Buenaventura vs. Metropolitan Bank and Trust Company

A duly executed contract, even if a contract of adhesion, is the law between the parties and must be enforced according to its clear and unambiguous terms without reading into it obligations not assumed. Applied to promissory notes expressly promising direct payment of principal with stipulated interest, CESF, and 18% penalty, the maker remained primarily liable and could not recast herself as a mere guarantor entitled to excussion or defeat enforcement through claims of simulation, subrogation, or misunderstanding of banking terms.

Teresita I. Buenaventura transacted with Metropolitan Bank and Trust Company through its Timog Branch rediscounting facility, under which postdated checks drawn against the bank's Tabaco Branch could be rediscounted for immediate value. The facility involved standard bank documentation, including promissory notes, disclosure statements, and statements of loan release identifying the borrower, with stipulated interest, credit evaluation and supervision fee, and penalty charges. The governing framework included the Civil Code rules on interpretation of contracts, simulation, guaranty, subrogation, delay, and penal clauses.

On January 20, 1997 and April 17, 1997, Teresita I. Buenaventura executed Promissory Note Nos. 232663 and 232711, respectively, each in the amount of ₱1,500,000.00 and payable to Metropolitan Bank and Trust Company. PN No. 232663 was to mature on July 1, 1997 with interest and credit evaluation and supervision fee at 17.532% per annum, while PN No. 232711 was to mature on April 7, 1998 with interest and CESF at 14.239% per annum. Both notes provided for penalty of 18% per annum on unpaid principal from date of default until full payment.

Despite demands, there remained unpaid on the two notes the amounts of ₱2,061,208.08 and ₱1,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty. The bank's witness attested that the total ₱3,553,444.45 was supported by two Statements of Account showing past-due interest at 34.991% and 27.901% and penalty charges, with principals stated therein as ₱1,500,000.00 and ₱1,200,000.00. Counsel's final demand letter dated July 7, 1998 required settlement within five days from receipt, and the registry return showed receipt for petitioner by Elisa dela Cruz on July 28, 1998.

According to petitioner, she had received in 1997 from her nephew Rene Imperial three postdated checks drawn against the bank's Tabaco Branch — Check No. TA 1270484889PA dated January 5, 1998 for ₱1,200,000.00, Check No. 1270482455PA dated March 31, 1998 for ₱1,197,000.00, and Check No. TA1270482451PA dated March 31, 1998 for ₱500,000.00 — as partial payments for her properties. She averred that she rediscounted those checks with the bank's Timog Branch, was required to execute the promissory notes to secure payment thereof, and was therefore a mere guarantor who could not be compelled to pay until all properties of Imperial were exhausted. The bank sued for recovery of the unpaid balances, interest, penalty, and attorney's fees before the RTC.

The RTC found for the bank and directed payment of ₱3,553,444.45 plus stipulated interest and penalties from July 15, 1998 and 10% attorney's fees, treating petitioner as directly liable as maker and borrower as identified in the disclosure statements and statements of loan release. The CA affirmed with modification applying interest at 14.239% per annum and penalty at 18% per annum on the whole amount from July 15, 1998, plus 10% attorney's fees, rejecting the guaranty, subrogation, and Great Asian Sales Center Corporation vs. Court of Appeals discounting-line arguments.

• Rediscounting as Non-Loan and Subrogation: Petitioner argued that the rediscounting transaction did not create a loan obligation secured by checks and notes, that the bank was subrogated to her as creditor of Rene Imperial, and that legal subrogation was presumed when the bank paid Imperial's obligation with his knowledge and consent.
• Nullity for Simulation: Petitioner maintained that the promissory notes were null and void for being simulated and fictitious.
• Guaranty and Prematurity: Petitioner argued that, assuming validity, the notes served only as guaranty to secure payment of the rediscounted checks, that she was a mere guarantor entitled to excussion, and that the action against her was premature until exhaustion of Imperial's properties and remedies against him.
• Adhesion and Bank Manager Representation: Petitioner claimed that the notes were contracts of adhesion because her only participation was affixing her signature, that their terms should be strictly construed against the bank, and that she was made to believe by the Timog Avenue Branch manager that the notes would be mere guaranties, her being a layman puzzled by complex banking terms despite being a seasoned businesswoman.
• Counterclaims: Petitioner maintained that she was entitled to counterclaims for exemplary damages, attorney's fees, litigation expenses, and costs of suit.

• Clear and Unambiguous Terms: Respondent countered that the terms and conditions of the promissory notes were clear and unambiguous, leaving no room or need for interpretation.

• Adhesion Contracts: Whether the promissory notes, even if contracts of adhesion, were unenforceable or subject to construction against the bank.
• Simulation: Whether the promissory notes were null and void for being simulated and fictitious.
• Guaranty vs. Primary Liability: Whether petitioner was liable only as guarantor entitled to excussion rather than as principal debtor under the notes.
• Subrogation: Whether the bank was subrogated as creditor of Rene Imperial such that recourse lay against Imperial and not petitioner.
• Misrepresentation and Understanding: Whether petitioner's alleged belief induced by the branch manager and her claimed lack of understanding of banking terms relieved her of liability.
• Counterclaims: Whether petitioner was entitled to exemplary damages, attorney's fees, litigation expenses, and costs of suit.
• Interest, Penalty, and Default: Whether the monetary awards for interest and penalty and the reckoning of default were correct as a matter of law.

• Adhesion Contracts: No. Clear and unambiguous adhesion contracts remain binding and enforceable according to their literal terms.
• Simulation: No. Absolute simulation was not proved by convincing and preponderant evidence, and the theory was raised for the first time on appeal.
• Guaranty vs. Primary Liability: No. Petitioner was primarily liable as maker and borrower, guaranty not being presumed or expressed in the notes.
• Subrogation: No. Legal subrogation was inapplicable absent Imperial's consent and because suit enforced the notes, not the checks.
• Misrepresentation and Understanding: No. Clear contractual terms bind the signatory and validity cannot be left to one party's will or claimed misunderstanding.
• Counterclaims: No. The appeal lacked merit, leaving no basis for exemplary damages, fees, expenses, and costs in petitioner's favor.
• Interest, Penalty, and Default: Partly modified. Only stipulated interest rates apply from August 3, 1998, with 18% penalty on unpaid principals, 6% legal interest on interest due from finality, plus 10% attorney's fees and costs.

• Adhesion Contracts: The notes expressly promised joint and several payment of principal with interest and CESF at stated effective rates. Even assuming adhesion, validity and enforceability are the same as ordinary contracts absent imposition reducing the adherent to take-it-or-leave-it without equal bargaining; interpretation follows literal meaning absent ambiguity, with parties' intention taken from contractual language, not unilateral post facto assertions, and courts may not make new contracts to avoid hardship.
• Simulation: Under Article 1345 of the Civil Code, absolute simulation lacks any intent to be bound while relative simulation conceals the true agreement, with Article 1346 voiding absolutely simulated contracts. The burden to overcome presumed validity required convincing and preponderant proof, which petitioner's bare allegation that the notes were understood as guaranties did not satisfy. Consideration was further barred because simulation was not raised in the RTC and was raised only in the CA, contrary to due process and fairness requiring issues to be litigated below.
• Guaranty vs. Primary Liability: Guaranty binds the guarantor to fulfill the principal debtor's obligation upon default, is not presumed, must be express and in writing, and cannot extend beyond stipulation. The notes stated petitioner's primary liability, named no principal debtor, and were corroborated by disclosure statements describing PN No. 232711 as secured by postdated checks and by loan-release statements identifying petitioner as borrower. The economics contradicted guaranty: note face amounts totaling ₱3,000,000.00 exceeded check totals of ₱2,897,000.00, notes bore interest, CESF, and penalty unlike the checks, PN No. 232663 matured July 1, 1997 before the 1998 checks, and rediscounting in January 1997 preceded PN No. 232711 of April 17, 1997; petitioner could not guarantee her own indorser obligations, and excussion was unavailable.
• Subrogation: Legal subrogation under Article 1302 of the Civil Code for a disinterested third person paying with the debtor's express or tacit approval required Imperial's consent, for which no evidence existed as noted by the RTC. The CA correctly deemed the argument off-tangent because recovery was sought on petitioner's maker liability under the notes, not on Imperial's checks.
• Misrepresentation and Understanding: Once terms were found clear, literal enforcement followed under Articles 1308 and 1370 of the Civil Code and the principles of mutuality and obligatory force. A party cannot unilaterally renounce a perfected contract or disavow its acts to the other's prejudice; alleged defects must be conclusively proven, and incomplete understanding of legal effect does not justify setting the contract aside.
• Counterclaims: With liability sustained and no bank fault established, the predicate for petitioner's exemplary damages, fees, expenses, and costs failed.
• Interest, Penalty, and Default: The ₱3,553,444.45 computation imposed 34.991% and 27.901% interest, almost double the stipulated 14.239% and 17.532%, without legal or factual justification and without proof of prevailing rates to trigger the automatic-increase clause; the burden of proof by preponderance lay with the bank. BSP Circular No. 799, Series of 2013 fixing 6% applies only absent stipulation, so stipulated rates governed and unconscionable-rate doctrine did not void the agreed 14.239% and 17.532% rates. Default under Article 1169 of the Civil Code runs from judicial or extrajudicial demand; with no earlier default proved, the July 7, 1998 final demand received July 28, 1998 with five days to comply fixed default on August 3, 1998. The 18% penalty on unpaid principal from default was expressly stipulated and demandable as liquidated damages and coercive security under Article 1226 of the Civil Code, distinct from monetary interest, with stipulated interest earning 6% legal interest from finality under Article 2212 of the Civil Code and prevailing jurisprudence.

• Contract as law between the parties — A contract duly executed is the law between the parties and commands full, not selective, compliance; its validity and fulfillment cannot be left to the will of one contracting party. Applied to enforce the promissory notes' express payment, interest, and penalty stipulations against the maker.
• Contracts of adhesion — Terms prepared by one party and merely adhered to by signature are as binding as ordinary contracts and are not invalid per se; they are void only when the weaker party is imposed upon by a dominant party and deprived of equal bargaining, and interpretation still follows literal meaning absent ambiguity. Applied to reject invalidation or anti-bank construction of the notes in People vs. Santos style analysis, citing Avon Cosmetics, Inc. vs. Luna.
• Interpretation of clear contracts — If terms are clear and leave no doubt on intention, literal meaning controls; intention is deciphered from contractual language, not unilateral post facto assertions, and courts may not make new contracts or impose unassumed obligations to avoid hardship. Applied to read petitioner as primarily liable, citing Cruz vs. Court of Appeals and The Insular Life Assurance Company, Ltd. vs. Court of Appeals and Sun Brothers & Company.
• Simulation of contracts — Under Article 1345 of the Civil Code, absolute simulation involves color of contract without intent to be bound, while relative simulation hides the true agreement in another contract; under Article 1346, absolutely simulated contracts are void while relative simulation binds to the real agreement if lawful and non-prejudicial. The impugning party bears the burden with convincing and preponderant proof against presumed validity. Applied to reject nullity for lack of proof.
• Issues raised for the first time on appeal — Appellate courts, including the Supreme Court, do not consider points of law, theories, issues, and arguments not brought to the lower court, for due process, fairness, and orderly administration of justice. Applied to bar the belated simulation theory first raised in the CA.
• Guaranty — By guaranty under Article 2047 of the Civil Code, the guarantor binds himself to fulfill the principal debtor's obligation upon default; under Article 2055 it is not presumed, must be express, and cannot extend beyond stipulation, and as a special promise to answer for another's debt it must generally be in writing. A guarantor may bind himself for less but not more than the principal under Article 2054. Applied to hold petitioner a principal debtor, not a guarantor entitled to excussion.
• Legal subrogation — Under Article 1302 of the Civil Code, legal subrogation for a disinterested third person paying requires the debtor's express or tacit approval. Applied to deny subrogation for lack of Imperial's consent and because enforcement rested on the notes.
• Delay or default — Under Article 1169 of the Civil Code, delay runs from judicial or extrajudicial demand for fulfillment. Applied to fix default on August 3, 1998 following the July 7, 1998 demand received July 28, 1998 with five days to comply.
• Penal clause — A penal clause is an accessory undertaking providing liquidated damages and coercive security; under Article 1226 of the Civil Code it substitutes indemnity for damages and interest absent contrary stipulation, and parties may agree to penalty apart from monetary interest so both may be demanded separately. Applied to sustain 18% penalty on unpaid principal alongside stipulated interest, citing Tan vs. Court of Appeals.
• Interest on loans and judgments — Stipulated written interest governs breached money obligations; interest due earns legal interest from judicial demand under Article 2212 of the Civil Code; BSP Circular No. 799, Series of 2013 sets 6% only absent express stipulation; final and executory money judgments earn 6% from finality until satisfaction. Applied to award stipulated rates from default, 6% on interest due from finality, and to reject unproved increased rates, citing Mallari vs. Prudential Bank, Planters Development Bank vs. Lopez, and Nacar vs. Gallery Frames.

• "A duly executed contract is the law between the parties, and, as such, commands them to comply fully and not selectively with its terms. A contract of adhesion, of itself, does not exempt the parties from compliance with what was mutually agreed upon by them." — States the controlling contract-enforcement ratio applied to uphold the promissory notes despite the adhesion claim.
• "A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. Such contract is just as binding as ordinary contracts." — Gives the canonical definition from Avon Cosmetics, Inc. vs. Luna relied upon to sustain enforceability.
• "When the language of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other intention that would contradict its plain import." — States the literal-interpretation rule from The Insular Life Assurance Company, Ltd. vs. Court of Appeals and Sun Brothers & Company used to reject a guaranty reading.
• "In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary." — Quotes Article 1226 of the Civil Code to support simultaneous recovery of stipulated interest and 18% penalty.

• Avon Cosmetics, Inc. vs. Luna, G.R. No. 153674, December 20, 2006, 511 SCRA 376 — Followed as authority that adhesion contracts are as binding as ordinary contracts and invalid only upon imposition on the weaker party.
• Cruz vs. Court of Appeals, G.R. No. 126713, July 27, 1998, 293 SCRA 239 — Cited through the CA for the rule that intention is taken from contractual language, not unilateral post facto assertions.
• The Insular Life Assurance Company, Ltd. vs. Court of Appeals and Sun Brothers & Company, G.R. No. 126850, April 28, 2004, 428 SCRA 79 — Followed for the rule against reading contrary intentions into explicit language and against courts making contracts for parties.
• Great Asian Sales Center Corporation vs. Court of Appeals, 381 SCRA 557 — Distinguished as invoked by appellant on discounting line; CA explained discounting line as a credit facility for selling receivables at a discount to generate cash.
• Ramos vs. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April 25, 2002, 381 SCRA 594 — Followed on burden and presumed validity in simulation challenges.
• Aglibot vs. Santia, G.R. No. 185945, December 5, 2012, 687 SCRA 283 — Cited for the writing requirement for special promises to answer for another's debt.
• Mallari vs. Prudential Bank, G.R. No. 197861, June 5, 2013, 697 SCRA 555 — Followed to hold excessive rates void but sustain agreed rates that are not unconscionable and enforce contracts as law between parties.
• Villanueva vs. Court of Appeals, G.R. No. 163433, August 22, 2011, 655 SCRA 707 — Cited for enforcing loan-contract stipulations as law between parties.
• Tan vs. Court of Appeals, G.R. No. 116285, October 19, 2001, 367 SCRA 571 — Followed on penalty on delinquent loans as distinct from monetary interest and demandable separately, including Government Service Insurance System vs. Court of Appeals and Equitable Banking Corp. vs. Liwanag lineage.
• Planters Development Bank vs. Lopez, G.R. No. 186332, October 23, 2013, 708 SCRA 481 — Followed for computation of compensatory interest and application of BSP Circular No. 799.
• Nacar vs. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439 — Followed for guidelines on stipulated versus legal interest, accrual from default or demand, and 6% from finality of money judgments.
• United Merchants Corporation vs. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012, 676 SCRA 382 — Cited for burden of proof by preponderance in civil cases.
• Advocates for Truth in Lending, Inc. vs. Bangko Sentral ng Pilipinas Monetary Board — Noted for upholding Central Bank Circular No. 905-82 constitutionality in the interest-rate lineage.
• Eastern Shipping Lines, Inc. vs. Court of Appeals — Noted as the prior guidelines modified by Nacar on interest.

• Articles 1345-1346, Civil Code — Define absolute and relative simulation and void absolutely simulated contracts; applied to reject nullity for unproven simulation.
• Article 1370, Civil Code — Requires literal enforcement when terms are clear; applied to enforce the notes as written.
• Articles 2047, 2054-2055, Civil Code — Govern guaranty, limit to what is stipulated, require express undertaking, and bar binding for more than the principal; applied to deny guarantor status and excussion.
• Article 1403, Civil Code — Requires writing for special promises to answer for another's debt; applied to require express written guaranty.
• Article 1302, Civil Code — Enumerates legal subrogation cases including disinterested third-person payment with debtor approval; applied to deny subrogation without Imperial's consent.
• Article 1308, Civil Code — Embodies mutuality and obligatory force; applied to bind petitioner to clear note terms.
• Article 1169, Civil Code — Fixes delay from judicial or extrajudicial demand; applied to set default on August 3, 1998.
• Articles 1226, 2212, 2229, Civil Code — Govern penal clauses, interest on interest due from judicial demand, and indemnity for delay; applied to sustain 18% penalty alongside stipulated interest and 6% on interest due from finality.
• Section 1, BSP Circular No. 799, Series of 2013 — Sets 6% for loans, forbearance, and judgments absent express stipulation, amending CB Circular No. 905-82; applied to preserve stipulated note rates and impose 6% only on interest due from finality and after finality.

Sereno, C.J., Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ., concur.