Spouses Augusto and Nora Navarro vs. Rural Bank of Tarlac, Inc.

An appeal under Rule 41 from an RTC decision raising only pure questions of law must be dismissed outright under Section 2, Rule 50 of the Rules of Court; the proper remedy is a petition for review under Rule 45. Where the facts are uncontested and the dispute concerns the correctness of the conclusions drawn from them, the appeal raises a pure question of law.

Spouses Augusto and Nora Navarro obtained from Rural Bank of Tarlac, Inc. a loan of P558,000 for the purchase of a motor vehicle, evidenced by a promissory note and payable in monthly installments. The loan agreement also provided for attorney’s fees in favor of the bank should it be compelled to file a collection suit. The procedural question arises under the Rules of Court: Rule 41 governs ordinary appeals from the RTC to the CA, Rule 45 governs petitions for review of pure questions of law, and Section 2, Rule 50 requires dismissal of an appeal under Rule 41 that raises only questions of law. Summary judgment under Rule 35 is available where no genuine issue of material fact exists.

Spouses Augusto and Nora Navarro obtained a loan of P558,000 from Rural Bank of Tarlac, Inc. for the purchase of a motor vehicle. They were unable to complete the agreed monthly installments and surrendered their 1998 Kia Advantage van to the bank so that the latter could sell it and apply the proceeds to their obligations. The parties disagreed as to the effect of the surrender under that circumstance.

According to the bank, petitioners still had an unpaid balance of P315,677.80 excluding interests, penalties, and liquidated damages even after the sale of the van. It claimed that their monthly installments amounted to only P92,322.20, while it was able to sell the vehicle for only P150,000.00; thus, it could only credit the total amount of P242,322.20 in their favor. Spouses Navarro did not deny that they had executed a Promissory Note in favor of the bank and that its terms were correctly reflected in the note. They claimed, however, that when they surrendered the vehicle, they understood that it would serve as complete satisfaction of their remaining loan obligation by way of dacion en pago.

In view of the spouses’ Answer, the bank filed a Motion for Summary Judgment under Section 1, Rule 35 of the Rules of Court. It alleged that the only issue before the trial court was whether the selling price of the vehicle was enough to satisfy the unpaid balance, interest, and other charges. It argued that summary judgment was proper because there was no more genuine issue relating to any material fact and the matter was merely the computation of the remaining balance. To support its motion, the bank presented the Promissory Note for P558,000, receipts for the sale of the vehicle to Corazon Quesada for P150,000, and acknowledged the spouses’ total monthly installments of P92,322.20. Based on its accounting, total payments amounted to P242,322.20, while the total running balance was P315,677.80 excluding interests, penalties, and liquidated damages.

Spouses Navarro opposed the motion. While they did not assail the amount for which the van was sold, they asserted that by surrendering the vehicle, their remaining obligation must be deemed fully paid. To prove this assertion, they presented an acknowledgment receipt stating that the bank had received one unit KIA ADVANTAGE VAN in good and running condition. They argued that a question of fact still existed because there must be a proper accounting of their correct balance. In the alternative, they averred that the deductible amount for the sale of the van must be based on its value at the time they surrendered it to the bank. They also claimed that their monthly installments had already amounted to P161,137.69, but they did not attach receipts or any other evidence to support this contention.

By summary judgment, the RTC rendered a Decision in favor of the bank. It explained that Spouses Navarro remained obligated to pay the remaining principal loan amount of P315,677.80 plus legal interest and attorney’s fees. The trial court ruled that if the intention of the parties was to consider the surrender of the Kia Van as full payment, a receipt to that effect should have been signed or acknowledged by the bank, and there was none. It further held that the burden was on defendants to prove that their payments amounted to P161,137.69 as of March 18, 2002, which should be evidenced by receipts. The RTC found that the motion for summary judgment was proper and agreed that the principal balance was P315,677.80. It reduced the 32% per annum interest, 12% penalty, and 12% liquidated damages, totaling 56% plus 25% attorney’s fees, as possibly unconscionable because the charges amounted to 81% of the principal balance. It applied the legal rate of 12% per annum from December 7, 2002 on the balance of P315,677.80, computed P315,677.80 x 1% per month x eight months from December 2002 up to July 2003, for total interest of P25,244.16, and total amount of P340,921.96, plus P5,000.00 as attorney’s fees.

• Summary Judgment and Genuine Triable Issues: Petitioners argued that the lower court erred in finding summary judgment proper and in rendering summary judgment when genuine triable issues existed; a factual controversy remained as to their remaining indebtedness, requiring a full-blown trial.
• Dacion en Pago / Extinguishment: They maintained that the conveyance of their motor vehicle already served to offset the bank’s claims by means of dacion en pago, such that their obligation had been fully extinguished; if the sale proceeds were insufficient, the bank could simply make a deficiency claim.
• Accounting and Valuation: They insisted that the RTC should not have granted summary judgment because there was still a need to hold a trial to ascertain the unpaid balance; alternatively, the deductible amount for the sale of the van must be based on its value at the time they surrendered it, and an accounting was needed to establish the correct balances.
• Attorney’s Fees and Costs: Petitioners argued that the RTC erred in ordering them to pay attorney’s fees and costs of suit, pointing out that there was no basis for the grant since there was no trial; the issue involved questions of fact.
• Wrong Remedy / Questions of Fact: Before the Supreme Court, they insisted that the CA needed to resolve issues involving questions of fact, and that the determination of whether their obligations had already been extinguished required a full-blown trial.

• Summary Judgment Proper: The bank argued that the only issue before the trial court was whether the selling price of the vehicle was enough to satisfy the unpaid balance, interest, and other charges; there was no genuine issue relating to any material fact, and the matter was merely the computation of the remaining balance.
• Unpaid Balance After Sale: The bank claimed that even after the sale of the van, petitioners still had an unpaid balance of P315,677.80 excluding interests, penalties, and liquidated damages; monthly installments amounted to only P92,322.20, while the vehicle was sold for only P150,000.00, so only P242,322.20 could be credited in their favor.
• Effect of Surrender: The bank’s position was that the surrender of the vehicle allowed it to sell the vehicle and apply the proceeds to the loan obligation, leaving a deficiency; the only written agreement on the surrender was the acknowledgment receipt stating receipt of the van in good and running condition.

• Propriety of Remedy: Whether Spouses Navarro resorted to the wrong remedy of filing an ordinary appeal under Rule 41, instead of a petition for review under Rule 45, when they questioned before the CA the correctness of the RTC decision to resolve the dispute through summary judgment.
• Nature of Questions Raised: Whether the issues raised in petitioners’ ordinary appeal were pure questions of law, such that the CA correctly dismissed the appeal outright under Section 2, Rule 50.
• Attorney’s Fees and Costs: Whether the award of attorney’s fees and costs of suit involved questions of fact requiring a trial.

• Propriety of Remedy: No. Section 2, Rule 50 mandates outright dismissal of an appeal under Rule 41 that raises only pure questions of law; the proper remedy is a petition for review under Rule 45.
• Nature of Questions Raised: Pure questions of law. The appeal challenged only the trial court’s conclusions from uncontested facts; no review of the probative value of evidence was required.
• Attorney’s Fees and Costs: No. The award depended on the propriety of the summary judgment and the undisputed loan agreement and Rule 142; the CA only needed to apply the law, not resolve a factual issue.

• Propriety of Remedy: Section 2, Rule 50 of the Rules of Court expressly mandates the outright dismissal of appeals made under Rule 41 if they only raise pure questions of law. The Court explained that there is a question of law when the issue does not call for an examination of the probative value of the evidence presented or an evaluation of the truth or falsity of the facts admitted; the doubt revolves around the correct application of law and jurisprudence on a certain set of facts or circumstances. The test is whether the appellate court can resolve the issues without reviewing or evaluating the evidence. Where there is no dispute as to the facts, the question of whether the conclusions drawn from these facts are correct is considered a question of law. Conversely, there is a question of fact when doubt or controversy arises as to the truth or falsity of the alleged information or facts, the credibility of the witnesses, or the relevance of surrounding circumstances and their relationship to each other. Applying these definitions, petitioners raised pure questions of law in their ordinary appeal. The crux of their appeal was the supposed erroneous conclusions drawn by the trial court from already uncontested facts: the loan amount and terms, the admitted payments of P92,322.20, the surrender of the vehicle for sale and application of proceeds, the acknowledgment receipt as the only written agreement on surrender, and the sale of the van for P150,000. The CA was only required to examine whether the admitted facts in the pleadings and affidavits filed by the movant warranted the trial court’s conclusions on the applicable law.

• Nature of Questions Raised: The only factual issue petitioners attempted to tender was the claim that they paid P161,137.69, or P68,815.49 more than the amount the bank admitted receiving. However, their assertion of the amount paid was an affirmative defense under Section 5(b), Rule 6 of the Rules of Court, which they had the burden to substantiate. Section 7, Rule 8 provides that whenever a defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading. The records contained nothing attached or referenced that would evidence additional payment in the amount of P68,815.49. Petitioners failed to take advantage of the clear opportunities to prove payment in their Answer with Counterclaim and Comment/Opposition before the RTC, their Appellant’s Brief and Motion for Reconsideration before the CA, and even their Petition for Review, Reply to Comment, and Memorandum before the Supreme Court. They also did not seek to present any additional evidence to substantiate their claim of a dacion en pago agreement or any basis for a different valuation of the van. Consequently, the CA could not be deemed to have committed a reversible error in affirming the RTC decision to uphold the interest of judicial economy and render a summary judgment, especially in the face of petitioners’ bare allegations. The determination of whether an appeal involves only questions of law or both law and fact is best left to the CA, and all doubts as to the correctness of its conclusions shall be resolved in its favor.

• Attorney’s Fees and Costs: The same reasoning applied to the question relating to the payment of attorney’s fees and costs of suit. Petitioners’ own arguments showed that this question was dependent on the resolution of the issue of the propriety of a summary judgment. It was undisputed that the loan agreement between the parties provided for the award of attorney’s fees in favor of the bank in case it would be forced to file a collection suit. Section 1, Rule 142 of the Rules of Court clearly states that the payment of the costs of suit shall be allowed to the prevailing party as a matter of course. Therefore, the CA only needed to determine if the lower court properly applied the provisions of the loan agreement, the law, the Rules of Court, and jurisprudence to the award of attorney’s fees and costs of suit.

• Question of Law vs. Question of Fact — A question of law exists when the issue does not call for an examination of the probative value of the evidence presented or an evaluation of the truth or falsity of the facts admitted; the doubt revolves around the correct application of law and jurisprudence on a certain set of facts or circumstances. The test is whether the appellate court can resolve the issues without reviewing or evaluating the evidence. Where there is no dispute as to the facts, the question of whether the conclusions drawn from these facts are correct is a question of law. Conversely, a question of fact exists when doubt or controversy arises as to the truth or falsity of the alleged information or facts, the credibility of the witnesses, or the relevance of surrounding circumstances and their relationship to each other. The Court applied this doctrine to hold that petitioners’ appeal raised pure questions of law because it challenged only the trial court’s conclusions from uncontested facts.

• Improper Appeal Raising Only Questions of Law — Under Section 2, Rule 50 of the Rules of Court, an appeal under Rule 41 taken from the RTC to the CA raising only questions of law shall be dismissed outright, issues purely of law not being reviewable by the CA. The proper remedy is a petition for review under Rule 45. The Court applied this rule to affirm the CA’s outright dismissal of Spouses Navarro’s ordinary appeal.

• Summary Judgment — Summary judgment is proper where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The Court upheld the RTC’s summary judgment because petitioners’ defenses were unsupported by evidence and the material facts were uncontested, leaving only the computation of the remaining balance and the application of law.

• Affirmative Defense of Payment — Payment is an affirmative defense under Section 5(b), Rule 6 of the Rules of Court, which the defendant has the burden to substantiate. When a defense is based upon a written instrument or document, Section 7, Rule 8 requires the substance of the instrument to be set forth in the pleading and the original or a copy attached. The Court applied this doctrine to reject petitioners’ claim that they paid P161,137.69, because they failed to attach or reference any evidence of additional payment.

• "SECTION 2. Dismissal of improper appeal to the Court of Appeals. - An appeal under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an appeal by notice of appeal instead of by petition for review from the appellate judgment of a Regional Trial Court shall be dismissed. An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but shall be dismissed outright." — The controlling provision; the Court relied on it to hold that the CA correctly dismissed the Rule 41 appeal outright.
• "There is a question of law when the issue does not call for an examination of the probative value of the evidence presented or an evaluation of the truth or falsity of the facts admitted." — The Court’s definition of a question of law, used to classify petitioners’ appeal.
• "The test for ascertaining whether a question is one of law is to determine if the appellate court can resolve the issues without reviewing or evaluating the evidence." — The test applied to conclude that the CA needed only to review the RTC’s legal conclusions from uncontested facts.
• "Where there is no dispute as to the facts, the question of whether or not the conclusions drawn from these facts are correct is considered a question of law." — The ratio for treating petitioners’ challenge to the summary judgment as a pure question of law.

• Heirs of Cabigas vs. Limbaco, 670 Phil. 274 (2011) — Cited for the definition of a question of law and for the settled rule that the determination of whether an appeal involves only questions of law or both is best left to the CA, with doubts resolved in its favor.
• Bases Conversion Development Authority vs. Reyes, G.R. No. 194247, 19 June 2013, 699 SCRA 217 — Cited for the definitions and tests distinguishing questions of law from questions of fact.
• St. Mary of the Woods School, Inc. vs. Office of the Registry of Deeds of Makati City, 596 Phil. 778 (2009) — Cited in support of the question-of-law and question-of-fact framework.
• National Power Corporation vs. Purefoods Corporation, 586 Phil. 587 (2008) — Cited in support of the same framework.
• Phil. Commercial International Bank vs. Franco, G.R. No. 180069, 5 March 2014 — Cited for the rule that payment is an affirmative defense that the defendant has the burden to substantiate.
• Bank of the Philippine Islands vs. Spouses Royeca, 581 Phil. 188 (2008) — Cited for the same affirmative-defense burden.
• Star Electric Corp. vs. R & G Construction Development and Trading, Inc., G.R. No. 212058, 07 December 2015 — Cited for the rule that costs of suit are allowed to the prevailing party as a matter of course.
• Philippine National Bank vs. Romillo, 223 Phil. 533 (1985) — Cited for the settled rule that the CA’s determination of whether an appeal involves only questions of law or both is generally conclusive and doubts are resolved in its favor.

• Section 2, Rule 50, Rules of Court — Mandates outright dismissal of an appeal under Rule 41 taken from the RTC to the CA raising only questions of law; applied to dismiss Spouses Navarro’s appeal.
• Section 1, Rule 45, Rules of Court — Provides the proper remedy of a petition for review for pure questions of law; mentioned as the remedy petitioners should have used.
• Section 1, Rule 35, Rules of Court — Governs summary judgment; cited as basis for the bank’s motion and the RTC’s summary judgment.
• Section 5(b), Rule 6, Rules of Court — Defines affirmative defenses, including payment; applied to place the burden on petitioners to substantiate their claim of additional payment.
• Section 7, Rule 8, Rules of Court — Requires that when a defense is based on a written instrument or document, the substance be set forth in the pleading and the original or copy attached; applied to petitioners’ unsupported payment claim.
• Section 1, Rule 142, Rules of Court — States that costs of suit shall be allowed to the prevailing party as a matter of course; applied to the award of costs.
• Article 2208, Civil Code — Cited in relation to attorney’s fees; the decision notes the loan agreement stipulated attorney’s fees in favor of the bank.

Teresita J. Leonardo-De Castro, Lucas P. Bersamin, Estela M. Perlas-Bernabe, and Alfredo Benjamin S. Caguioa concurred.