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G.R. No. 228435. June 21, 2017.*
KT CONSTRUCTION SUPPLY, INC., represented by
WILLIAM GO, petitioner, vs. PHILIPPINE SAVINGS
BANK, respondent.
Civil Law; Obligations; Loans; Acceleration Clause; It has
long been settled that an acceleration clause is valid and produces
legal effects.—It has long been settled that an acceleration clause
is valid and produces legal effects. In the case at bench, the
promissory note explicitly stated that default in any of the
installments shall make the entire obligation due and
demandable even without notice or demand. Thus, KT
Construction was erroneous in saying that PSBank’s complaint
was premature on the ground that the loan was due only on
October 12, 2011. KT Construction’s entire loan obligation became
due and demandable when it failed to pay an installment
pursuant to the acceleration clause.
_______________
* SECOND DIVISION.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
Same; Same; Extinguishment of Obligations; Payment;
Burden of Proof; In Bognot v. RRI Lending Corporation, 736
SCRA 357 (2014), the Supreme Court (SC) explained that once the
indebtedness had been established, the burden is on the debtor to
prove payment.—KT Construction is mistaken that it could not be
held liable for the entire loan obligation because PSBank failed to
prove how many installments it had failed to pay. In Bognot v.
RRI Lending Corporation, 736 SCRA 357 (2014), the Court
explained that once the indebtedness had been established, the
burden is on the debtor to prove payment, to wit: Jurisprudence
tells us that one who pleads payment has the burden of proving it;
the burden rests on the defendant to prove payment, rather than
on the plaintiff to prove non-payment. Indeed, once the existence
of an indebtedness is duly established by evidence, the burden of
showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.
Same; Contracts; Contracts of Adhesion; Contracts of
adhesion, where one party imposes a ready-made form of contract
on the other, are not entirely prohibited. The one who adheres to
the contract is, in reality, free to reject it entirely; if he adheres, he
gives his consent.—In a further attempt to absolve itself from the
loan obligation, KT Construction argued that the promissory note
was null and void because it was a contract of adhesion. It may be
true that KT Construction had no hand in its preparation. Still, it
has been ruled in a plethora of cases that a contract of adhesion is
not invalid per se. Contracts of adhesion, where one party imposes
a ready-made form of contract on the other, are not entirely
prohibited. The one who adheres to the contract is, in reality, free
to reject it entirely; if he adheres, he gives his consent.
Remedial Law; Civil Procedure; Jurisdiction; It is a
fundamental rule that jurisdiction over a defendant is acquired in
a civil case either through service of summons or voluntary
appearance in court and submission to its authority.—Jurisdiction
over the person of the parties must be acquired so that the
decision of the court would be binding upon them. It is a
fundamental rule that jurisdiction over a defendant is acquired in
a civil case either through service of summons or voluntary
appearance in court and submission to its authority. In the case
at bench, Go and Go-Tan were neither impleaded in the civil case
nor served with summons. They merely acted as representatives
of KT Construction, which was impleaded as the defen-
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KT Construction Supply, Inc. vs. Philippine Savings Bank
dant in the complaint. It is for this reason that only KT
Construction filed an answer to the complaint. Thus, it is clear
that the trial court never acquired jurisdiction over Go and Go-
Tan. Consequently, it was improper for the trial court to declare
in its dispositive portion that Go and Go-Tan were jointly and
severally liable with KT Construction for the judgment award. It
is noteworthy that their liability as co-makers was never
discussed in the body of the decision and that their solidary
liability was a mere conclusion in the dispositive portion.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rogelio N. Velarde for petitioner.
Salgado, Avila, Gordove & Associates for respondent.
MENDOZA, J.:
This petition for review on certiorari seeks to reverse
and set aside the April 22, 2016 Decision1 and November
23, 2016 Resolution2 of the Court of Appeals (CA) in C.A.-
G.R. CV No. 103037, which affirmed with modification the
June 11, 2014 Decision3 of the Regional Trial Court,
Branch 133, Makati City (RTC).
On October 12, 2006, petitioner KT Construction
Supply, Inc. (KT Construction) obtained a loan from
respondent Philippine Savings Bank (PSBank) in the
amount of P2.5 million. The said loan was evidenced by a
Promissory Note4 executed on the same date. The said note
was signed by William K. Go (Go) and Nancy Go-Tan (Go-
Tan) as Vice President/General
_______________
1 Penned by Associate Justice Henri Jean Paul B. Inting, with
Associate Justices Mario V. Lopez and Ramon A. Cruz, concurring; Rollo,
pp. 30-43.
2 Id., at pp. 45-46.
3 Penned by Presiding Judge Elpidio R. Calis; id., at pp. 98-102.
4 Id., at p. 72.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
Manager and Secretary/Treasurer of KT Construction,
respectively. In addition, both Go and Go-Tan signed the
note in their personal capacities.
The promissory note stipulated that the loan was
payable within a period of sixty (60) months from
November 12, 2006 to October 12, 2011. In addition, the
said note provided for the payment of attorney’s fees in
case of litigation.
On January 3, 2011, PSBank sent a demand letter to KT
Construction asking the latter to pay its outstanding
obligation in the amount of P725,438.81, excluding
interest, penalties, legal fees, and other charges. For its
failure to pay despite demand, PSBank filed a complaint
for sum of money against KT Construction.
The RTC’s Ruling
In its June 11, 2014 Decision, the RTC ruled in favor of
PSBank. It opined that the promissory note expressly
declared that the entire obligation shall immediately
become due and payable upon default in payment of any
installment. The trial court, nevertheless, reduced the
interest rate and stipulated interest fees for being
unconscionable. Thus, it declared KT Construction, Go and
Go-Tan solidary liable and it ordered them to pay PSBank
the loan in the amount of P725,438.81 subject to twelve
percent (12%) interest per annum and P50,000.00 as
attorney’s fees. The fallo reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff Philippine Savings Bank and against the defendant KT
Construction Supply, Inc., represented by William Go and Nancy
Go Tan, ordering the defendant to pay the plaintiff, jointly and
severally, the following:
1) The amount of Seven Hundred Twenty-Five Thousand Four
Hundred Thirty-Eight Pesos and 81/100 (Php725,438.81)
plus twelve percent (12%) interest per annum from January
13, 2011 until fully paid.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
2) Php50,000.00 as and for attorney’s fees.
SO ORDERED.5
Aggrieved, KT Construction appealed before the CA.
The CA’s Ruling
In its April 22, 2016 Decision, the CA affirmed the RTC
decision. It explained that due to the acceleration clause,
the loan became due and demandable upon KT
Construction’s failure to pay an installment. In addition,
the CA disagreed that the promissory note was a contract
of adhesion because KT Construction was not in any way
compelled to accept the terms of the promissory note.
The CA held that the trial court rightfully awarded
attorney’s fees as the same was stipulated in the
promissory note. It stated that the award of attorney’s fees
was in the nature of a penal clause, which was valid and
binding between the parties. Likewise, the CA agreed that
Go and Go-Tan were solidarity liable with KT Construction
for the judgment amount because, when they signed the
promissory note in their personal capacities, they became
co-makers thereof. It added that the parties themselves
stipulated in the promissory note that their liability was
solidary. The CA disposed the case in this wise:
WHEREFORE, in view of the foregoing premises, the instant
appeal is DENIED. The Decision of Branch 133 of the Regional
Trial Court, Makati City, National Capital Judicial Region dated
June 11, 2014 in Civil Case No. 11-060, is hereby AFFIRMED
with the MODIFICATION that KT Construction, represented by
William K. Go and Nancy Go-Tan, is ordered to pay PS Bank the
amount equivalent to 6% per annum of the total of the monetary
awards from the finality of this Decision until
_______________
5 Id., at p. 102.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
full payment thereof, as legal interest. In addition, the Clerk of
Court of Branch 133 of the Regional Trial Court in Makati City,
or his duly authorized deputy is DIRECTED to assess and collect
the additional docket fees from Philippine Savings Bank as fees in
lien in accordance with Section 2, Rule 141 of the Rules of Court.
SO ORDERED.6
KT Construction moved for reconsideration, but its
motion was denied by the CA in its November 23, 2016
resolution.
Hence, this appeal instituted by KT Construction raising
the following errors:
Issues
I
THE COURT OF APPEALS GRAVELY AND PALPABLY
ERRED, AS DID THE LOWER COURT, IN HOLDING
WILLIAM GO AND NANCY GO TAN JOINTLY AND
SEVERALLY LIABLE WITH THE PETITIONER TO THE
RESPONDENT BANK;
II
THE COURT OF APPEALS ERRED, AS DID THE LOWER
COURT, IN NOT FINDING THAT THE COMPLAINT IN
THIS CASE WAS PREMATURELY FILED;
III
THE COURT OF APPEALS ERRED, AS DID THE LOWER
COURT, IN FAILING TO DECLARE THE PROMISSORY
NOTE IN QUESTION AS NULL AND VOID FOR BEING A
CONTRACT OF ADHESION; AND
_______________
6 Id., at pp. 42-43.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
IV
THE COURT OF APPEALS ERRED, AS DID THE LOWER
COURT, IN AWARDING ATTORNEY’S FEES IN FAVOR OF
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THE RESPONDENT BANK.7
KT Construction insists that Go and Go-Tan could not
be held solidarily liable for the judgment award because
they were neither impleaded nor served with summons.
Moreover, they did not voluntarily appear before the court.
Thus, the courts never acquired jurisdiction over their
persons.
KT Construction further asserts that the complaint was
premature because it was not alleged that it had defaulted
in paying any of the installments due and that it had
received a demand letter from PSBank. It reiterates that
the promissory note was null and void for being a contract
of adhesion. KT Construction also argues that the award of
attorney’s fees was improper because it was contrary to the
policy that no premium should be placed on the right to
litigate.
In its Comment,8 dated March 3, 2017, PSBank
countered that Go and Go-Tan were solidarily liable with
KT Construction because they signed the promissory note
in favor of PSBank as officers of the corporation and in
their personal capacities. It averred that the obligation was
already due and demandable in view of the acceleration
clause in the promissory note. Further, PSBank pointed
out that the promissory note was consensual as the parties
voluntarily signed the same. Finally, it claimed that
attorney’s fees were rightfully awarded because the same
formed part of the terms and conditions of the loan
agreement.
The Court’s Ruling
The petition is partly meritorious.
_______________
7 Id., at p. 10.
8 Id., at pp. 151-158.
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It has long been settled that an acceleration clause is
valid and produces legal effects.9 In the case at bench, the
promissory note explicitly stated that default in any of the
installments shall make the entire obligation due and
demandable even without notice or demand. Thus, KT
Construction was erroneous in saying that PSBank’s
complaint was premature on the ground that the loan was
due only on October 12, 2011. KT Construction’s entire loan
obligation became due and demandable when it failed to
pay an installment pursuant to the acceleration clause.
Moreover, KT Construction could not evade
responsibility by claiming that it had not received any
demand letter for the payment of the loan. PSBank had
sent a demand letter,10 dated February 3, 2011, asking KT
Construction to pay the remaining obligation within five (5)
days from receipt of the letter. More importantly, even
granting that KT Construction did not receive the demand
letter, the loan still became due and demandable because
the parties expressly waived the necessity of demand.11
Further, KT Construction is mistaken that it could not
be held liable for the entire loan obligation because
PSBank failed to prove how many installments it had
failed to pay. In Bognot v. RRI Lending Corporation,12 the
Court explained that once the indebtedness had been
established, the burden is on the debtor to prove payment,
to wit:
Jurisprudence tells us that one who pleads payment has the
burden of proving it; the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment.
Indeed, once the existence of an
_______________
9 Premiere Development Bank v. Central Surety & Insurance
Company, Inc., 598 Phil. 827, 849; 579 SCRA 359, 382 (2009).
10 Rollo, p. 74.
11 Agner v. BPI Family Savings Bank, Inc., 710 Phil. 82, 85-86; 697
SCRA 89, 93-94 (2013).
12 G.R. No. 180144, September 24, 2014, 736 SCRA 357.
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indebtedness is duly established by evidence, the burden of
showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.13
In the case at bench, KT Construction admitted that it
obtained a loan with PSBank. It, nevertheless, averred that
it had been regularly paying the loan. Thus, KT
Construction could have easily provided deposit slips and
other documentary evidence to prove the fact of payment.
It, however, merely alleged that it religiously paid its
obligation without presenting any evidence to substantiate
the said obligation.
In a further attempt to absolve itself from the loan
obligation, KT Construction argued that the promissory
note was null and void because it was a contract of
adhesion. It may be true that KT Construction had no hand
in its preparation. Still, it has been ruled in a plethora of
cases that a contract of adhesion is not invalid per se.14
Contracts of adhesion, where one party imposes a ready-
made form of contract on the other, are not entirely
prohibited. The one who adheres to the contract is, in
reality, free to reject it entirely; if he adheres, he gives his
consent.15
KT Construction also claimed that attorney’s fees should
not be awarded for lack of legal basis. The promissory note,
however, categorically provided for the payment of
attorney’s fees in case of default. The said stipulation
constituted a penal clause to which the parties were bound,
it being part of the contract between the parties.16 KT
Construction was mistaken in relying on Article 2208 of the
Civil Code because the same applies only when there is no
stipulation as to the payment of attorney’s fees in case of
default.
_______________
13 Id., at p. 367.
14 Norton Resources and Development Corporation v. All Asia Bank
Corporation, 620 Phil. 381, 392; 605 SCRA 370, 381 (2009).
15 Id.
16 Barons Marketing Corp. v. Court of Appeals, 349 Phil. 769, 779-780;
286 SCRA 96, 107 (1998).
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KT Construction Supply, Inc. vs. Philippine Savings Bank
Only parties to the
case may be bound by
the court’s decision.
The courts a quo, however, erred in holding Go and Go-
Tan solidarily liable for the judgment award in PSBank’s
favor. In Guy v. Gacott,17 the Court ruled that a judgment
binds only those who were made parties in the case, to wit:
In relation to the rules of civil procedure, it is elementary that
a judgment of a court is conclusive and binding only upon the
parties and their successors-in-interest after the commencement
of the action in court. A decision rendered on a complaint in a civil
action or proceeding does not bind or prejudice a person not
impleaded therein, for no person shall be adversely affected by the
outcome of a civil action or proceeding in which he is not a party.
The principle that a person cannot be prejudiced by a ruling
rendered in an action or proceeding in which he has not been
made a party conforms to the constitutional guarantee of due
process of law.
In short, jurisdiction over the person of the parties must
be acquired so that the decision of the court would be
binding upon them. It is a fundamental rule that
jurisdiction over a defendant is acquired in a civil case
either through service of summons or voluntary
appearance in court and submission to its authority.18
In the case at bench, Go and Go-Tan were neither
impleaded in the civil case nor served with summons. They
merely acted as representatives of KT Construction, which
was impleaded as the defendant in the complaint. It is for
this reason that only KT Construction filed an answer to
the complaint. Thus, it is clear that the trial court never
acquired jurisdiction over Go and Go-Tan.
_______________
17 G.R. No. 206147, January 13, 2016, 780 SCRA 579.
18 Prudential Bank (now Bank of the Philippine Islands) v. Magdamit,
Jr., G.R. No. 183795, November 12, 2014, 740 SCRA 1, 13.
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KT Construction Supply, Inc. vs. Philippine Savings Bank
Consequently, it was improper for the trial court to
declare in its dispositive portion that Go and Go-Tan were
jointly and severally liable with KT Construction for the
judgment award. It is noteworthy that their liability as co-
makers was never discussed in the body of the decision and
that their solidary liability was a mere conclusion in the
dispositive portion.
WHEREFORE, the April 22, 2016 Decision and
November 23, 2016 Resolution of the Court of Appeals in
C.A.-G.R. CV No. 103037, are AFFIRMED with
MODIFICATION, in that, only petitioner KT
Construction Supply, Inc. is bound by the judgment award.
SO ORDERED.
Peralta** (Acting Chairperson) and Martires, JJ.,
concur.
Carpio, J., On Official Leave.
Leonen, J., On Leave.
Judgment and resolution affirmed with modification.
Notes.—A contract of adhesion is one in which one of
the parties imposes a ready-made form of contract, which
the other party may accept or reject, but which the latter
cannot modify. (Poltan vs. BPI Family Savings Bank, Inc.,
517 SCRA 430 [2007])
Jurisprudence tells us that one who pleads payment has
the burden of proving it; the burden rests on the defendant
to prove payment, rather than on the plaintiff to prove
nonpayment. (Bognot vs. RRI Lending Corporation, 736
SCRA 357 [2014])
——o0o——
_______________
** Per Special Order No. 2445 dated June 16, 2017.
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