Radiowealth Finance Company vs. Del Rosario

Upon reversal on appeal of a trial court’s order granting a demurrer to evidence, the appellate court shall render judgment on the merits based on the plaintiff’s evidence, the defendant having waived the right to present evidence. Further, an obligation under a promissory note payable in fixed monthly installments is not rendered conditional or without a definite period merely because the exact calendar date of the first installment is left blank, where the note contains an acceleration clause and a late payment penalty, and the parties’ subsequent conduct confirms that the installments became due monthly from the execution of the note.

Radiowealth Finance Company extended a loan to Spouses Vicente and Maria Sumilang del Rosario in the sum of ₱138,948.00, evidenced by a Promissory Note executed on March 2, 1991. The Note stipulated repayment in twelve consecutive monthly installments of ₱11,579.00 each, imposed a 2.5% monthly late payment penalty on unpaid installments, and contained an acceleration clause making the entire remaining principal and penalty charges immediately due upon default in any installment. It also provided for attorney’s fees and liquidated damages. The first installment due date was left blank. Respondents issued checks for installment payments, but these were dishonored. After repeated demands went unsatisfied, petitioner filed a collection suit. During trial, respondents admitted the genuineness of the Note and the demand letter but defended on the ground that the blank space meant no definite period for payment had been fixed, requiring judicial intervention to set a period.

• The Promissory Note: On March 2, 1991, respondent spouses jointly and severally executed and delivered to petitioner a Promissory Note for ₱138,948.00. The Note stipulated repayment in 12 consecutive monthly installments of ₱11,579.00 each, but the specific date on which the first installment would fall due and the day of the month each installment was payable were left blank. It provided for a late payment penalty of 2.5% per month on each unpaid installment from due date until fully paid. An acceleration clause stated that upon default in any installment, the total remaining principal sum and accrued penalty charges would become immediately due and payable without need of notice or demand. The Note further stipulated attorney’s and collection fees equivalent to 25% of the amount due if legal action was filed, plus liquidated damages of 10% of the amount due, in no case less than ₱500.00.

• Default and Demands: Respondents defaulted on the monthly installments. Checks they issued in payment of the installments were dishonored by the drawee bank. Petitioner sent a demand letter dated July 12, 1991. Despite demands, respondents failed to pay.

• Proceedings in the Trial Court: Petitioner’s complaint for collection of sum of money was filed on June 7, 1993. During trial, petitioner presented Jasmer Famatico, its credit and collection officer, who identified and offered in evidence the Promissory Note, dishonored checks, demand letter, customer’s ledger card, and bank dishonor slips. Famatico admitted he lacked personal knowledge of the transaction or the execution of the documents; they had merely been endorsed to him.

• The Demurrer and Dismissal: Respondents filed a Demurrer to Evidence on the ground that petitioner’s evidence was hearsay and failed to establish a cause of action. The trial court granted the demurrer and dismissed the complaint in its Order of November 4, 1994, holding that petitioner’s claims were unsubstantiated because its witness had no personal knowledge of the documents.

• The Court of Appeals Decision: On appeal, the CA reversed. It held that respondents’ judicial admissions — in their Answer and during pre-trial — of the genuineness and due execution of the Promissory Note and the demand letter made those documents admissible even without personal knowledge of petitioner’s witness. The CA concluded that respondents were indebted to petitioner but declined to render judgment on the amount due, instead remanding the case “for further proceedings.”

• Consequence of Demurrer Reversal: Petitioner argued that under Rule 33, Section 1 of the 1997 Rules of Court, when a demurrer to evidence granted by the trial court is reversed on appeal, the defendant is deemed to have waived the right to present evidence and the appellate court shall render judgment on the basis of the plaintiff’s evidence. Petitioner contended that the Court of Appeals’ order remanding the case for further proceedings directly contravened this rule.

• Sufficiency of Evidence for Judgment: Petitioner maintained that the evidence already on record — including the admitted Promissory Note, dishonored checks, demand letters, and ledger card — was sufficient for the appellate court to determine the amount owed and render a complete judgment on the merits, making remand unnecessary.

• Need for Fixing a Period: Respondents contended that the obligation was not yet due and demandable because the Promissory Note left blank the date when the first installment would commence. They argued that this indicated the petitioner had allowed them to pay as and when they could, possibly by applying their promotion services for petitioner’s business as payment. Invoking Articles 1180 and 1197 of the Civil Code, respondents asserted that the obligation was one whose fulfillment depended solely on the debtor’s will, and that the proper court should first fix a period for payment before enforcement could be had.

• Insufficiency of Mere Reversal: Respondents argued that the Court of Appeals’ ruling merely found them indebted but did not determine when the obligation became due and demandable. They contended that petitioner was not automatically entitled to its full claim simply because the demurrer had been reversed; the ambiguity surrounding the maturity date necessitated further proceedings.

• Propriety of Remand: Whether the Court of Appeals erred in remanding the case to the trial court for further proceedings instead of rendering judgment on the merits based on the petitioner’s evidence, after reversing the trial court’s order granting the respondents’ demurrer to evidence.

• Maturity of the Obligation: Whether the obligation under the Promissory Note had become due and demandable, given that the date for the first installment was left blank and the respondents claimed the fulfillment of the obligation depended on the debtor’s will or required a court to fix a period under Article 1197 of the Civil Code.

• Propriety of Remand: The Court of Appeals’ order remanding the case was erroneous. Under Rule 33, Section 1 of the 1997 Rules of Court, after the plaintiff has completed its evidence and the defendant’s demurrer to evidence is granted by the trial court, if that order of dismissal is reversed on appeal, the movant “shall be deemed to have waived the right to present evidence.” The appellate court shall proceed to render judgment on the merits solely on the basis of the plaintiff’s evidence. The rule’s rationale, as articulated in Villanueva Transit v. Javellana, is to discourage prolonged litigation and prevent unnecessary remands. Because respondents admitted the due execution and genuineness of the Promissory Note and the demand letter, and petitioner had adduced documentary evidence of default, the appellate court possessed all the material necessary to resolve the collection suit on its merits. Remand was both legally impermissible and factually unnecessary.

• Maturity of the Obligation: The obligation had matured and was due and demandable. The blank space for the due date of the first installment did not render the obligation conditional or without a definite period. The Promissory Note expressly provided for 12 consecutive monthly installments, an acceleration clause, and a late payment penalty of 2.5% per month on unpaid installments. These provisions evinced an intention that payment be made at fixed monthly intervals, not at the debtor’s unfettered discretion. Under Article 1371 of the Civil Code, the contemporaneous and subsequent acts of the parties shall be principally considered to determine their intention. Respondents themselves commenced paying installments by issuing checks—albeit dishonored—thereby confirming that the obligation had become due monthly from the date of the Note. When the first check bounced, the Note’s acceleration clause was triggered, making the entire remaining principal and penalty charges immediately due as of April 2, 1991. The claim for 14% interest per annum from May 6, 1993 was disallowed because the Note already provided for a 2.5% monthly late payment penalty, which was deemed to include interest. Liquidated damages of 10% of the amount due were stricken as unconscionable under Article 2226 of the Civil Code and likewise considered subsumed in the penalty charge. Attorney’s fees were awarded but reduced to 10% of the amount due, which was found reasonable under the circumstances.

• Doctrine on Effect of Reversal of a Demurrer to Evidence — When a trial court grants a demurrer to evidence and dismisses the complaint, but that dismissal order is reversed on appeal, the defendant loses the right to present evidence and is deemed to have elected to stand on the insufficiency of the plaintiff’s evidence. The appellate court must render judgment on the merits based exclusively on the plaintiff’s evidence. This rule is designed to avoid prolonged litigation and unnecessary remands, ensuring that all material evidence is placed before the court at the earliest opportunity. (Rule 33, Section 1, 1997 Rules of Court; Villanueva Transit v. Javellana, 33 SCRA 755)

• Interpretation of Ambiguous Contractual Stipulations on Time of Payment — Where a promissory note provides for a definite number of monthly installments and contains an acceleration clause and a penalty for late payment, but the precise calendar date of the first installment is left blank, the contract is not thereby rendered an obligation with a period dependent solely on the debtor’s will. The court shall ascertain the intention of the parties from their contemporaneous and subsequent acts pursuant to Article 1371 of the Civil Code. The debtor’s own conduct in tendering installment payments confirms that the obligation had become due monthly from execution, and default triggers the acceleration clause, making the entire balance immediately due and demandable.

• “When a demurrer to evidence granted by a trial court is reversed on appeal, the reviewing court cannot remand the case for further proceedings. Rather, it should render judgment on the basis of the evidence proffered by the plaintiff.” — This passage articulates the ratio decidendi on the procedural issue, emphasizing the mandatory character of Rule 33, Section 1.

• “The act of leaving blank the due date of the first installment did not necessarily mean that the debtors were allowed to pay as and when they could. If this was the intention of the parties, they should have so indicated in the Promissory Note. However, it did not reflect any such intention.” — This reasoning clarifies that an omission in a contract does not automatically confer a unilateral benefit; the entire instrument must be read together.

• “Verily, the contemporaneous and subsequent acts of the parties manifest their intention and knowledge that the monthly installments would be due and demandable each month.” — Direct application of Article 1371, showing that post-execution conduct fills the gap left by the blank space.

• Villanueva Transit v. Javellana, 33 SCRA 755 (1970) — Followed. The Court quoted extensively from this case to explain the rationale behind the rule on demurrer to evidence: the defendant who files a demurrer gambles on the insufficiency of the plaintiff’s case; if the trial court agrees but is reversed on appeal, the defendant loses the right to present evidence, and the appellate court must decide on the plaintiff’s evidence alone.

• Siayngco v. Costibolo, 27 SCRA 272 (1969) — Cited as an earlier articulation of the same rule on the consequences of a reversed demurrer.

• Tison v. Court of Appeals, 276 SCRA 582 (1997) — Cited to affirm that the rule discourages prolonged litigation and that the appellate court shall render judgment on the merits.

• Atun v. Nuñez, 97 Phil. 762 (1955) — Referenced as historical authority that a demurrer to evidence aims to avoid protracted proceedings.

• Lagandaon v. Court of Appeals, 290 SCRA 330 (1998); Dio v. Concepcion, 296 SCRA 579 (1998) — Cited for the rule that a party who does not appeal cannot obtain affirmative relief other than that granted in the appealed decision.

• Rule 33, Section 1, 1997 Rules of Court — The provision explicitly states that if a demurrer to evidence is granted and the order of dismissal is reversed on appeal, the movant shall be deemed to have waived the right to present evidence. The Court applied this provision literally, directing that the appellate court render judgment on the plaintiff’s evidence without remanding.

• Article 1371, Civil Code — Provides that to judge the intention of contracting parties, their contemporaneous and subsequent acts shall be principally considered. Applied to hold that respondents’ act of issuing installment checks demonstrated their understanding that the obligation had fixed monthly due dates.

• Article 1180, Civil Code — Invoked by respondents but found inapplicable; the obligation was not dependent solely on the debtor’s will because the Note’s other provisions and the parties’ actions fixed a monthly schedule.

• Article 1197, Civil Code — Also invoked by respondents to request judicial fixing of a period; held unnecessary because the period was already ascertainable from the contract and the parties’ conduct.

• Article 2226, Civil Code — Applied to equitably reduce the liquidated damages; the 10% liquidated damages were struck down as iniquitous or unconscionable and deemed included in the penalty charge.

Justices Jose A.R. Melo (Chairman), Jose C. Vitug, Fidel P. Purisima, and Minerva P. Gonzaga-Reyes concurred.

N/A — The decision was unanimous.