i.

for respondent Paramount, eighteen percent

TRADE & INVESTMENT DEVE- G.R. No. 139290 (18%) interest per annum from 5 June
LOPMENT CORPORATION OF 1990 until fully paid;
THE PHILIPPINES (Formerly Present:
Philippine Export & Foreign ii. for respondents Roblett and the Abieras,
Loan Guarantee Corporation, sixteen percent (16%) interest per annum
Petitioner, PUNO, J., from 5 June 1990 until fully paid; and
Chairman, penalty charge of sixteen percent (16%)
AUSTRIA- per annum compounded monthly from 5
MARTINEZ, June 1990 until fully paid;
- versus - CALLEJO, SR.
TINGA, and b) ordering respondents Roblett and the Abieras,
CHICO-NAZARIO, JJ. jointly and severally, to pay petitioner
Philguarantee the amount of
ROBLETT INDUSTRIAL CONS- P18,029,219.78 plus 12% interest
TRUCTION CORPORATION, thereon from the time of finality of
ROBERTO G. ABIERA and Promulgated: judgment until fully paid;
LETICIA ABIERA, and PARAMOUNT
INSURANCE CORPORATION, c) ordering respondents Roblett and the Abieras,
Respondents. May 19, 2006 jointly and severally, to pay petitioner
Philguarantee ten percent (10%) of
x------------------------------------------------------------------------------ x P11,775,611.25, as attorney's fees, plus
the costs of suit;

RESOLUTION d) ordering respondent Paramount, jointly and

severally with respondents Roblett and
the Abieras, to pay petitioner
TINGA, J.: Philguarantee P100,000.00 as
reasonable attorney's fees;
Under consideration are the motion for reconsideration[1] dated 23
December 2005 and supplemental motion for reconsideration[2] dated 23
January 2006, both filed by respondent Paramount Insurance Corporation
(Paramount) with regard to our Decision[3] dated 11 November 2005 which e) ordering respondents Roblett and Benlot, jointly
disposed of the case as follows: and severally, to reimburse respondent
Paramount whatever amount it would pay
WHEREFORE, premises considered, the petition is hereby petitioner Philguarantee including all
GRANTED. The Decision of the Court of Appeals is REVERSED and interests, attorney's fees and the costs;
the judgment of the Regional Trial Court is REINSTATED with the and
following modifications:
f) ordering all the respondents, jointly and
) ordering respondents Roblett, the Abieras, and Paramount, jointly severally, and the third-party defendants,
and severally, to pay petitioner Philguarantee the amount of also jointly and severally, to pay petitioner
P11,775,611.25, with the following rates of interest and penalty Philguarantee legal interest of 12% per
charge, to wit: annum on the judgment awards
 respectively against them from the time of
finality of judgment until fully paid.
SO ORDERED.[4]
In support of its motion for reconsideration, Paramount submits the following
grounds: (1) Paramount issued a bidders bond and not a performance or
guarantee bond so that when respondent Roblett Industrial Construction
Corporation (Roblett) executed the sub-contract agreement, Paramount was
released from liability thereunder; (2) petitioner is guilty of misrepresentation
and concealment in securing Paramounts continuing commitment to answer
for Robletts repayment scheme; (3) petitioner and Roblett entered into a
rehabilitation program which novated the principal obligation of the parties
resulting in the discharge of Paramount; (4) the subject surety bond expired
without any claim being made against the same; and (5) Paramount is not
liable for attorneys fees.
The supplemental motion for reconsideration essentially reiterates the
allegations and arguments found in the motion for reconsideration with the
additional contention that the interest charge on the principal debt is
unconscionable.
We have perused the instant motions and find no new substantial
arguments to warrant the reversal or modification of our Decision.
Respondents motion essentially concerns issues that have been passed upon
and fully considered by the Court in the decision sought to be reconsidered.
Thus, we find no cogent reason to depart from the ruling subject of this
recourse. The only matter left to be resolved is the validity of the interest
charge against the principal amount involved in this case.
Under the surety bond,[5] Paramount bound itself jointly and severally with
Roblett to pay petitioner to the extent of P11,775,611.35 for whatever
damages and liabilities the latter may suffer by virtue of its counterguarantee.
Paramount further agreed to pay petitioner interest thereon at the rate of 18%
per annum from the date of receipt of petitioners first demand letter up to the
date of actual payment.
In our Decision, we found that none of the parties questioned the validity of
the stipulated interest rate. Finding the same legal, we upheld its validity. With
the suspension of the Usury Law and the removal of interest ceiling, the parties
are free to stipulate the interest to be imposed on monetary obligations. Absent
any evidence of fraud, undue influence, or any vice of consent exercised by
one party against the other, the interest rate agreed upon is binding upon
them.[6] Nevertheless, we ruled that
Paramounts liability therefor should commence from the date of judicial
demand, or on 5 June 1990, and not from the date petitioner made a formal
notice of demand to Paramount. This is but fair as the delay in the performance
of Paramount is attributable to the failure of petitioner to inform the former of
the developments in the negotiations with Roblett.
Paramount argues that it is made liable for approximately P48 million, the bulk
of which is the interest charge and not the principal amount. It then submits
that the interest is clearly iniquitous, unconscionable and exorbitant, thus
contrary to morals,[7] citing our ruling in Medel v. Court of Appeals.[8] In the
said case, we held as void the stipulation on interest at the rate of 5.5% per
month or 66% per annum, on a P500,000.00 loan, the same being excessive,
iniquitous, unconscionable and exorbitant, hence, contrary to morals ("contra
bonos mores
"), if not against the law.[9]
It would seem that Paramounts opposition to the interest awarded
herein does not spring from the invalidity of the stipulated interest rate but
rather on the resulting amount of interest charge alone, which if counted from
the date of judicial demand would come to roughly P32 million which is thrice
the amount of the principal debt of P11,775,611.35.
While the Court recognizes the right of the parties to enter into
contracts and who are expected to comply with their terms and obligations,
this rule is not absolute. Stipulated interest rates are illegal if they are
unconscionable[10] and the Court is allowed to temper interest rates when
necessary.[11] In exercising this vested power to determine what is iniquitous
and unconscionable, the Court must consider the circumstances of each
case.[12] What may be iniquitous and unconscionable in one case, may be
just in another.
In a number of cases,[13] this Court equitably reduced the interest
rate agreed upon by the parties for being iniquitous, unconscionable, and/or
exhorbitant.
Notably in the case of Development Bank of the Philippines v. Court
of Appeals[14], while this Court held that respondents were liable for the
stipulated interest rate of 18% per annum, we equitably reduced the same to
10% per annum after finding that the interests and penalty charges alone
exceeded the amount of the principal debt. As such, the interests were found
to be excessive. We further held that the additional penalty charge of 8% per
annum would sufficiently cover whatever else damages petitioner may have
incurred such as attorneys fees and litigation expenses.
In the instant case, the resulting interest charge has turned out to be
excessive in the context of its base computation period, and hence,
unwarranted in fact and in operation. We are not unmindful of the length of
time this case has been pending in court for which the amount involved has
ballooned to the outrageous amount of more than P45 million which is four
times the principal debt.
While we have sustained the validity of much higher interest rates of
21% per annum in Bautista v. Pilar Development Corporation[15] and 24% per
annum in Garcia v. Court of Appeals[16] as the factual circumstances therein
warrant, it is well to note that compared to the instant case, the said cases
were litigated for a shorter period of time12 years and 3 years, respectively.
Development Bank of the Philippines[17] was finally decided after only 10
years of litigation. Here, the complaint was filed in the lower court on
5 June 1990 or sixteen (16) years ago. Consequently, the already
huge principal debt swelled to a considerably disproportionate sum. Thus, we
deem an interest rate of 12% per annum is more reasonable under the
circumstances.
WHEREFORE, premises considered, respondent Paramounts
motion for reconsideration and supplemental motion for reconsideration are
GRANTED IN PART and our assailed Decision dated 11 November 2005 is
hereby MODIFIED. The interest rate of 18% per annum as stipulated in the
surety bond is equitably reduced to 12% per annum. The Decision is
AFFIRMED WITH FINALITY in all other respects.
SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HON.
COURT OF APPEALS and SPOUSES NILO and ESPERANZA DE
LA PEA, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision,[1] dated August
7, 1998, and resolution,[2] dated February 11, 1999, of the Court of Appeals
affirming with modification the decision of the Regional Trial Court, Branch
172, Valenzuela, enjoining petitioner from rescinding the contract it had
executed covering the sale of a parcel of land and ordering respondent
spouses, as vendees, to pay petitioner the amount of P54,200.00.
The facts are undisputed:
Petitioner Development Bank of the Philippines is the owner of a parcel
of land in Bulacan (now Lawang Bato, Valenzuela, Metro Manila)[3] as
evidenced by TCT No. 13351(202029). On August 8, 1983, it sold the land to
respondent spouses Nilo and Esperanza De La Pea under a Deed of
Conditional Sale for P207,000.00.[4] The Deed of Conditional Sale stipulated:
That the down payment shall be P41,400.00 and the balance of P165,600.00
to be paid in six (6) years on the semi-annual amortization plan at 18% interest
per annum. The first amortization of P23,126.14 shall be due and payable six
(6) months from the date of execution of the Deed of Conditional Sale and all
subsequent amortizations shall be due and payable every six (6) months
thereafter;
After the execution of the contract, the spouses De La Pea constructed
a house on the said lot and began living there. They also introduced other
improvements therein by planting fruit trees and building a small garage.[5]
Pursuant to their contract with the DBP, respondent spouses De La Pea made
the following payments:
OR. NO. DATE AMOUNT
261122 June 22, 1983 P 36,000.00
355399 August 4, 1983 5,400.00
828029 March 22, 1984 6,000.00
862947 June 4, 1984 21,000.00
1230133 November 15, 1984 3,000.00
1365914 Feb. 8, 1985 6,000.00
1545272 March 11, 1985 6,000.00
1549511 April 8, 1985 6,000.00
1549641 May 3, 1985 6,000.00
1714171 July 9, 1985 11,400.00
1893683 November 29, 1985 11,400.00 TOTAL P 221,867.85[8]

2257661 July 3, 1986 10,000.00 In another letter, dated July 11, 1989, DBP demanded from respondent
spouses the payment of this amount, which had increased to P225,855.86 as
2349229 September 3, 1986 15,000.00 of June 30, 1989, otherwise, it would rescind the sale.[9] In reply, respondent
spouses, in a letter dated August 11, 1989, proposed a settlement of the
2529065 November 4, 1986 16,000.00 amount through semi-annual payments over a period of five years.[10]

As the parties failed to reach an agreement, respondent spouses filed a

2830513 August 18, 1987 21,000.00
complaint against petitioner on January 30, 1990 for specific performance and
damages with injunction before the Regional Trial Court, Valenzuela, Metro
3342166 October 12, 1988 10,000.00 Manila.[11] The case was assigned to Branch 172 of the court. The complaint
was later amended to include a prayer for the issuance of a temporary
3367039 December 9, 1988 10,000.00 restraining order to enjoin the defendant from rescinding the sale and selling
the land to interested buyers.[12]
3367193 January 10, 1989 10,000.00
On March 30, 1993, the trial court rendered a decision, the dispositive
3367500 February 10, 1989 10,000.00 portion of which reads:

3461778 March 9, 1989 18,000.00 WHEREFORE, in view of the foregoing, judgment is hereby rendered,

3532008 April 10, 1989 18,800.00 1. Dismissing the complaint, as plaintiffs have still to pay the
defendant the sum of P54,200.00 as interest to be able to sue
3617235 August 28, 1989 P33,000.00 for specific performance;

2. The writ of preliminary injunction is hereby declared permanent;

TOTAL P289,600.00[6]
3. Defendant to pay plaintiffs attorneys fees in the amount of
After making the above payments, Esperanza De La Pea went to P30,000.00; and
petitioner DBP and asked for the execution of a Deed of Absolute Sale and for
4. Defendant to pay the costs of suit.
the issuance of the title to the property.[7] On January 5, 1989, however,
respondent spouses De La Pea were informed by DBP through a letter that
SO ORDERED.[13]
there was still a balance of P221,86.85, broken down as follows, owing from
them:
Petitioner filed an appeal with the Court of Appeals which rendered a
decision, dated August 8, 1997, affirming with modification the ruling of the
Principal P 150,765.35
trial court. The dispositive portion of its decision reads:
Regular Interest 57,121.13
WHEREFORE, with the MODIFICATION that the grant of attorneys fees is
deleted, the appealed Decision is AFFIRMED.[14]
Additional Interest 9,799.01
In its resolution, dated February 11, 1999, the Court of Appeals likewise
Penalty Charges 4,182.36
denied petitioners motion for reconsideration.[15]
 Hence, this petition. Petitioner now contends:
1. BOTH THE TRIAL COURT AND THE COURT OF APPEALS
GAVE A MANIFESTLY MISTAKEN AND ABSURD
CONSTRUCTION OF THE DEED OF CONDITIONAL SALE
CONTRACT (ANNEX E).
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED
AND COMMITTED REVERSIBLE ERROR WHEN IT
AFFIRMED THE TRIAL COURTS ISSUANCE OF THE
INJUNCTION AGAINST PETITIONER DBP PERMANENT.[16]
First. The Court of Appeals held:
A careful reading of the aforequoted provisions reveals that while the period
of payment (six years) and the amount of the first amortization (P23,126.14)
are stipulated, the amount that the vendees should pay semi-annually is not
specified. Since the Deed of Conditional Sale executed by the parties is a
contract of adhesion, i.e., a ready-made contract to which appellees merely
affixed their assent or adhesion, as the court a quo correctly found, a restrictive
construction of the obscure provision regarding the amount of semi-annual
amortizations should be
made against the drafter DBP (PAL vs. Court of Appeals, 255 SCRA 48, BPI
Credit vs. Court of Appeals, 204 SCRA 611; Maersk Lines vs. Court of
Appeals, 222 SCRA 108; Angeles vs. Calasaz, 135 SCRA 323). It is not
disputed that appellant Bank was the party responsible for the preparation of
the Deed of Conditional Sale. Any ambiguity in the contract whose terms are
susceptible of different interpretations must be read against appellant as the
party which drafted the contract (Nacu vs. Court of Appeals, 231 SCRA 237).
Thus the contract of the parties must be interpreted, in so far as the manner
and amounts of amortization is concerned, to be at the option of the vendees,
subject only to the condition that the latter should pay the balance of the
purchase price within a period of six years.[17]
The questioned provision states:
That the down payment shall be P41,400.00 and the balance of P165,600.00
to be paid in six (6) years on the semi-annual amortization plan at 18% interest
per annum. The first amortization of P23,126.14 shall be due and payable six
(6) months from the date of execution of the Deed of Conditional Sale and all
subsequent amortizations shall be due and payable every six (6) months
thereafter;[18]
Contrary to the ruling of the Court of Appeals that the above stipulation
fails to specify the monthly amortization, we find no ground for construing any
ambiguity against the DBP as the party responsible therefor. As stipulated in
the Deed of Conditional Sale, the first amortization was in the amount of
P23,126.14 to be paid six months from the date of the execution of the
contract. Subsequent amortizations were due and payable every six months
thereafter. Such stipulation cannot be construed other than that the
subsequent amortizations should be in the same amount as the first, to be
paid every six months thereafter.
There being no other basis for the payment of the subsequent
amortizations, the reasonable conclusion one can reach is that subsequent
payments shall be made in the same amount as the first payment.
With regard to the remaining monetary obligation of the private
respondents, the question is whether respondent spouses could be held liable
for the interests and penalty charges considering that they had already paid
the full amount of the principal obligation and petitioner DBP did not object to
the late payments made by them.
The contract provided that [t]he first amortization of P23,236.14 shall be
due and payable six (6) months from the date of execution of the Deed of
Conditional Sale and all subsequent amortizations shall be due and payable
every six (6) months thereafter. As the contract was executed on August 8,
1983,[19] the first amortization became due on February 8, 1994 while the
next one fell due on August 8 of that year. The subsequent amortizations were
to be paid every six months thereafter, i.e., on February 8 and August 8 of the
following years.
Respondent spouses failed to comply with the schedule of payment of
amortizations, their payments having been actually made as follows:
OR. NO. DATE AMOUNT
261122 June 22, 1983 P 36,000.00
355399 August 4, 1983 5,400.00
828029 March 22, 1984 6,000.00
862947 June 4, 1984 21,000.00
1230133 November 15, 1984 3,000.00
1365914 Feb. 8, 1985 6,000.00
1545272 March 11, 1985 6,000.00
As private respondents failed to pay on time, they incurred additional
interests and penalty charges which were applied to the payments they
already made, pursuant to their contract which provides in pertinent parts as
follows:
8. That the sale shall be subject to penalty charges and additional interest as
follows:

1549511 April 8, 1985 6,000.00 a) On sale accounts with amortizations (principal past due and/or
regular interest) or portion thereof in arrears for thirty (30)
1549641 May 3, 1985 6,000.00 days or less:

1714171 July 9, 1985 11,400.00 i. Additional interest at the basic sale interest per annum
computed on total amortizations past due, irrespective of
1893683 November 29, 1985 11,400.00 age.

2257661 July 3, 1986 10,000.00 ii. No penalty charge.

2349229 September 3, 1986 15,000.00
2529065 November 4, 1986 16,000.00
2830513 August 18, 1987 21,000.00
3342166 October 12, 1988 10,000.00
3367039 December 9, 1988 10,000.00
b) On sale accounts with amortizations or portion thereof in arrears
for more than thirty (30) days:
i. Additional interest as provided above, plus
ii. Penalty charge of 8% per annum.[21]
The payments made by respondent spouses were applied to their
obligation, including interests, in the following manner:[22]

3367193 January 10, 1989 10,000.00 DATE OR NUM- TOTAL PRINCIPAL REGULAR ADDITIO-NAL P
BER INTEREST INTEREST C
3367500 February 10, 1989 10,000.00
6-22-83 261122 P36,000.00 P36,000.00 ) Down-
3461778 March 9, 1989 18,000.00
8-04-83 355399 5,400.00 5,400.00 ) Payment
3532008 April 10, 1989 18,800.00

3617235 August 28, 1989 P 33,000.00 3-22-84 828029 6,000.00 - P5,443.75 P490.35 P

TOTAL P 289,600.00[20] 6-04-84 862947 21,000.00 10,409.95 9,460.25 645 .22 2

11-15-84 230123 3,000.00 - 1,665.66 1,018.71
8-28-89 3617235
315.63 33,000.00
- - 12,880.57 14,122.69 5

2-08-85 365914 6,000.00 - 4,837.37 804.84 357.79 P289,600.00

- P56,238.50 P88,136.37 P106,853.47 P

3-11-85 1545272 6,000.00 - 5,006.03 891.28 102.69

Hence, as of June - above their payments in the total amount
30, 1989, over and
of P289,600.00, respondent spouses still owed DBP the amount of
4-08-85 1549510 6,000.00 - 5,103.08 P225,855.86.[23]
697.54 By August 15, 1990,
199.38 - this amount ballooned to P260,945.85,
broken down as follows:[24]

5-03-85 1549641 6,000.00 - 5,324.97 524.97 150.06 -

Amount of Loan P 207,000.00

7-09-85 1714171 11,400.00 4,428.85 5,514.20 1,133.31 323.94

UNMATURED OBLIGATION -

11-29-85 1893683 11,000.00 - 6,352.80 Principal Matured

3,757.49 (8-8-89)
889.91 -

MATURED OBLIGATION
7-03-86 2257661 10,000.00 - - 7,693.45 2,306.55 -

Principal P 150,761.50
9-03-86 2349229 15,000.00 - 9,640.76 4,519.05 840.19 -
Advances 0.00
11-04-6 2529065 16,000.00 - 11,120.74 3,813.72 1,065.54 -
Regular Interest 57,113.73
8-18-87 2830513 21,000.00 - - 5,664.24 5,335.76 -
AI on PPD & RI 37,086.71
10-13-88 3342166 10,000.00 - - - 10,000.00 -
RI on Advances 0.00

12-09-88 3367039 10,000.00 - - 4,937.64

Penalty Charge5,062.36
15,983.91 -
----------------
1-10-89 3367193 10,000.00 - - 8,766.53 1,233.47 -
Sub Total 260,945.85
2-10-89 3367500 10,000.00 - - 8,805.08 1,194.92 -
TOTAL OBLIGATION 260,945.85
======
3-10-89 3461778 18,000.00 - - 16,920.72 1,079.28 -
Daily Interest on UP P 0.00
4-10-89 3532008 18,800.00 - 5,786.19 11,646.64 1,367.17 -
Daily Interest on PDO P 150.97
 The Court of Appeals ruled:
It is to be noted that appellant did not question the tender of payment by the
appellees-vendees in different amounts and on different dates as aforestated.
It did not call attention to the amortizations paid by vendees as being wrong
or improper. Appellant in fact unqualifiedly accepted the payments. This is
tantamount to a waiver on its part to demand for the correct amount of the
amortization, applying the ruling of the Supreme Court in Ocampo vs. Court of
Appeals (233 SCRA 551) that the vendors unqualified acceptance of
payments after the expiration of the period precludes the vendor from raising
the issue of late payments and constitutes a waiver of the period.
It was only after the appellees asked the appellant to execute the final Deed
of Sale that the bank started to demand for payment under its interpretation of
the Deed of Conditional Sale threatening rescission thereof, otherwise. As the
unqualified acceptance of the payments constituted a waiver of the
correctness of the amortizations, the same likewise constituted a waiver of the
ground to rescind under Art. 1592 of the Civil Code (Ocampo vs. CA, supra).
On the remaining monetary obligation of plaintiffs, we quote with favor and
hereby adopt the following computation of the trial court:
However, considering the terms of the Deed of Conditional Sale that plaintiffs
must pay 18% per annum for the balance of P165,600.00, that amount of
interest is the only amount due from plaintiffs covering a period of six years,
or a total of P178,200.00. As plaintiffs had paid already a total of P289,600.00,
the amount of P165,000.00 must be deducted therefrom which results to an
overpayment of P124,000.00 on the principal. With this amount of
P124,000.00 all what plaintiffs must pay will only be the amount of
P54,200.00 as interest due on the principal amount of P165,000.00.[25]
The reliance on Ocampo v. Court of Appeals[26] is misplaced insofar as
respondent court used the ruling in said case to justify its position that
petitioner waived the correct amount of amortization to be paid by private
respondents. The case of Ocampo did not involve interests to be paid by the
buyer to the seller in case of late payments. That case involved a judicial
rescission made by the seller because of the first buyers late payments. In that
case, the seller executed a contract of sale in favor of the first buyer, stipulating
therein that payments should be made in six months.
The buyer failed to pay the consideration in full within the period agreed
upon. However, the seller accepted a partial payment of the balance even if
made after the expiration of the period. The buyer had her adverse claim
annotated on the title of the seller. Later, the seller sold the land to a second
buyer who was able to secure a title in his name. This Court ruled in that case
that the seller was precluded from raising the issue of late payments because
his unqualified acceptance of payments after the expiration of the six-month
period was a waiver of the period.
The Court did not rule in that case that acceptance of late payments was
a waiver on the correct amount of amortization due to the seller. No mention
in fact was made by the Court in Ocampo of the interests to be paid by the
buyer.
On the other hand, in this case, the interest and penalty charges to be
paid by private respondents in case of delay in payments were expressly
stipulated in the Conditional Contract of Sale. Under the Civil Code, parties to
a contract can make stipulations therein provided they are not contrary to law,
morals, good customs, public order or public policy.[27] There being no
question as to the validity of the Conditional Contract of Sale, the DBP
correctly applied the provision on interests and penalty
charges when private respondents failed to pay on the dates agreed
upon. No further notice to private respondents had to be given to them.
The Court of Appeals likewise erred in disregarding paragraph 8 of the
contract on interests and penalty charges and concluding that the unpaid
balance of private respondents was merely in the amount of P54,200.00. In
determining the amount of P54,200.00, both the trial court and respondent
Court of Appeals erroneously took into account only the 18% annual interest
on the remaining balance of P165,000.00:
In computing the liability of private respondents, the trial court
determined what constitutes 18% of the principal amount of P165,600.00 and
then multiplied such amount by six, the number of years the loan is to be paid,
the product of which was P178,200.00. From the payments made by private
respondents in the amount of P289,600.00, the remaining balance of
P165,600.00 was deducted, which resulted in the overpayment of P124,000.
This supposed overpayment of P124,000.00 was then deducted from the
amount of interest, as determined by the trial court, which is P178,200.00,
resulting in the difference of P54,200.00.
This final amount of P54,200.00, decided by the trial court and affirmed
by the Court of Appeals, was the final remaining balance of private
respondents. However, the computation is erroneous. Following the method
adopted by the trial court, the product of 18% of the principal amount of
P165,600.00 (P29,808.00) multiplied by six is P178,848.00. Hence, from the
amount of P178,848.00 must be subtracted the supposed overpayment of
P124,000.00, resulting in the difference of P54,848.00.[28]
Article 1374 of the Civil Code provides that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. In the same vein, Rule
130, 11 of the Rules on Evidence states that In the construction of an
instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all. Accordingly,
the annual interest of 18% must be construed together with paragraph 8 of the
Deed of Conditional Sale imposing additional interests and penalty in case of
arrears in making payments.
Hence, upon failure of private respondents to pay their amortizations on
the prescribed dates, they incurred interests and penalty charges at the
stipulated rates. Private respondents cannot be allowed to renege on their
obligation on the ground that what they had paid was in excess of the principal
obligation in the amount of P207,000.00. Nor can private respondents demand
fulfillment of petitioners obligation to execute a final deed of sale and deliver
the title to the land in their favor when they have not yet fully paid their principal
obligation with the accrued interests thereto.
[N]either the law nor the courts will extricate a party from an unwise or
undesirable contract he or she entered into with all the required formalities and
with full awareness of its consequences.[29]
Be that as it may, we find the interests to be excessive. It is noteworthy
that the interests paid by private respondents, which amounted to
P233,361.50,[30] including therein the regular interest, additional interest,
penalty charges, and interest on advances, is more than the principal
obligation in the amount of P207,000.00, which private respondents owed.
Moreover, the additional interest of 18% alone amounted to P106,853.45,[31]
which is almost half of what was already paid by private respondents.
Article 1229 of the Civil Code states that Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous
or unconscionable. In Barons Marketing Corp. v. Court of Appeals,[32] the
Court reduced the 25% penalty charge to cover the attorneys fees and
collection fees, which was in addition to the 12% annual interest, to 10% for
being manifestly exorbitant. Likewise, in Palmares v. Court of Appeals,[33] the
Court eliminated altogether the payment of the penalty charge of 3% per
month for being excessive and unwarranted under the circumstances.
It ruled in that case:
Upon the matter of penalty interest, we agree with the Court of Appeals that
the economic impact of the penalty interest of three percent (3%) per month
on total amount due but unpaid should be equitably reduced. The purpose for
which the penalty interest is intended - that is, to punish the obligor - will have
been sufficiently served by the effects of compounded interest. Under the
exceptional circumstances in the case at bar, e.g., the original amount loaned
was only P15,000.00; partial payment of P8,600.00 was made on due date;
and the heavy (albeit still lawful) regular compensatory interest, the penalty
interest stipulated in the parties promissory note is iniquitous and
unconscionable and may be equitably reduced further by eliminating such
penalty interest altogether.[34]
In the instant case, private respondents made regular payments to
petitioner DBP in compliance with their principal obligation. They failed only to
pay on the dates stipulated in the contract. This indicates the absence of bad
faith on the part of private respondents and their willingness to comply with the
terms of the contract. Moreover, of their principal obligation in the amount of
P207,000.00, private respondents have already paid P289,600.00 in favor of
petitioner. These circumstances convince us of the necessity to equitably
reduce the interest due to petitioner and we do so by reducing to 10% the
additional interest of 18% per annum computed on total amortizations past
due.
The penalty charge of 8% per annum is sufficient to cover whatever else
damages petitioner may have incurred due to private respondents delay in
paying the amortizations, such as attorneys fees and litigation expenses.
Second. Petitioner contends that private respondents have not
established a clear legal right so as to be entitled to an injunction because they
are still liable to pay additional interests in accordance with the contract
executed between them.[35] The contention has no merit.
In its order, dated March 8, 1990, the trial court issued a writ of
preliminary injunction to prevent petitioner from rescinding the contract with
private respondents and selling the land to other interested persons. The trial
court stated:
After studying the respective positions of both parties, the Court believes that
plaintiffs are entitled to the writ of preliminary injunction prayed for under
Section 3 Rule 58 of the Revised Rules of Court. This is because the Court
wants to thresh out the issue of whether or not the Deed of Conditional Sale
which plaintiffs contend is embodied in a contract of adhesion was really made
for the disadvantage, damage and prejudice of plaintiffs; the issue of whether
or not despite the payment of P289,6000.00 by plaintiffs over and above the
stipulated consideration for the lot in the amount of P207,000.00, still entitles
DBP to rescind the said Deed of Conditional Sale and sell it to other persons.
These two issues and other issues which it believes will come up as the case
proceeds, need be resolved first, before DBP is allowed to proceed with its
intended rescission of the Contract and sale of the lot to other persons,
otherwise, in the event plaintiffs contention stand would be found meritorious
and tenable, the judgment in their favor would become moot and academic
which would ultimately cause irreparable damage to them.
WHEREFORE, in view of the foregoing, let the Writ of Preliminary Injunction
prayed for issue, provided plaintiffs post an injunction bond in the amount of
P200,000.00 conditional that it shall be liable together with the principals,
spouses Nilo Dela Pea and Esperanza Dela Pea, to defendant, in the event it
shall be found out that plaintiffs are not entitled to the writ of preliminary
injunction prayed for.[36]
In its decision, dated March 30, 1993, the trial court declared permanent
the writ of preliminary injunction issued in favor of private respondents.[37] Its
ruling was subsequently affirmed by the Court of Appeals.[38]
Two requisites are necessary if a preliminary injunction is to issue,
namely: (1) the existence of a right to be protected and (2) the facts against
which the injunction is to be directed are violative of said right.[39]
As to the question whether private respondents have a right to be
protected, we hold that they do. Injunction may be resorted to for the
preservation or protection of the rights of the complainant and for no other
purpose during the pendency of the principal action.[40] In the case at bar,
private respondents applied for an injunction in order to prevent petitioner DBP
from rescinding the sale and selling the land to other interested buyers. They
are entitled to such writ because petitioner DBP had no right to rescind the
sale and deprive them of any right of possession over the property.
In the first place, there was no substantial breach in the performance of
private respondents obligation. Article 1191 of the Civil Code provides that The
power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him. The injured party
may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible. . . .
Rescission of a contract will not be permitted for a slight or casual breach, but
only such substantial and fundamental breach as would defeat the very object
of the parties in making the agreement.[41]
Private respondents made regular payments to petitioner DBP. Their
fault consisted only of their failure to pay the installments on the dates
stipulated in the contract, for which they were charged additional interests and
penalty charges. In the second place, private respondents stopped their
payments to the DBP only after they had paid P289,600.00 because of their
belief that they had already complied with their obligation to petitioner. Lastly,
notwithstanding private respondents delay in paying the amortizations,
petitioner DBP unqualifiedly accepted the payments made by them.
Hence, petitioner lost its right to rescind the sale on the basis of such late
payments. In an analogous case, we held:
In the instant case, the sellers gave the buyers until May 1979 to pay the
balance of the purchase price. After the latter failed to pay installments due,
the former made no judicial demand for rescission of the contract nor did they
execute any notarial act demanding the same, as required under Article 1592.
Consequently, the buyers could lawfully make payments even after the May
1979 deadline, as in fact they paid several installments, an act which cannot
but be construed as a waiver of the right to rescind.
When the sellers, instead of availing of their right to rescind, accepted and
received delayed payments of installments beyond the period stipulated, and
the buyers were in arrears, the sellers in effect waived and are now estopped
from exercising said right to rescind.[42]
Private respondents, therefore, had the right to prevent the former from
rescinding the sale and selling the property in question. The first requisite had
been met.
As to the second requisite, it was expressly stipulated in the contract that
should rescission take place, private respondents, as the vendees, shall waive
whatever right they may have acquired over the property and that all sums of
money paid by them shall be considered and treated as rentals for the use of
the property. In addition, private respondents shall vacate the property,
waiving whatever expenses they may have incurred in the property in the form
of improvement or under any concept, without any right of reimbursement.[43]
Clearly, the act sought to be enjoined by the injunction was violative of
the rights that private respondents have acquired over the property. What they
stood to lose in case petitioner decides to rescind the sale is material and
substantial. Not only would they forfeit all the payments they have made in
favor of petitioner, they would also lose their right of possession over the
property.
There was indeed an urgent and permanent necessity for the issuance
of the writ to protect private respondents rights over the property.
As held in one case:[44]
The controlling reason for the existence of the judicial power to issue the writ
is that the court may thereby prevent a threatened or continuous irremediable
injury to some of the parties before their claims can be thoroughly investigated
and advisedly adjudicated. It is to be resorted only when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under
any standard of compensation.
Had no injunction been issued petitioner would have rescinded the sale
and sold the property to other parties, and private respondents would have
lost what they have paid to petitioner and any right they may have acquired
over the property even without the benefit of a trial. The complaint of
respondent spouses would have been rendered moot and academic as the
property would be in possession of an innocent purchaser for value and private
respondents would be powerless to recover the same. Such a situation cannot
be countenanced.
Hence, we hold that both the trial court and the Court of Appeals correctly
issued the writ of preliminary injunction against petitioner.
WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that the additional interest is reduced to
10% per annum computed on total amortizations past due, irrespective of age.
SO ORDERED.
SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR
DEVELOPMENT CORPORATION, respondent.
DECISION
PUNO, J.:
This petition for review seeks to reverse and set aside the Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 51363[1] which
reversed the Decision of the Regional Trial Court, Makati, Branch 138 in Civil
Case No. 17702.[2]
The following facts are uncontroverted.
In 1978, petitioner spouses Florante and Laarni Bautista purchased a
house and lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the
purchase, they obtained from the Apex Mortgage & Loan Corporation (Apex)
a loan in the amount of P100,180.00. They executed a promissory note on
December 22, 1978 obligating themselves, jointly and severally, to pay the
"principal sum of P100,180.00 with interest rate of 12% and service charge of
3%" for a period of 240 months, or twenty years, from date, in monthly
installments of P1,378.83.[3]
Late payments were to be charged a penalty of one and one-half per
cent (1 1/2%) of the amount due. In the same promissory note, petitioners
authorized Apex to "increase the rate of interest and/or service charges"
without notice to them in the event that a law, Presidential Decree or any
Central Bank regulation should be enacted increasing the lawful rate of
interest and service charges on the loan.[4] Payment of the promissory note
was secured by a second mortgage on the house and lot purchased by
petitioners.[5]
Petitioner spouses failed to pay several installments. On September 20,
1982, they executed another promissory note in favor of Apex. This note was
in the amount of P142,326.43 at the increased interest rate of twenty-one per
cent (21%) per annum with no provision for service charge but with penalty
charge of 1 1/2% for late payments. Payment was to be made for a period of
196 months or 16.33 years in monthly installments of P2,576.68, inclusive of
principal and interest. Petitioner spouses also authorized Apex to
"increase/decrease the rate of interest and/or service charges" on the note in
the event any law or Central Bank regulation shall be passed increasing or
decreasing the same.[6]
In November 1983, petitioner spouses again failed to pay the
installments. On June 6, 1984, Apex assigned the second promissory note to
respondent Pilar Development Corporation without notice to petitioners.
On August 31, 1987, respondent corporation, as successor-in-interest of
Apex, instituted against petitioner spouses Civil Case No. 17702 before the
Regional Trial Court, Makati, Branch 138. Respondent corporation sought to
collect from petitioners the amount of P140,515.11 representing the unpaid
balance of the principal debt from November 23, 1983, including interest at the
rate of twenty-one per cent (21%) under the second promissory note, and 25%
and 36% per annum in accordance with Central Bank Circular No. 905, series
of 1982.
No pronouncement as to costs.
SO ORDERED."[9]
Both parties appealed to the Court of Appeals. In a Decision dated May
14, 1998, the appellate court reversed the trial court by applying the interest
rate of 21% per annum, and adding attorney's fees of 10%. Thus:
"IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby
REVERSED and SET ASIDE and a new one entered ordering the defendants
to pay the plaintiffs the amount of P142,326.43, as principal with interest at
the rate of 21% from November 23, 1983 until the amount is fully paid; the sum
equivalent to 10% of the amount due as attorney's fees and the costs of this
suit.

Respondent also sought payment of ten per cent (10%) of the amount SO ORDERED." [10]
due as attorney's fees.[7]

In their answer, petitioner spouses mainly contended that the terms of Petitioner spouses moved for reconsideration. In a Resolution dated
the second promissory note increasing the interest rate to 21% and the August 18, 1998, the Court of Appeals denied the motion but reduced the
escalation clauses authorizing Apex to increase interest rates pursuant to any principal amount of the obligation from P142,326.42 to P140,515.11.[11]
law or Central Bank regulation are null and void in the absence of a de-
Hence this recourse.
escalation clause in the same note.[8]
Petitioner spouses claim that the Court of Appeals erred:
After pre-trial, both parties submitted the case for decision on the sole
issue of the interest rate. I
The trial court rendered judgment on September 22, 1995. It ordered
IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE
petitioner spouses to pay respondent corporation the sum of P140,515.11,
PARTIES ARE INDEPENDENT OF EACH OTHER.
with interest at the rate of 12% per annum, plus service charge, viz:
CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES
"WHEREFORE, judgment is hereby rendered as follows:
CONSTITUTE A SINGLE-LOAN TRANSACTION.
(a) Plaintiff is entitled to collect from the defendants the amount of
II
P140,515.11 with interest at the rate of 12% per annum from November 23,
1983 until the amount is fully paid plus the stipulated service charge;
IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER
ANNUM AS STIPULATED IN THE SECOND PROMISSORY NOTE.
(b) Ordering defendants as joint and several obligors to pay plaintiff the
amount stated in paragraph (a) hereof;
CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST
RATE FROM 12% PER ANNUM (1ST PROMISSORY NOTE) TO 21% PER
(c) Counterclaim is hereby dismissed.
ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL.
III
IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS
ATTORNEY'S FEES.
CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S
FEES IS NOT PROPER UNDER THE CIRCUMSTANCES.
IV
IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS
AND UNSUSTAINABLE."
CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS
REQUIRED WHEN CREDIT IS ASSIGNED.
V an obligation is extinguished and a new one is created in lieu thereof.[19]
IN NOT RULING THAT UNDER THE CIRCUMSTANCES PETITIONERS
ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES.[12]
The controversy in this petition involves the rate of interest respondent
creditor is entitled to collect on petitioners' loan: whether it be 12% under the
promissory note of December 22, 1978, or 21% under the promissory note of
September 20, 1982.
Petitioners claim that the interest rate of 12% per annum should be
adjudged inasmuch as the two promissory notes constitute one transaction.
Allegedly, the first note defined the terms and conditions of the loan while the
second note is merely an extension of and derives its existence from the
former. Hence, the second note is governed by the stipulations in the first
note.[13]
The two promissory notes are identically entitled "Promissory Note with
Authority to Assign Credit." The notes were prepared by Apex in standard form
and consist of two (2) pages each.Except for one or two stipulations, they
contain the same provisions and the same blanks for the amount of the loan
and other pertinent data subject of each note. However, on the upper right
portion of the second note, there appears a typewritten entry which reads:
"This cancels PN # A-387-78 dated December 22, 1978."[14]
Correspondingly, on the face of each page of the first promissory note, i.e.,
PN No. A-387-78 dated December 22, 1978, the word "Cancelled" is boldly
stamped twice with the date "September 16, 1982" and a signature written in
a space inside the letters of the word.[15]
The first promissory note was cancelled by the express terms of the
second promissory note. To cancel is to strike out, to revoke, rescind or
abandon, to terminate.[16] In fine, the first note was revoked and terminated.
Simply put, it was novated. The extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first is a novation.[17] Novation is made either by
changing the object or principal conditions, referred to as an objective or real
novation; or by substituting the person of the debtor or subrogating a third
person to the rights of the creditor, which is known as subjective or personal
novation.[18]
In both objective and subjective novation, a dual purpose is achieved--
Novation may either be express, when the new obligation declares in
unequivocal terms that the old obligation is extinguished; or implied, when the
new obligation is on every point incompatible with the old one.[20] Express
novation takes place when the contracting parties expressly disclose that their
object in making the new contract is to extinguish the old contract, otherwise
the old contract remains in force and the new contract is merely added to it,
and each gives rise to an obligation still in force.[21]
Novation has four (4) essential requisites: (1) the existence of a previous
valid obligation; (2) the agreement of all parties to the new contract; (3) the
extinguishment of the old contract; and (4) the validity of the new one.[22] In
the instant case, all four requisites have been complied with. The first
promissory note was a valid and subsisting contract when petitioner spouses
and Apex executed the second promissory note. The second promissory note
absorbed the unpaid principal and interest of P142,326.43 in the first note
which amount became the principal debt therein, payable at a higher interest
rate of 21% per annum.
Thus, the terms of the second promissory note provided for a higher
principal, a higher interest rate, and a higher monthly amortization, all to be
paid within a shorter period of 16.33 years. These changes are substantial and
constitute the principal conditions of the obligation.[23] Both parties voluntarily
accepted the terms of the second note; and also in the same note, they
unequivocally stipulated to extinguish the first note. Clearly, there was animus
novandi, an express intention to novate.[24]
 The first promissory note was cancelled and replaced by the second
note. This second note became the new contract governing the parties'
obligations.
In their second assigned error, petitioners contend that in the second
promissory note, the escalation of the interest rate from 12% to 21% per
annum is unlawful and cannot be imposed for failure of the escalation
provisions to include valid de-escalation clauses. In the absence of de-
escalation clauses, the Court of Appeals allegedly erred in applying Central
Bank Circulars Nos. 705, 712 and 905 issued by the Monetary Board of the
Central Bank of the Philippines.[25]
At the time the parties executed the first promissory note in 1978, the
interest of 12% was the maximum rate fixed by the Usury Law for loans
secured by a mortgage upon registered real estate.[26] On December 1, 1979,
the Monetary Board of the Central Bank of the Philippines[27] issued Circular
No. 705 which fixed the effective rate of interest on loan transactions with
maturities of more than 730 days to twenty-one per cent (21%) per annum for
both secured and unsecured loans.[28] On January 28, 1980, The Monetary
Board issued Circular No. 712 reiterating the effective interest rate of 21% on
said loan transactions.[29]
On January 1, 1983, CB Circular No. 905, series of 1982, took effect.
This Circular declared that the rate of interest on any loan or forbearance of
any money, goods or credits, regardless of maturity and whether secured or
unsecured, "shall not be subject to any ceiling prescribed under or pursuant to
the Usury Law, as amended."[30] In short, Circular No. 905 removed the
ceiling on interest rates for secured and unsecured loans, regardless of
maturity.[31]
When the second promissory note was executed on September 20,
1982, Central Bank Circulars Nos. 705 and 712 were already in effect. These
Circulars fixed the effective interest rate for secured loan transactions with
maturities of more than 730 days, i.e, two (2) years, at 21% per annum. The
interest rate of 21% provided in the second promissory note was therefore
authorized under these Circulars.
The question of whether the escalation clauses in the second promissory
note are valid is irrelevant. Respondent corporation has signified that it is
collecting petitioners' debt only at the fixed interest rate of 21% per annum, as
expressly agreed upon in the second promissory note, not at the escalated
rates authorized under the escalation clauses.[32] The Court of Appeals
therefore did not err in applying the interest rate of 21% to petitioner's loan
under the second promissory note.
Neither did the Court of Appeals err in imposing attorney's fees of ten
per cent (10%) on the amount due. The award of attorney's fees is expressly
stipulated in the fourth paragraph of the promissory note itself, viz:
"In case of non-payment of the amount of this note or any portion of it on
demand when given due, or any other amount/s due on account of this note,
the entire obligation shall become due and demandable, and if for the
enforcement of the payment thereof, APEX MORTGAGE AND LOANS CORP.
is constrained to entrust the case to its attorneys, I/We, jointly and severally,
bind myself/ourselves to pay TEN (10%) per cent on the amount due on the
note as attorney's fees, such amount in no case to be less than FIVE
HUNDRED (P500.00) PESOS in addition to the legal fees and other incidental
expenses."[33]
Petitioners' lack of bad faith in resisting imposition of the increased interest
rate cannot serve to mitigate their liability for liquidated damages. Petitioner
Florante Bautista is a lawyer and he should have been aware of the effects of
the stipulations in the second promissory note and the pertinent CB Circulars
on his obligation. At the same time, there is no showing that the amount of
liquidated damages is iniquitous and unconscionable for this court to equitably
reduce the same.[34]
Finally, the fact that petitioners were not notified of the assignment of
their credit by Apex to herein respondent corporation is not material. In the
eighth paragraph of the second promissory note, petitioners expressly waived
notice to any assignment of credit, viz:
"It is understood that APEX MORTGAGE AND LOANS CORPORATION has
the right to assign this promissory note, or make use of it as collateral in favor
of any third person whomsoever and this will constitute as an authority
therefore waiver of notice of such action taken [sic]."[35]
The purpose of the notice is only to inform the debtor that from the date of the
assignment, payment should be made to the assignee and not to the original
creditor.[36]
IN VIEW WHEREOF, the petition is denied and the Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 51363 are affirmed.
SO ORDERED.
THIRD DIVISION
LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO,
petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R.
GONZALES and DANILO G. GONZALES, JR., doing lending
business under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under
Rule 45 of the Revised Rules of Court, seeking to set aside the decision of the
Court of Appeals,[1] and its resolution denying reconsideration,[2] the
dispositive portion of which decision reads as follows:
"WHEREFORE, the appealed judgment is
hereby MODIFIED such that defendants are hereby
ordered to pay the plaintiff: the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the
total amount due and demandable as penalty charges
effective August 23, 1986, until the entire amount is fully
paid.
"The award to the plaintiff of P50,000.00 as
attorney's fees is affirmed. And so is the imposition of
costs against the defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition,[4] which
was filed on April 3, 1998,[5] and the petitioners to reply thereto, which was
filed on May 29, 1998.[6] We now resolve to give due course to the petition
and decide the case.
The facts of the case, as found by the Court of Appeals in its decision,
which are considered binding and conclusive on the parties herein, as the
appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter
Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter
Veronica), who was engaged in the money lending business under the name
"Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two
months. Veronica gave only the amount of P47,000.00, to the borrowers, as
she retained P3,000.00, as advance interest for one month at 6% per month.
Servado and Leticia executed a promissory note for P50,000.00, to evidence
the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica
another loan in the amount of P90,000.00, payable in two months, at 6%
interest per month. They executed a promissory note to evidence the loan,
maturing on January 19, 1986. They received only P84,000.00, out of the
proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still
another loan in the amount of P300,000.00, maturing in one month, secured
by a real estate mortgage over a property belonging to Leticia Makalintal
Yaptinchay, who issued a special power of attorney in favor of Leticia Medel,
authorizing her to execute the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum of P300,000.00, after a
month, or on July 11, 1986. However, only the sum of P275,000.00, was given
to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan
on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr.
Rafael Medel, consolidated all their previous unpaid loans totaling
P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on
August 23, 1986. The executed a promissory note, reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to
pay to the order of VERONICA R. GONZALES doing business in
the business style of GONZALES CREDIT ENTERPRISES,
Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag
Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND
..... (P500,000.00) Philippine Currency with interest thereon at the
rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the
amortization schedule contained herein.
(Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when
due, all the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay an
additional amount equivalent to one per cent (1%) per month of the
amount due and demandable as penalty charges in the form of
liquidated damages until fully paid; and the further sum of TWENTY
FIVE PER CENT (25%) thereon in full, without deductions as
Attorney's Fee whether actually incurred or not, of the total amount
due and demandable, exclusive of costs and judicial or extra
judicial expenses.
(Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on
loan is increased by law or the Central Bank of the Philippines, the
holder shall have the option to apply and collect the increased
interest charges without notice although the original interest have
already been collected wholly or partially unless the contrary is
required by law.
"It is also a special condition of this contract that the parties herein
agree that the amount of peso-obligation under this agreement is
based on the present value of peso, and if there be any change in
the value thereof, due to extraordinary inflation or deflation, or any
other cause or reason, then the peso-obligation herein contracted
shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this
note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of
it, the debtors waive all his/their rights under the provisions of
Section 12, Rule 39, of the Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband
Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16,
at Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990,
defendant Servando alleged that he did not obtain any loan from the plaintiffs;
that it was defendants Leticia and Dr. Rafael Medel who borrowed from the
plaintiffs the sum of P500,000.00, and actually received the amount and
benefited therefrom; that the loan was secured by a real estate mortgage
executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and
Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay,
who executed a mortgage in favor of the plaintiffs over a parcel of real estate
situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per
month with additional service charge of 2% per annum, and penalty charge of
1% per month; that the stipulation for attorney's fees of 25% ofthe amount due
is unconscionable, illegal and excessive, and that substantial
payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and
genuineness of the four promissory notes had been duly proved, and ruled
that although the Usury Law had been repealed, the interest charged by the
plaintiffs on the loans was unconscionable and "revolting to the conscience".
Hence, the trial court applied "the provision of the New [Civil] Code" that the
"legal rate of interest for loan or forbearance of money, goods or credit is 12%
per annum."[7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the
dispositive portion of which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as
follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per
annum from November 7, 1985 and 1% per month as penalty, until the entire
amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest per
annum and 1% per cent per month as penalty from November 19,1985 until
the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month as
penalty from July 11, 1986, until the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."[8]
In due time, both plaintiffs and defendants appealed to the Court of
Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note,
which consolidated all the unpaid loans of the defendants, is the law that
governs the parties. They further argued that Circular No. 416 of the Central
Bank prescribing the rate of interest for loans or forbearance of money, goods
or credit at 12% per annum, applies only in the absence of a stipulation on
interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It
ruled that "the Usury Law having become 'legally inexistent' with the
promulgation by the Central Bank in 1982 of Circular No. 905, the lender and
borrower could agree on any interest that may be charged on the loan".[9] The
Court of Appeals further held that "the imposition of 'an additional amount
equivalent to 1% per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid' was allowed by
law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it
decision reversing that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby
MODIFIED such that defendants are hereby ordered to
pay the plaintiffs the sum of P500,000.00, plus 5.5% per
month interest and 2% service charge per annum
effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges
effective August 24, 1986, until the entire amount is fully
paid.
"The award to the plaintiffs of P50,000.00 as
attorney's fees is affirmed. And so is the imposition of
costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for
reconsideration of the said decision. By resolution dated November 25, 1997,
the Court of Appeals denied the motion.[12]
Hence, defendants interposed the present recourse via petition for
review on certiorari.[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated
upon. Thus, the question presented is whether or not the stipulated rate of
interest at 5.5% per month on the loan in the sum of P500,000.00, that
plaintiffs extended to the defendants is usurious. In other words, is the Usury
Law still effective, or has it been repealed by Central Bank Circular No. 905,
adopted on December 22, 1982, pursuant to its powers under P.D. No. 116,
as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per
month on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant.13 However, we can not consider the rate "usurious" because this
Court has consistently held that Circulr No. 905 of the Central Bank, adopted
on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law[14] and that the Usury Law is now "legally
inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61[16] the Court held that CB Circular No. 905 "did not repeal nor in
anyway amend the Usury Law but simply suspended the latter's effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law."[17] In the recent case of Florendo vs. Court of
Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905,
the Usury Law has been rendered ineffective".
"Usury has been legally non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law.[20] The stipulation is void.[21] The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a penalty
if they are iniquitous or unconscionable.[22]
Consequently, the Court of Appeals erred in upholding the stipulation of
the parties. Rather, we agree with the trial court that, under the circumstances,
interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision
of the Court of Appeals promulgated on March 21, 1997, and its resolution
dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court
of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concur.
SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL
TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and
LEILA VENTURA, respondents.
DECISION
HERMOSISIMA, JR., J.:
Questions of law which are the first impression are sought to be resolved
in this case: Should the rate of interest on a loan or forbearance of money,
goods or credits, as stipulated in a contract, far in excess of the ceiling
prescribed under or pursuant to the Usury Law, prevail over Section 2 of
Central Bank Circular No. 905 which prescribes that the rate of interest thereof
shall continue to be 12% per annum? Do the Courts have the discretion to
arbitrarily override stipulated interest rates of promissory notes and stipulated
interest rates of promissory notes and thereby impose a 12% interest on the
loans, in the absence of evidence justifying the impositions of a higher rate?
This is a petition for review on certiorari for the purpose of assailing the
decision of Honorable Judge Fernando V. Gorospe of the Regional Trial Court
of Makati, Branch 61, dated March 30, 1993, which found private respondent
Eusebio liable to petitioner for a sum of money. Interest was lowered by the
court a quo from 23% per annum as agreed upon by the parties to 12% per
annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed
Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and
Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos
(P100,000.00) payable in six monthly installments with a stipulated interest of
23% per annum up to the fifth installments.[1]
On July 28, 1983, respondent Eusebio again executed Promissory note
No TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to
pay the sum of One Hundred Thousand Pesos (P100.000.00) in six (6)
monthly installments plus 23% interest per annum.[2]
Finally, another Promissory Note No. TL74/1491/83 was executed on
August 31, 1983 in the amount of Sixty Five Thousand Pesos (P65,000.00).
Respondent agreed to pay this note in six (6) monthly installments plus interest
at the rate of 23% per annum.[3]
 On all the abovementioned notes, private respondents Leila Ventura had
signed as co-maker.[4]
Upon maturity which fell on the different dates below, the principal
balance remaining on the notes stood at:
1) PN No. TL/74/748/83 P16,665.00 as of September 1983.
2) PN No. TL/74/1296/83 P83,333.00 as of August 1983
3) PN No. TL/74/1991/83 P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the
aforestated balance payable, a collectible case was filed in court by petitioner
SBTC.[5] On March 30, 1993, the court a quo rendered a judgment in favor of
petitioner SBTC, the dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiffs claim having been
duly proven, judgment is hereby rendered in favor of plaintiff and as against
defendant Eusebio who is hereby ordered to:
1. Pay the sum of P16,665.00, plus interest of 12% per annum starting 27
September 1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28
August 1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31
August 1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to
plaintiff as and by way of attorneys fees; and to
5. Pay the cost of this suit.
SO ORDERED.[6]
On August 6, 1993, a motion for partial reconsideration was filed by
petitioner SBTC contending that:
(1) the interest rate agreed upon by the parties during the signing
of the promissory notes was 23% per annum;
(2) the interests awarded should be compounded quarterly from
due date as provided in three (3) promissory notes;
(3) defendant Leila Ventura should likewise be held liable to pay
the balance on the promissory notes since she has signed as co-maker
and as such, is liable jointly and severally with defendant Eusebio without
a need for demand upon her.[7]
Consequently, an Order was issued by the court a quo denying the
motion to grant the rates of interest beyond 12% per annum; and holding
defendant Leila Ventura jointly and severally liable with co-defendant Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23% rate
of interest per annum agreed upon by petitioner bank and respondents is
allowable and not against the Usury Law.
We find merit in this petition.
From the examination of the records, it appears that indeed the agreed
rate of interest as stipulated on the three (3) promissory notes is 23% per
annum.[8] The applicable provision of law is the Central Bank Circular No. 905
which took effect on December 22, 1982, particularly Sections 1 and 2 which
state:[9]
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless
of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or judicial, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall continue to be twelve per cent (12%)
per annum.
CB Circular 905 was issued by the Central Banks Monetary Board
pursuant to P.D. 1684 empowering them to prescribe the maximum rates of
interest for loans and certain forbearances, to wit:
SECTION 1. Section 1-a of Act No. 2655, as amended, is hereby amended to
read as follows:
SEC. 1-a The Monetary Board is hereby authorized to prescribed the
maximum rate or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to change such rate or rates
whenever warranted by prevailing economic and social conditions: Provided,
That changes in such rates or rates may be effected gradually on scheduled
dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may
prescribed higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops, finance
companies and other similar credit institutions although the rates prescribed
for these institutions need not necessarily be uniform. The Monetary Board is
also authorized to prescribed different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.[10]
This court has ruled in the case of Philippine National Bank v. Court of
Appeals[11] that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of money, goods or credits. In
fine, they can agree to adjust, upward or downward, the interest previously
stipulated.
All the promissory notes were signed in 1983 and, therefore, were
already covered by CB Circular No. 905. Contrary to the claim of respondent
court, this circular did not repeal nor in anyway amend the Usury Law but
simply suspended the latters effectivity.
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the same
according to its clear language. As we have held in the case of Quijano v.
Development Bank of the Philippines:[12]
xxx We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being
called for only when such literal application is impossible. No process of
interpretation or construction need be resorted to where a provision of law
peremptorily calls for application. Where a requirement or condition is made
in explicit and unambiguous terms, no discretion is left to the judiciary.
It must see to it that its mandate is obeyed.
The rate of interest was agreed upon by the parties freely. Significantly,
respondent did not question that rate. It is not for respondent court a quo to
change the stipulations in the contract where it is not illegal. Furthermore,
Article 1306 of the New Civil code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy. We find no valid reason for the respondent court
a quo to impose a 12% rate of interest on the principal balance owing to
petitioner by respondent in the presence of a valid stipulation. In a loan or
forbearance of money, the interest due should be that stipulated in writing, and
in the absence thereof, the rate shall be 12% per annum.[13] Hence, only in
the absence of a stipulation can the court impose the 12% rate of interest.
The promissory notes were signed by both parties voluntarily. Therefore,
stipulations therein are binding between them. Respondent Eusebio, likewise,
did not question any of the stipulations therein. In fact, in the Comment file by
respondent Eusebio to this court, he chose not to question the decision and
instead expressed his desire to negotiate with the petitioner bank for terms
within which to settle his obligation.[14]
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo,
is hereby AFFIRMED with the MODIFICATION that the rate of interest that
should be imposed be 23% per annum.
SO ORDERED.