire obligation under the IGLF in the amount
ofP2,361,970.10 within five days from receipt thereof. [11]

The respondent thereafter filed with the Regional Trial Court of Makati City,
Branch 149, a petition for declaratory relief. The respondent alleged that it is up
to date in the payment of its loan obligation and, according to its record, the
remaining balance amounted to only P316,550.48. The respondent prayed for
the trial court to determine the rights and duties of the parties under the MOA
to avoid the miscomputation of the loan obligation and any breach thereof.
In its answer, the petitioner averred that as of February 15, 1988, the
outstanding obligation of the respondent amounted
to P2,833,867.04. According to the petitioner, the monthly amortizations paid
by the respondent covered only the penalties accruing on the loan. Further,
declaratory relief as a remedy sought by the respondent was allegedly improper
as it already committed a breach of its obligations. The respondent filed the
action a quo merely to defer or avoid payment of its legally contracted loan
obligation with the petitioner. By way of compulsory counterclaim, the petitioner
prayed for damages and attorneys fees.
 The respondent then filed an amended complaint alleging that as of August
1989, it had already paid the petitioner the total amount of P2,259,259 and that
there was an overpayment of P100,000. The respondent prayed that the
petitioner be ordered to refund the amount overpaid, as well as to release the
mortgages and to pay damages and attorneys fees.
After due trial, the trial court rendered judgment, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered:

a) ordering the subject complaint DISMISSED for lack of merit:

b) ordering the plaintiff to pay to the defendant the amount of P395,210.30 to earn
interest at 22% per annum from the date of this decision;
c) declaring the Real Estate Mortgage and the Chattel Mortgage as valid and subsisting
which may be foreclosed by the defendant in case of non-payment of the aforestated
obligation after demand;
d) ordering the plaintiff to pay to the defendant the amount of P10,000.00 as attorneys
fees and litigation expenses.

So ordered. [12]

On appeal by the petitioner, the Court of Appeals (CA) affirmed with

modification the decision of the trial court. The CA found that the respondents
outstanding obligation to the petitioner amounted only to P309,298.58. The CA
likewise reduced the penalty accruing thereon from 36% to 3% per annum. The
dispositive portion of the assailed decision reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the Decision of the lower court

dated December 14, 1992 is AFFIRMED with the modification that the outstanding
balance of plaintiff-appellee as of September 5, 1989 is P309,298.58 subject to a
penalty of 3% per annum, and together with said penalty, the whole amount is subject
to an interest of 23% per annum inclusive of service charges, until the entire amount
has been fully paid. No pronouncement as to costs.

SO ORDERED. [13]

Aggrieved, the petitioner now comes to this Court alleging that:

A.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A

MANNER NOT IN ACCORD WITH LAW AND SUPREME COURT DECISIONS
IN RULING THAT ASIATRUST WAIVED COLLECTION OF ACCRUED
PENALTIES AND CHARGES DUE FROM CONCEPTS UNDER PN 3574 BY
EXECUTING THE MOA, BECAUSE THE MOA DID NOT EXPRESSLY
PROVIDE FOR SUCH WAIVER, AND STIPULATED THAT, UNLESS
INCONSISTENT WITH THE MOA MODE OF PAYMENT, ALL OTHER
EXISTING PROVISIONS AND STIPULATIONS IN THE EXISTING
PROMISSORY NOTES X X X SHALL REMAIN IN FORCE AND EFFECT.

B.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A

MANNER NOT IN ACCORD WITH 20 OF RULE 132 OF THE RULES OF
COURT IN FINDING WITNESS REBECCA DE LA CRUZ UNREBUTTED
IDENTIFICATION OF ASIATRUSTS EXHIBIT 7 AS A STATEMENT OF
ACCOUNT, AND HER UNREBUTTED IDENTIFICATION OF THE SIGNATURE
OF THE EXHIBIT, AS INSUFFICIENT AUTHENTICATION OF THAT EXHIBIT,
AND IN RELYING ON TESTIMONY READ FROM A LEDGER NEITHER
IDENTIFIED NOR OFFERED IN EVIDENCE. [14]

The petition is bereft of merit.

The petitioner maintains that the CA erred in holding that the petitioner
waived collection of accrued penalties and miscellaneous charges under PN
3574 by entering into the MOA. No such waiver was expressed in the MOA and,
in fact, paragraph 3 thereof expressly provides that all other provisions and
stipulations in the existing promissory notes and other documents evidencing
the LOAN OBLIGATION shall remain in force and effect, except those which
are inconsistent with the above-mentioned mode of payment. Further, the
petitioners consistent application of the payments respondent made to the
penalties, charges and interests is a plain manifestation of its contractual intent,
and is properly cognizable as evidence of that intent under Article 1371 of the
Civil Code which provides:

Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

The petitioner likewise avers that the CA erred in not according probative
value to the statement of account which the petitioner offered in evidence. The
petitioner contends that, contrary to the holding of the CA, the statement of
account was properly identified by its witness, Rebecca de la Cruz.
The Court does not agree with the petitioner.
 It is a time-honored rule of evidence that when the terms of an agreement
are reduced to writing, it is deemed to contain all the terms agreed upon and no
evidence of such terms can be admitted other than the contents of the
agreement itself. This rule allows exceptions, in that a party may present
[15]

parole evidence to modify, explain or add to the terms of the written agreement
if he puts in issue in his pleadings:

a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;

c) The validity of the written agreement; or

d) The existence of other terms agreed to by the parties or their successors-in-interest

after the execution of the written agreement. [16]

A careful perusal of the MOA reveals that it fixed the respondents loan
obligation to the petitioner at P2,000,000 which was already due and
demandable in its entirety, including all interests, penalties, service and other
miscellaneous charges. Further, Paragraph 1 thereof set forth the manner by
which the loan obligation was to be paid, to wit:

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN
OBLIGATION in the following manner, to wit:

a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check

for the same amount to be issued by CONCEPTS; and

b) On 5 June 1988 and every 5th of every succeeding month, P150,000.00 until the
LOAN OBLIGATION shall have been fully paid. CONCEPTS hereby undertakes to
cover the above-mentioned payments by post-dated checks, by first delivering to the
BANK five (5) checks covering the first five (5) month period, without prejudice to
the BANKs right to demand the delivery of another set of five (5) checks covering the
subsequent five (5) month period, 15 days prior to the due date of the last check in the
BANKs possession, and so on and so forth, until the LOAN OBLIGATION shall have
been fully paid.

It is likewise understood that upon payment of ten (10) monthly amortizations as

above-indicated or upon updating of payments of the LOAN OBLIGATION,
CONCEPTS shall have the right to re-negotiate with the Bank the reinstatement of the
original terms of payment under Promissory Note No. 3574. [17]
 However, the MOA failed to state the exact amounts of interests, service
charges and penalties accruing on the loan obligation. To determine the same,
the CA relied on the testimony of the petitioners comptroller, Rebecca de la
Cruz, who testified thereon as follows:
Atty. Ortiz:
Q: Now, as of the date January 25, 1988 what was the total obligation of the plaintiff to
the defendant?
COURT: (to the witness)
According to your ledger it could be any date closer to January 25, 1988?
WITNESS:
A: The date which is closer to January 25, 1988 is April 28, 1988. It says here if you still
have a 2 MILLION PESO principal balance. We have here an interest of P24,000.00
and still we have service charges.
COURT:
Service charges of how much?
WITNESS:
A: P123,000.00 and still we have unpaid penalties of P76,000.00, Your Honor.[18]

Based on the foregoing, the CA correctly fixed the respondents outstanding

balance to the petitioner as of the execution of the MOA at P2,223,000
consisting of the principal obligation of P2,000,000, penalties of P76,000,
service charges of P123,000 and interests of P24,000:

After a thorough review of the MOA, We are convinced that plaintiff-appellees

obligation consists of its original P2 million loan under PN No. 3574 including
interests and service fees but excluding penalty and other miscellaneous charges.

Thus, the MOA itself provides:

1. CONCEPTS hereby promises and undertakes to pay the BANK

the LOAN OBLIGATION in the following manner, to wit:

(p. 2, MOA; Exhs. B and 10, pp. 5 and 45, Folder of Exhibits)

In the MOAs first whereas clause, the term loan obligation was referred to as the
amount of P2 Million, which to date, is already overdue and demandable in its entirety
including all interests, penalties, service and other miscellaneous charges. (p. 1, MOA;
pp. 4 and 44, ibid.). The MOA, therefore, acknowledged that plaintiff-appellee,
having failed to pay several amortizations under the PN, was liable for the entire
amount of P2 million plus interest in arrears, penalties and other charges in
accordance with the acceleration clause of the PN.

However, due to the banks liberality, it waived the demandability of the entire loan by
entering into the MOA, allowing plaintiff-appellee to continue paying its
amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has
effectively not been rendered in default thereby waiving likewise the penalty
imposable on the loan in the event of default.

Accordingly, under the MOA, plaintiff-appellee continues to be liable for its

obligation under the note, i.e., principal amount of P2 million plus interests and
service fees, as if it was not yet in default. The first installment under the MOA in the
amount of P159,259.14 including several of the monthly installments of P150,000
were applicable to interest and service fees in arrears while the remaining monthly
amortizations covered the principal and interest falling due thereon. [19]

The petitioner nonetheless assails the above figures, insisting that the CA
erred in holding that:

However, due to the banks liberality, it waived the demandability of the entire loan by
entering into the MOA, allowing plaintiff-appellee to continue paying its
amortization, this time on a monthly basis. By such waiver, plaintiff-appellee has
effectively not been rendered in default thereby waiving likewise the penalty
imposable on the loan in event of default. [20]

The petitioner asserts that the respondent continued to be liable for penalty
charges as provided under the promissory note notwithstanding the execution
of the MOA. This contention is untenable. Under the schedule of amortization
contained in the promissory note, the respondent obliged to pay the principal
obligation in quarterly amortizations over a period of ten years and that in case
of default, the entire amount shall be due and demandable in its entirety. On
the other hand, under the MOA, a new mode of payment was agreed
upon, i.e., the payment by the respondent of the initial amount of P159,259.14
and subsequent payments of P150,000 every month until full payment of the
loan obligation. The MOA, in effect, rendered the loan no longer due and
demandable in its entirety at the time of its execution, precisely because it
allowed the respondent under the new schedule of payments to pay the same
by monthly installments. It bears stressing that the MOA provided that the mode
of payment arose out of the BANKs liberality. To allow the petitioner to collect
penalty charges as if the respondent were in default, notwithstanding the
existence of a new payment schedule, would be inconsistent with the aforesaid
agreement.
 It must be stressed, however, that the foregoing should not be construed as
to mean that the respondent could no longer be held in default and that the
petitioner completely waived collection of penalty charges in case of
default. Non-payment by the respondent of any of the monthly installments as
provided under the MOA would render it in default and the petitioner could
collect the penalty charges therefor. As will be shown later, the CA did in fact
determine the exact time when the respondent defaulted on its obligation under
the MOA and accordingly reckoned therefrom the penalty charges due the
petitioner.
The records show that the respondent, in accordance with the MOA, made
the initial payment of P159,259.16 on May 5, 1988. Thereafter, the respondent
made payments in the amount of P150,000 every month up to September
1989. The CA then tabulated these payments as follows: [21]

Principal Interest Service Charge Penalty Subtotal Payment Total

4/28/88 P2,000,000.00 P24,000.00 P123,000.00 P76,000.00 P2,063,740.86 P159,259.14 P2,063,740.86
1. 2,063,740.90 37,835.25 1,719.78 2,103,295.90 150,000.00 1,953,295.90
2. 1,953,295.90 35,810.42 1,627.75 1,990,734.00 150,000.00 1,840,734.00
3. 1,840,734.00 33,746.79 1,533.94 1,876,014.70 150,000.00 1,726,014.70
4. 1,726,014.70 31,643.60 1,438.34 1,759,096.60 150,000.00 1,609,096.60
5. 1,609,096.60 29,500.10 1,340.91 1,639,937.60 150,000.00 1,489,937.60
6. 1,489,937.60 27,315.52 1,241.61 1,518,494.70 150,000.00 1,368,494.70
7. 1,368,494.70 25,089.07 1,140.41 1,394,724.10 150,000.00 1,244,724.10
8. 1,244,724.10 22,819.94 1,037.27 1,268,581.30 150,000.00 1,118,581.30
9. 1,118,581.30 20,507.32 932.15 1,140,020.70 150,000.00 990,020.70
10. 990,020.70 18,150.38 825.02 1,008,996.00 150,000.00 858,996.00
11. 858,996.00 15,748.28 715.83 875,460.11 150,000.00 725,460.11
12. 725,460.11 13,300.10 604.55 739,364.76 150,000.00 589,364.76
13. 589,364.76 10,805.02 491.14 600,660.91 150,000.00 450,660.91
14. 450,660.91 8,262.12 375.55 459,298.58 150,000.00 309,298.58

As noted by the CA, after the last payment of P150,000 on September 1989,
the respondent still owed the petitioner the sum of P309,298.58. The
respondents non-payment of the amortizations due after the said date rendered
the balance due and demandable in its entirety, in accordance with the
acceleration clause under the MOA. Further, since the respondent defaulted in
its monthly payments after September 1989, it was only then that it could be
rightfully imposed the penalty charges in accordance with the promissory
note. Thus, contrary to the petitioners contention, the CA did not rule that the
MOA operated as a waiver by the petitioner of its right to collect penalty
charges.
The petitioner faults the CA for reducing the penalty charges from 36% to
3% per annum on its finding that the former rate was too excessive, considering
that the petitioner had already charged an interest rate of 23% per annum and
that the principal obligation had been partly complied with.
This Court does not agree with the petitioner. Article 1229 of the Civil Code
states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

Indeed, this Court had equitably reduced the penalty in not a few cases. In
the recent case of Ligutan v. Court of Appeals, the Court affirmed the
[22]

reduction of the penalty charges by the CA upon its finding that the debtors
therein had partially complied with their obligation. In Rizal Commercial
Banking Corp. v. Court of Appeals, the Court tempered the penalty charges
[23]

after taking into account the debtors pitiful situation and its offer to settle the
entire obligation with the creditor bank. In Insular Bank of Asia and America v.
Spouses Salazar, the Court reduced the penalty charge on a loan of P42,050,
[24]

considering that the debtor spouses paid a total of P68,676.75 which the
creditor bank applied to satisfy the penalty and interest charges.
Given the peculiar circumstances in this case, particularly that the principal
obligation had been partially complied with by the respondent, the Court sees
no justifiable reason to modify the reduction by the CA of the penalty charges
made by the CA.
Anent the second issue, the petitioner insists that the CA should have relied
on the petitioners statement of account to determine the amount owed by the
[25]

respondent. According to the said statement, the respondent still owed the
petitioner P5,665,906 as of June 29, 1990, since previous payments made were
applied only to the penalties and service charges. The Court does not
agree. The MOA clearly provides that the loan obligation of P2,000,000 shall
be paid by the respondent by issuing the post-dated checks in the amount
of P150,000 every month beginning June 5, 1998 until the same shall have
been fully paid. Thus, the monthly payments made by the respondent were for
the satisfaction of the principal loan obligation, not merely as payments of the
penalties and service charges.
 Further, as correctly pointed out by the CA, the petitioners statement of
account could not be given any probative value because it was belied for the
most part by its key witness, comptroller Rebecca de la Cruz. Even the trial
court gave scant consideration to this statement of account, upon its finding that
certain entries therein were inconsistent with the terms of the promissory
note. The Court thus finds no cogent reason to deviate from the trial courts and
the CAs assessment of the probative value of the same. After all, it is not this
Courts function under Rule 45 of the Rules of Court, as amended, to review,
examine, and evaluate or weigh the probative value of the evidence
presented. [26]

WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed
Decision dated July 18, 1997 and Resolution dated September 12, 1997 of the
Court of Appeals in CA-G.R. CV No. 44211 are AFFIRMED in toto.
SO ORDERED.
Bellosillo, (Chairman), and Quisumbing, JJ., concur.
Austria-Martinez, J., on official leave.