Philippine National Bank vs. James T. Cua

A promissory note containing the words “FOR VALUE RECEIVED” is the best evidence of the existence of the loan and of the borrower’s receipt of the loan proceeds; a borrower’s uncorroborated claim that he merely pre-signed the note for a standby or future loan is not clear and convincing evidence sufficient to overcome the parol evidence rule.

James T. Cua and his brother Antonio maintained a US Dollar Savings Time Deposit with PNB, Sucat, Parañaque branch, evidenced by CTD No. B-630178, and James had a practice of pre-signing loan application documents with PNB to keep a standby loan or ready money available. The dispute concerns PNB’s application of that deposit to an alleged loan and the evidentiary effect of promissory notes under the parol evidence rule. The case implicates Rule 130, Section 9 of the Rules of Court and the treatment of a promissory note as the best evidence of a loan.

James T. Cua and his brother Antonio T. Cua maintained a US Dollar Savings Time Deposit with the Philippine National Bank, Sucat, Parañaque branch, since 1996. The deposit was evidenced by Certificate of Time Deposit No. B-630178, issued on 9 December 2002, which replaced CTD No. B-658788 and had a face value of US$50,860.53. James and Antonio had a practice of pre-signing loan application documents with PNB so that a standby loan or ready money would be available anytime.

On 6 May 2004, James learned that he had a loan obligation with PNB which had allegedly become due and demandable. He maintained that although he had pre-signed loan documents for pre-arranged loans with his time deposit as collateral, he had never availed of the proceeds. In September 2004, to see if his dollar time deposit was still existing and to revive his cash-strapped machine shop business, James requested PNB to release ₱500,000.00 to be secured by CTD No. B-630178. PNB rejected his loan application, which James claimed caused damage and prejudice in terms of lost business opportunity and loss of income in the amount of more or less ₱1,000,000.00.

James inquired about the reason for the denial. In a letter-reply dated 17 November 2004, PNB, through its vice president, explained that his dollar time deposit had been applied in payment to the loans he had with the bank, in accordance with the loan application and other documents he had executed. James thereafter demanded the release of his entire dollar time deposit, asserting that he never made use of any loan amount from his pre-arranged loan from the time he was issued CTD No. B-630178 and that it was only in September 2004 that he requested the release of the proceeds. After PNB failed to heed his demand, James filed a complaint for sum of money praying that PNB return to him the entire amount of the account.

In its Answer, PNB admitted that James had applied for a loan but claimed that he already made use of his hold-out facility and received the proceeds. PNB denied that James merely pre-signed the loan documents to have a standby loan. As an affirmative defense, PNB claimed that James applied for and was extended four separate loans, including one on 14 February 2001 evidenced by Promissory Note No. 0011628152240004 dated 14 February 2001. On 26 February 2002, the parties renewed the 14 February 2001 loan, for which James executed PN No. 0011628152240006 dated 26 February 2002. PNB explained that James was a valued client and that when he came to the bank on those dates inquiring if he could use the hold-out loan facilities, the bank obliged; the loans were granted on the same day and the proceeds were released in the form of manager’s checks. When the subject loan fell due, demands to pay were made on James, who failed to heed them, prompting PNB to set off his obligations against his dollar time deposit in accordance with the provisions of the promissory notes. PNB also alleged besmirched reputation due to the suit and prayed for moral damages of ₱1,000,000.00, exemplary damages of ₱500,000.00, and attorney’s fees of ₱100,000.00.

During trial, James testified that he was a businessman and a college graduate. He affirmed the allegations in his complaint and asserted that he did not sign any document evidencing receipt of the loan referred to by PNB and for which his dollar time deposit had been applied. He presented a photocopy of CTD No. B-630178, a letter dated 9 September 2004 complaining against the alleged loan charged against his time deposit, PNB’s letter-reply dated 17 November 2004, and his counsel’s letter demanding the release of his dollar time deposit. PNB presented Edna Palomares, its loans officer at the Sucat branch, and Alxis Manalili. Edna testified that James entered into loan transactions with PNB on various dates, including a dollar loan dated 14 February 2001 in the amount of US$50,000.00 secured by CTD No. 629914 as evidenced by PN No. 0011628152240004. When that loan matured, James failed to pay despite demand, prompting PNB to apply his time deposit under CTD No. B-630178 as payment. Edna clarified that when James applied for the subject loan, the CTD was still numbered CTD No. 629914, but when the loan matured, CTD No. 629914 had already been replaced by CTD No. B-630178. PNB also presented a notarized renewal Loan Application/Approval Form dated 26 February 2002, PN No. 0011628152240004 dated 14 February 2001 in the amount of US$50,000.00, PN No. 0011628152240006 dated 26 February 2002 in the amount of US$50,000.00, and a machine-validated Miscellaneous Ticket dated 14 February 2001 which purportedly indicated that James received the proceeds of the loan in the amount of US$49,655.34.

The trial court found that the burden of proof shifted to PNB when it asserted the affirmative defense that the loan proceeds were released to James and that PNB properly applied his time deposit as payment under the promissory note. PNB, however, failed to substantiate this defense. Aside from Edna’s bare testimony, no other evidence was presented to prove that the proceeds of the loan subject of the pre-signed loan application were released to and duly received by James. The trial court gave no evidentiary weight to the miscellaneous ticket because it did not bear James’s signature, and it gave no evidentiary value to PN No. 0011628152240006 dated 26 February 2002 because the promissory note it purportedly renewed was not presented in evidence. Since no outstanding debt was established, the application of James’s time deposit to the alleged loan was improper. The Court of Appeals concurred that the burden shifted to PNB and that PNB failed to substantiate its claims.

• Promissory Note as Best Evidence: PNB argued that the Court of Appeals gravely erred in holding that there was no evidence showing that James received the proceeds of the subject loan, thereby ignoring applicable decisions holding that the promissory note is the best evidence that the borrower has received the loan proceeds.
• Parol Evidence Rule and Public Documents: PNB argued that the Court of Appeals gravely erred in disregarding the contents of the notarized promissory notes despite the dearth of clear and conclusive evidence sufficient to overthrow the parol evidence rule and the presumption in favor of public documents under Rule 132, Section 23 of the Rules of Court.
• Binding Effect of Promissory Notes: PNB argued that the Court of Appeals gravely erred in not ruling that James was bound by his promissory notes, even if there was no evidence to overcome the presumption that every person takes ordinary care of his concerns; on the contrary, the evidence showed that James voluntarily and intelligently executed the promissory notes.
• Factual Claim of Receipt and Set-Off: PNB maintained that James had applied for and was extended four separate loans, including the 14 February 2001 loan, that he received the proceeds through manager’s checks, and that when the loan fell due, PNB properly set off his obligations against his dollar time deposit under the promissory notes.

• No Availment of Loan Proceeds: James maintained that although he had pre-signed loan documents for pre-arranged loans with his time deposit as collateral, he never availed of the proceeds of any loan.
• Pre-Signed Documents Only: James admitted the genuineness of his signatures on several promissory notes, including PN No. 0011628152240006 dated 26 February 2002, but claimed that the documents were pre-signed for pre-arranged loans he allegedly never availed of.
• No Receipt of Loan: James asserted that he did not sign any document evidencing receipt of the loan referred to by PNB and for which his dollar time deposit had been applied.
• Improper Application and Demand for Return: James demanded the release of his entire dollar time deposit, asserting that he never made use of any loan amount from the pre-arranged loan from the time CTD No. B-630178 was issued, and that it was only in September 2004 that he requested the release of the proceeds; after PNB refused, he prayed for the return of the entire amount.

• Receipt of Loan Proceeds: Whether PNB sufficiently established that James T. Cua received the proceeds of the subject loan.
• Promissory Note as Best Evidence: Whether the Court of Appeals gravely erred in holding that there was no evidence showing that James received the proceeds of the subject loan, thereby ignoring applicable decisions holding that the promissory note is the best evidence that the borrower has received the loan proceeds.
• Parol Evidence Rule and Notarized Promissory Notes: Whether the Court of Appeals gravely erred in disregarding the contents of the notarized promissory notes despite the dearth of clear and conclusive evidence sufficient to overthrow the parol evidence rule and the presumption in favor of public documents under Rule 132, Section 23 of the Rules of Court.
• Binding Effect of Promissory Notes: Whether the Court of Appeals gravely erred in not ruling that James was bound by his promissory notes, even if there was no evidence to overcome the presumption that every person takes ordinary care of his concerns, where the evidence showed that he voluntarily and intelligently executed the promissory notes.

• Receipt of Loan Proceeds: Yes. PNB sufficiently established that James received the proceeds of the loan subject of PN No. 0011628152240006 (originally PN No. 0011628152240005), because the note contained the words “FOR VALUE RECEIVED” and is the best evidence of the loan.
• Promissory Note as Best Evidence: Yes. The Court of Appeals erred. A promissory note is the best evidence to prove the existence of the loan, and no separate receipt is required to prove that the borrower received the proceeds.
• Parol Evidence Rule and Notarized Promissory Notes: Yes. The Court of Appeals erred in disregarding the notarized promissory notes. James’s uncorroborated allegation that the documents were merely pre-signed for future loans was not clear and convincing evidence to overcome the parol evidence rule.
• Binding Effect of Promissory Notes: Yes. James is bound by his promissory notes. As a businessman and college graduate, he understood the import and consequences of signing them, and no reasonable and prudent person would acknowledge a debt and secure it with valuable assets if it did not exist.

• Receipt of Loan Proceeds: The subject loan was clarified to be the loan secured by CTD No. B-658788, later replaced by CTD No. B-630178. Although PNB insisted that the subject loan and the 14 February 2001 loan were one and the same, the documentary evidence did not support this. PN No. 0011628152240006 dated 26 February 2002 indicates that it is a renewal of PN No. 0011628152240005, not PN No. 0011628152240004 dated 14 February 2001. PN No. 0011628152240006 states that it is secured by CTD No. B-658788 (now CTD No. B-630178), while PN No. 0011628152240004 states that it is secured by CTD No. 629914. Edna’s testimony that CTD No. 629914 and CTD No. B-630178 represented the same time deposit account was unsupported; the annotation on CTD No. B-630178 showed that it replaced CTD No. B-658788, not CTD No. 629914. Thus, the subject loan renewed on 26 February 2002 was independent and distinct from the 14 February 2001 loan, and PN No. 0011628152240004 was immaterial. James did not deny executing several promissory notes and admitted the genuineness of his signatures, including on PN No. 0011628152240006, subject only to his caveat that they were pre-signed. Nothing in PN No. 0011628152240006 suggested that it was executed merely to secure future loans; its words “FOR VALUE RECEIVED” acknowledged receipt of the proceeds of the loan in the stated amount. PNB therefore sufficiently established that James received the proceeds of the loan subject of PN No. 0011628152240006 (originally PN No. 0011628152240005).
• Promissory Note as Best Evidence: A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed through his signature. If he reneges on his promise without cause, he forfeits the sympathy and assistance of the Court. The promissory note is the best evidence to prove the existence of the loan. In Ycong vs. Court of Appeals, the Court sustained the appellate court’s reversal of a trial court that had ruled for petitioners who claimed they did not receive the proceeds despite executing a promissory note containing the words “for a loan received today”; the Court reasoned that the promissory note is the best evidence of the loan and that no separate receipt was needed. Similarly, by signing PN No. 0011628152240006 dated 26 February 2002, which contained “FOR VALUE RECEIVED,” James acknowledged receipt of the proceeds in the stated amount and committed to pay under the stated conditions. As a businessman, he could not claim unfamiliarity with commercial documents, and as a lettered person and college graduate, he could not pretend not to understand the contents of the promissory note. No reasonable and prudent man would acknowledge a debt, and even secure it with valuable assets, if the debt did not exist. The fact that PN No. 0011628152240006 was only a renewal of PN No. 0011628152240005 did not affect its character as an acknowledgment of a loan duly received; it would be inconceivable for a reasonably diligent person to renew a promissory note if the loan it evidenced were inexistent.
• Parol Evidence Rule and Notarized Promissory Notes: Rule 130, Section 9 of the Rules of Court provides that when the terms of an agreement have been reduced into writing, the writing is considered as containing all the terms agreed upon, and there can be no evidence of such terms other than the contents of the written agreement between the parties and their successors in interest. The rule admits exceptions: a party may present evidence to modify, explain, or add to the terms of a written agreement if he puts in issue in his pleading (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; (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. To overcome the presumption that the written agreement contains all the terms of the agreement, the parol evidence must be clear and convincing and of such sufficient credibility as to overturn the written agreement. James’s uncorroborated allegation that the loan documents were merely pre-signed for future loans was far from being the clear and convincing evidence necessary to defeat the terms of the written instrument. There was thus no reason to deviate from the terms of the loan as appearing in PN No. 0011628152240006. The trial and appellate courts erred when they considered James’s unsubstantiated claim over the terms of the promissory note and ruled that PNB failed to prove James’s receipt of the loan proceeds.
• Binding Effect of Promissory Notes: James was bound by his promissory notes. His signatures were admitted, and the evidence showed that he voluntarily and intelligently executed the notes. As a businessman, lettered person, and college graduate, he understood the import and consequences of signing a promissory note. The presumption that every person takes ordinary care of his concerns supported the conclusion that he would not have acknowledged a debt and secured it with valuable assets if the debt did not exist. The renewal of the previous promissory note further confirmed the existence of the loan, because it would be inconceivable for a reasonably diligent person to renew a promissory note for an inexistent loan.

• Promissory Note as Best Evidence of the Loan — A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the agreed date and conditions. It is the best evidence to prove the existence of the loan, and no separate receipt is required to prove that the borrower received the proceeds. A borrower who signs it is bound to honor it; if he reneges without cause, he forfeits the sympathy and assistance of the Court. In this case, PN No. 0011628152240006 dated 26 February 2002 contained “FOR VALUE RECEIVED,” so James’s signature acknowledged receipt of the US$50,000.00 loan and bound him to repay it.
• Parol Evidence Rule — Under Rule 130, Section 9 of the Rules of Court, when the terms of an agreement are reduced into writing, the writing is considered as containing all the terms agreed upon, and no evidence of such terms other than the contents of the written agreement may be admitted between the parties and their successors in interest. Exceptions include intrinsic ambiguity, mistake or imperfection; failure of the writing to express the true intent; invalidity; and other terms agreed after execution. To overcome the presumption, parol evidence must be clear and convincing and sufficiently credible to overturn the written agreement. James’s uncorroborated claim that he merely pre-signed the loan documents for future loans did not meet this standard.
• Binding Effect of Contracts and Presumption of Ordinary Care — A person who signs a commercial instrument is presumed to have taken ordinary care of his concerns and to understand its import and consequences. A businessman and college graduate cannot claim unfamiliarity with commercial documents. No reasonable and prudent person would acknowledge a debt and secure it with valuable assets if the debt did not exist. The Court applied this principle to hold James bound by his promissory notes.

• “A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation.” — This passage defines the promissory note and the binding nature of the borrower’s signature, forming the foundation for the Court’s ruling that James was bound by PN No. 0011628152240006.
• “The promissory note is the best evidence to prove the existence of the loan.” — This is the Court’s canonical formulation of the evidentiary rule applied to hold that PNB sufficiently established the loan and James’s receipt of its proceeds.
• “However, to overcome the presumption that the written agreement contains all the terms of the agreement, the parol evidence must be clear and convincing and of such sufficient credibility as to overturn the written agreement.” — This states the standard for overcoming the parol evidence rule, which the Court used to reject James’s pre-signing defense.
• “In this case, James' uncorroborated allegation that the loan documents were merely pre-signed for future loans is far from being the clear and convincing evidence necessary to defeat the terms of the written instrument.” — This is the Court’s application of the clear-and-convincing standard to the facts, explaining why the trial and appellate courts erred in crediting James’s claim.

• Ycong vs. Court of Appeals, 518 Phil. 240, 246 (2006) — The Court cited this as authority that the promissory note is the best evidence to prove the existence of the loan and that no separate receipt is needed to prove receipt of the proceeds. It involved petitioners who claimed they did not receive the proceeds despite signing a promissory note containing “for a loan received today”; the Court sustained the appellate court’s reversal of the trial court.
• Pentacapital Investment Corporation vs. Mahinay, 637 Phil. 283, 303 (2010), citing Sierra vs. Court of Appeals, 286 Phil. 954, 965 (1992) — Cited for the definition of a promissory note as a solemn acknowledgment of debt and formal commitment to repay, and for the rule that a person who signs it is bound to honor it.
• Bernardo vs. Court of Appeals, 387 Phil. 736, 746-747 (2000), citing Sierra vs. Court of Appeals, 286 Phil. 954 (1992) — Cited for the rule that parol evidence must be clear and convincing and of sufficient credibility to overturn a written agreement.
• Sierra vs. Court of Appeals, 286 Phil. 954, 965 (1992) — Cited within Pentacapital and Bernardo for the promissory-note and parol-evidence principles.

• Rule 130, Section 9, Rules of Court — The parol evidence rule: when the terms of an agreement have been reduced into writing, the writing is considered as containing all the terms agreed upon, and there can be no evidence of such terms other than the contents of the written agreement between the parties and their successors in interest. The rule admits exceptions for intrinsic ambiguity, mistake or imperfection; failure to express the true intent; validity; and other terms agreed after execution. The Court applied it to reject James’s uncorroborated pre-signing claim as not clear and convincing.
• Rule 132, Section 23, Rules of Court — PNB invoked the presumption in favor of public documents in arguing that the notarized promissory notes should not be disregarded. The Court resolved the case under the promissory-note and parol-evidence rules.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Marvic M.V.F. Leonen, and Alexander G. Gesmundo concurred. No separate concurring opinions are summarized in the text.