Promissory Note Alterations Raised for First Time on Appeal Not Considered

The Supreme Court has ruled that a party cannot raise the defense of material alteration of a promissory note for the first time on appeal. In Rural Bank of Candelaria (Zambales), Inc. v. Banluta (G.R. No. 208254, March 23, 2022), the Court reiterated the fundamental rule that issues not raised before the trial court cannot be decided for the first time on appeal. The ruling protects the fairness of proceedings and prevents parties from changing their legal theories at a late stage.

The Facts of the Case

Romulo Banluta obtained a loan from the Rural Bank of Candelaria, secured by a real estate mortgage over two parcels of land. When the bank foreclosed on the property, Banluta filed a complaint to annul the foreclosure proceedings. He claimed he had fully paid his loan and that the foreclosure was invalid.

The Regional Trial Court (RTC) ruled in favor of Banluta, declaring the foreclosure null and void. However, the RTC also ordered Banluta to pay the bank P4,228,955.98, representing the principal loan of P683,000.00 plus 20% compounded interest based on a Promissory Note dated September 15, 1999.

The Court of Appeals Modified the RTC Decision

Banluta appealed, arguing for the first time that the Promissory Note was materially altered. He pointed to apparent erasures and superimpositions on the "Date Granted" and "Date Due" fields of the document. The Court of Appeals (CA) agreed, citing Sections 124 and 125 of the Negotiable Instruments Law, and deleted the order requiring Banluta to pay the bank.

The Supreme Court's Ruling

The Supreme Court reversed the CA and reinstated the RTC's ruling, with modifications to the interest rate.

The Court held that Banluta failed to raise the defense of material alteration before the RTC. Although the Promissory Note was presented and marked as evidence during pre-trial, neither party raised the issue of alteration in their pre-trial briefs or during trial. Banluta admitted his signature on the note and even formally offered it as evidence, but never specifically claimed it was forged or materially altered.

The Court cited Section 15, Rule 44 of the Rules of Court, which limits the questions that may be raised on appeal to those raised in the court below and within the issues framed by the parties. It also cited Maxicare PCIB CIGNA Healthcare v. Contreras (702 Phil. 688 [2013]), which holds that a party who adopts a certain theory cannot change it on appeal.

The Court explained that the exception to this rule—when the factual bases of the new theory would not require presentation of further evidence—did not apply. The bank was deprived of the opportunity to present evidence that Banluta assented to or authorized the alterations, had the issue been properly raised.

Practical Takeaways

• Raise defenses early. Any defense to a claim based on a document, such as material alteration or forgery, must be raised before the trial court. Waiting until appeal risks losing the defense entirely.
• Pre-trial matters. Issues not included in pre-trial briefs or raised during trial are generally deemed waived.
• Evidence of alteration. A party alleging material alteration should present specific evidence and, if necessary, pursue examination of the document by experts such as the NBI.
• Best Evidence Rule compliance. While the bank in this case properly presented the original promissory note, parties should always be prepared to prove the due execution and authenticity of documents.
• Interest on judgments. The Court clarified that stipulated interest runs until the finality of the decision, after which legal interest of 6% per annum applies until full payment, citing Nacar v. Gallery Frames (716 Phil. 267 [2013]).

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.