Rural Bank of Candelaria (Zambales), Inc. vs. Banluta

An issue or defense not raised in the trial court, such as the material alteration of a promissory note, cannot be raised for the first time on appeal, as it violates the rules of fair play and due process and deprives the opposing party of the opportunity to present controverting evidence.

Romulo Banluta (respondent) and his wife obtained a loan from Rural Bank of Candelaria (petitioner) secured by a real estate mortgage over two parcels of land. After his wife's death, the respondent claimed he fully paid the loan. Despite this, the petitioner filed an application for extrajudicial foreclosure and conducted a public auction sale without notice to the respondent. The respondent then filed a complaint seeking annulment of the foreclosure, accounting, and recovery of possession, alleging full payment and defects in the foreclosure process, including a discrepancy in the land area between the tax declarations used for the mortgage and the later-issued certificates of title.

• Nature of the Action: The respondent filed a complaint for annulment of extrajudicial foreclosure, accounting, and recovery of possession.
• The Loan and Mortgage: On June 11, 1993, the respondent and his wife obtained a loan of P683,000.00 from the petitioner, secured by a real estate mortgage over two parcels of land. The petitioner alleged the original loan was from 1984 and renewed several times, with the latest renewal on September 15, 1999.
• Alleged Full Payment and Foreclosure: The respondent alleged he fully paid the loan through several payments, the last being P703,279.54. He did not secure a release of mortgage. In January 2003, he discovered the petitioner had filed for foreclosure and conducted a public auction sale without notice to him.
• Discrepancy in Land Area: At the mortgage's constitution, only tax declarations were used as the land was not yet titled. When titles were issued in 1994, the area was larger. The respondent argued foreclosure should be limited to the originally mortgaged area.
• Petitioner's Defense: The petitioner denied full payment, stating the payments were for previous loan renewals. It claimed compliance with foreclosure requirements and that the certificate of sale was registered on June 29, 2001. The respondent failed to redeem the property.
• RTC Findings: The RTC found the last loan was the September 15, 1999 PN for P683,000.00, maturing on March 14, 2000. It disregarded the respondent's proofs of payment as pertaining to prior loans. It declared the foreclosure null and void because the petitioner failed to prove the mortgage secured this final loan (presenting only photocopies of old mortgages with different amounts, creating ambiguity). However, it still computed the respondent's obligation based on the PN and ordered payment.
• CA Proceedings: The CA initially affirmed. On reconsideration, it found the original PN presented showed material alterations in the dates (erasure and superimposition) not countersigned by the parties. Citing Sections 124 and 125 of the Negotiable Instruments Law, it deemed the PN avoided and without evidentiary value, thus deleting the payment order.

• Authority to File Petitioner: Petitioner argued its Chairperson-President, Antonio Manikan, had authority to file the petition without a board resolution, as he was the representative impleaded in the complaint and his identification was attached.
• Validity of Foreclosure and Loan Obligation: Petitioner contended the CA erred in affirming the nullity of the foreclosure sale in the absence of proof of legal flaw, fraud, or prescription. It maintained that even if the sale was invalid, it was still entitled to payment of the loan balance.
• Impropriety of New Theory on Appeal: Petitioner asserted the CA grievously erred in admitting the issue of material alteration of the PN for the first time on appeal, as the respondent had admitted the PN's genuineness and due execution in the trial court and never raised alteration as a defense there.

• Lack of Authority: Respondent initially questioned Manikan's authority to file the petition due to lack of board resolution and proper proof of identity in the jurat.
• Material Alteration of Promissory Note: Respondent argued the PN was materially altered (dates of grant and maturity were erased and overwritten) without explanation, rendering it void under the Negotiable Instruments Law. He insisted he never received the loan proceeds from the September 15, 1999 transaction and that it was illogical to take a new loan on the same day he allegedly paid a previous one in full.

• Procedural Propriety: Whether the respondent's defense of material alteration of the promissory note, raised for the first time on appeal, is permissible.
• Evidentiary Value of the Promissory Note: Whether the Court of Appeals erred in finding the September 15, 1999 Promissory Note materially altered and thus without evidentiary value to prove the respondent's loan obligation.
• Entitlement to Loan Payment: Whether the petitioner is entitled to the payment of the loan balance notwithstanding the invalidity of the foreclosure proceedings.

• Procedural Propriety: The defense of material alteration was improperly raised for the first time on appeal. The rule prohibits a change of theory on appeal to ensure fairness and due process, as the petitioner was deprived of the opportunity to present evidence to refute the new theory (e.g., proving the alterations were authorized or assented to by the respondent). The exception, where no further evidence is needed, does not apply here.
• Evidentiary Value of the Promissory Note: The CA erred in ruling on material alteration. The due execution and authenticity of the PN were established by the petitioner's witness, and the respondent admitted his signature on it. The RTC did not consider or rule on material alteration. Without this issue properly raised, the PN stands as valid proof of the loan obligation.
• Entitlement to Loan Payment: The petitioner is entitled to payment. The RTC's computation of the loan obligation based on the PN is reinstated. The stipulated 20% per annum interest shall run from the maturity date (March 14, 2000) until the finality of this Decision. Thereafter, the total amount due shall earn legal interest at 6% per annum until full payment.

• Prohibition Against Change of Theory on Appeal — A party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court will not be permitted to change theory on appeal. Points of law, theories, issues, and arguments not brought to the attention of the lower court need not be considered by a reviewing court, as this would be unfair to the adverse party who had no opportunity to present further evidence material to the new theory. The Court applied this to bar the respondent's belated claim of material alteration.
• Material Alteration of Negotiable Instruments (Sections 124 & 125, NIL) — A negotiable instrument materially altered without the assent of all parties liable is avoided, except against a party who made, authorized, or assented to the alteration. If in the hands of a holder in due course, it may be enforced according to its original tenor. An alteration of the date is material. The Court noted that had the issue been properly raised, the petitioner could have presented evidence that the respondent assented to the alterations.

• "Basic rules of fair play, justice, and due process require that arguments or issues not raised in the trial court may not be raised for the first time on appeal." — Articulates the core procedural principle applied to reverse the CA.
• "It was an error for the CA to sweepingly conclude that the purported alterations in the PN were unauthorized simply because they were not countersigned by the parties, more so in the light of respondent's admission that the signature and thumbmark appearing on the subject PN are genuine and his." — Explains the flaw in the CA's reasoning and highlights the significance of the respondent's admission.

• Maxicare PCIB CIGNA Healthcare v. Contreras, 702 Phil. 688 (2013) — Cited to support the doctrine that a party cannot change theory on appeal, as it would be unfair to the adverse party.
• Colegio Medico Farmaceutico de Filipinas, Inc. v. Lim, 834 Phil. 789 (2018) and Hutama-RSEA/Supermax Phils., J.V. v. KCD Builders Corporation, 628 Phil. 52 (2010) — Cited for the rule that the president of a corporation is presumed to have authority to sign a verification/certification of non-forum shopping without a board resolution.
• Chinatrust v. Turner, 812 Phil. 1 (2017) — Cited for the rule against raising new issues on appeal.
• Bote v. Sps. Veloso, 700 Phil. 78 (2012) — Cited for the rule on questions that may be raised on appeal under Section 15, Rule 44 of the Rules of Court.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Cited for the guidelines on imposing legal interest after the finality of a judgment.

• Sections 124 & 125, Negotiable Instruments Law (Act No. 2031) — Define material alteration (including changing the date) and its effect (avoidance of the instrument, with exceptions). The CA relied on these provisions, but the Supreme Court found their application premature as the issue was not raised at trial.
• Section 15, Rule 44, Rules of Court — Provides that an appellant may include in their assignment of errors any question of law or fact that has been raised in the court below and is within the issues framed by the parties. The Court used this to reinforce the prohibition against raising the alteration issue for the first time on appeal.

• Alexander G. Gesmundo, C.J. (Chairperson)
• Alfredo Benjamin S. Caguioa
• Japar B. Dimaampao
• (The decision indicates Inting, J. was also part of the division and concurred.)