G.R. No. 113412 April 17, 1996
Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA,petitioner,vs.THE
COURT OF APPEALS and PHILIPPINE NATIONAL BANK,respondents.
KAPUNAN,J.:p
On various dates in 1981, the Philippine National Bank granted
to herein petitioners, the spouses Ponciano L. Almeda and Eufemia
P. Almeda several loan/credit accommodations totaling P18.0 Million
pesos payable in a period of six years at an interest rate of
21%per annum. To secure the loan, the spouses Almeda executed a
Real Estate Mortgage Contract covering a 3,500 square meter parcel
of land, together with the building erected thereon (the Marvin
Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit
agreement embodying the terms and conditions of the loan was
executed between the parties. Pertinent portions of the said
agreement are quoted below:
SPECIAL CONDITIONS
xxx xxx xxx
The loan shall be subject to interest at the rate of twenty one
per cent (21%)per annum, payable semi-annually in arrears, the
first interest payment to become due and payable six (6) months
from date of initial release of the loan. The loan shall likewise
be subject to the appropriate service charge and a penalty charge
of three per cent (30%)per annumto be imposed on any amount
remaining unpaid or not rendered when due.
xxx xxx xxx
III. OTHER CONDITIONS
(c) Interest and Charges
The Bank reserves the right to increase the interest ratewithin
the limits allowed by lawat any time depending on whatever policy
it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law
or by the Monetary Board. In either case, the adjustment in
theinterestrateagreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
1
1. Between 1981 and 1984, petitioners made several partial
payments on the loan totaling. P7,735,004.66,
2. a substantial portion of which was applied to accrued
interest.
3. On March 31, 1984, respondent bank, over petitioners'
protestations, raised the interest rate to 28%, allegedly pursuant
to Section III-c (1) of its credit agreement. Said interest rate
thereupon increased from an initial 21% to a high of 68% between
March of 1984 to September, 1986.
4. Petitioner protested the increase in interest rates, to no
avail. Before the loan was to mature in March, 1988, the spouses
filed on February 6, 1988 a petition for declaratory relief with
prayer for a writ of preliminary injunction and temporary
restraining order with the Regional Trial Court of Makati, docketed
as Civil Case No. 18872. In said petition, which was raffled to
Branch 134 presided by Judge Ignacio Capulong, the spouses sought
clarification as to whether or not the PNB could unilaterally raise
interest rates on the loan, pursuant to the credit agreement's
escalation clause, and in relation to Central Bank Circular No.
905. As a preliminary measure, the lower court, on March 3, 1988,
issued a writ of preliminary injunction enjoining the Philippine
National Bank from enforcing an interest rate above the 21%
stipulated in the credit agreement. By this time the spouses were
already in default of their loan obligations.
Invoking the Law on Mandatory Foreclosure (Act 3135, as amended
and P.D. 385), the PNB countered by ordering the extrajudicial
foreclosure of petitioner's mortgaged properties and scheduled an
auction sale for March 14, 1989. Upon motion by petitioners,
however, the lower court, on April 5, 1989, granted a supplemental
writ of preliminary injunction, staying the public auction of the
mortgaged property.
On January 15, 1990, upon the posting of a counterbond by the
PNB, the trial court dissolved the supplemental writ of preliminary
injunction. Petitioners filed a motion for reconsideration. In the
interim, respondent bank once more set a new date for the
foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to
the scheduled date, however, petitioners tendered to respondent
bank the amount of P40,142,518.00, consisting of the principal
(P18,000,000.00) and accrued interest calculated at the originally
stipulated rate of 21%. The PNB refused to accept the payment.
5. As a result of PNB's refusal of the tender of payment,
petitioners, on March 8, 1990, formally consigned the amount of
P40,142,518.00 with the Regional Trial Court in Civil Case No.
90-663. They prayed therein for a writ of preliminary injunction
with a temporary restraining order. The case was raffled to Branch
147, presided by Judge Teofilo Guadiz. On March 15, 1990,
respondent bank sought the dismissal of the case.
On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued
an order granting the writ of preliminary injunction enjoining the
foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990. On
April 17, 1990 respondent bank filed a motion for reconsideration
of the said order.
On August 16, 1991, Civil Case No. 90-663 we transferred to
Branch 66 presided by Judge Eriberto Rosario who issued an order
consolidating said case with Civil Case 18871 presided by Judge
Ignacio Capulong.
For Judge Ignacio's refusal to lift the writ of preliminary
injunction issued March 30, 1990, respondent bank filed a petition
forCertiorari, Prohibition andMandamuswith respondent Court of
Appeals, assailing the following orders of the Regional Trial
Court:
1. Order dated March 30, 1990 of Judge Guadiz granting the writ
of preliminary injunction restraining the foreclosure sale of Mavin
Plaza set on March 12, 1990;
2. Order of Judge Ignacio Capulong dated January 10, 1992
denying respondent bank's motion to lift the writ of injunction
issued by Judge Guadiz as well as its motion to dismiss Civil Case
No. 90-663;
3. Order of Judge Capulong dated July 3, 1992 denying respondent
bank's subsequent motion to lift the writ of preliminary
injunction; and
Order of Judge Capulong dated October 20, 1992 denying
respondent bank's motion for reconsideration.
On August 27, 1993, respondent court rendered its decision
setting aside the assailed orders and upholding respondent bank's
right to foreclose the mortgaged property pursuant to Act 3135, as
amended and P.D. 385. Petitioners' Motion for Reconsideration and
Supplemental Motion for Reconsideration, dated September 15, 1993
and October 28, 1993, respectively, were denied by respondent court
in its resolution dated January 10, 1994.
Hence the instant petition.
This appeal bycertiorarifrom the respondent court's decision
dated August 27, 1993 raises two principal issues namely:
1) Whether or not respondent bank was authorized to raise its
interest rates from 21% to as high as 68% under the credit
agreement; and
2) Whether or not respondent bank is granted the authority to
foreclose the Marvin Plaza under the mandatory foreclosure
provisions of P.D. 385.
In its comment dated April 19, 1994, respondent bank vigorously
denied that the increases in the interest rates were illegal,
unilateral, excessive and arbitrary, it argues that the escalated
rates of interest it imposed was based on the agreement of the
parties. Respondent bank further contends that it had a right to
foreclose the mortgaged property pursuant to P.D. 385, after
petitioners were unable to pay their loan obligations to the bank
based on the increased rates upon maturity in 1984.
The instant petition is impressed with merit.
The binding effect of any agreement between parties to a
contract is premised on two settled principles:
(1) that any obligation arising from contract has the force of
law between the parties; and
(2) that there must be mutuality between the parties based on
their essential equality.6Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.
It is plainly obvious, therefore, from the undisputed facts of
the case that respondent bank unilaterally altered the terms of its
contract with petitioners by increasing the interest rates on the
loan without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code when it
provides, in Article 1956 that "No interest shall be due unless it
has been expressly stipulated in writing." What has been
"stipulated in writing" from a perusal of interest rate provision
of the credit agreement signed between the parties is that
petitioners were bound merely to pay 21% interest, subject to a
possible escalation or de-escalation, when 1) the circumstances
warrant such escalation or de-escalation; 2) within the limits
allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon
by the parties to the contract in this case was the 21% rate
stipulated in the interest provision. Any doubt about this is in
fact readily resolved by a careful reading of the credit agreement
because the same plainly uses the phrase "interest rateagreed
upon," in reference to the original 21% interest rate. The interest
provision states:
(c) interest and Charges
The Bank reserves the right to increase the interest ratewithin
the limits allowed by lawat any time depending on whatever policy
it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law
or by the Monetary Board. In either case, the adjustment in
theinterest rate agreed uponshall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
InPhilippine National Bank v.Court of Appeals,7this Court
disauthorized respondent bank from unilaterally raising the
interest rate in the borrower's loan from 18% to 32%, 41% and 48%
partly because the aforestated increases violated the principle of
mutuality of contracts expressed in Article 1308 of the Civil Code.
The Court held:
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury
Law ceiling on interest rates
. . . increases in interest rates are not subject to any ceiling
prescribed by the Usury Law.
but it did not authorize the PNB, or any bank for that matter,
to unilaterally and successively increase the agreed interest rates
from 18% to 48% within a span of four (4) months, in violation of
P.D. 116 which limits such changes to once every twelve months.
Besides violating P.D. 116, the unilateral action of the PNB in
increasing the interest rate on the private respondent's loan,
violated the mutuality of contracts ordained in Article 1308 of the
Civil Code:
Art. 308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them.
In order that obligations arising from contracts may have the
force of law between the parties, there must bemutualitybetween the
parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is void
(Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming
that the P1.8 million loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there
was none) to increase the interest rate at will during the term of
the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of a
contract of adhesion, where the parties do not bargain on equal
footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or lease it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of justice must
protect against abuse and imposition.
PNB's successive increases of the interest rate on the private
respondent's loan, over the latter's protest, were arbitrary as
they violated an express provision of the Credit Agreement (Exh. 1)
Section 9.01 that its terms "may be amended only by an instrument
in writing signed by the party to be bound as burdened by such
amendment." The increases imposed by PNB also contravene Art. 1956
of the Civil Code which provides that "no interest shall be due
unless it has been expressly stipulated in writing."
The debtor herein never agreed in writing to pay the interest
increases fixed by the PNB beyond 24%per annum, hence, he is not
bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a
period of four (4) months is excessive, as found by the Court of
Appeals, is indisputable.
Clearly, the galloping increases in interest rate imposed by
respondent bank on petitioners' loan, over the latter's vehement
protests, were arbitrary.
Moreover, respondent bank's reliance on C.B. Circular No. 905,
Series of 1982 did not authorize the bank, or any lending
institution for that matter, to progressively increase interest
rates on borrowings to an extent which would have made it virtually
impossible for debtors to comply with their own obligations. True,
escalation clauses in credit agreements are perfectly valid and do
not contravene public policy. Such clauses, however, (as are
stipulations in other contracts) are nonetheless still subject to
laws and provisions governing agreements between parties, which
agreements while they may be the law between the contracting
parties implicitly incorporate provisions of existing law.
Consequently, while the Usury Law ceiling on interest rates was
lifted by C.B. Circular 905, nothing in the said circular could
possibly be read as granting respondent bankcarte blancheauthority
to raise interest rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their assets. Borrowing
represents a transfusion of capital from lending institutions to
industries and businesses in order to stimulate growth. This would
not, obviously, be the effect of PNB's unilateral and lopsided
policy regarding the interest rates of petitioners' borrowings in
the instant case.
Apart from violating the principle of mutuality of contracts,
there is authority for disallowing the interest rates imposed by
respondent bank, for the credit agreement specifically requires
that the increase be "within the limits allowed by law". In the
case ofPNB v.Court of Appeals, cited above, this Court clearly
emphasized that C.B. Circular No. 905 could not be properly invoked
to justify the escalation clauses of such contracts, not being a
grant of specific authority.
Furthermore, the escalation clause of the credit agreement
requires that the same be made "within the limits allowed by law,"
obviously referring specifically to legislative enactments not
administrative circulars. Note that the phrase "limits imposed by
law," refers only to the escalation clause. However, the same
agreement allows reduction on the basis of law or the Monetary
Board. Had the parties intended the word "law" to refer to both
legislative enactments and administrative circulars and issuances,
the agreement would not have gone as far as making a distinction
between "law or the Monetary Board Circulars" in referring to
mutually agreed upon reductions in interest rates. This distinction
was the subject of the Court's disquisition in the case ofBanco
Filipino Savings and Mortgage Bank v.Navarro8where the Court held
that:
What should be resolved is whether BANCO FILIPINO can increase
the interest rate on the LOAN from 12% to 17%per annumunder the
Escalation Clause. It is our considered opinion that it may
not.
The Escalation Clause reads as follows:
I/We hereby authorize Banco Filipino tocorrespondingly
increase.
the interest rate stipulated in this contract without advance
notice to me/us in the event.
a law
increasing
the lawful rates of interest that may be charged
on this particular
kind of loan. (Paragraphing and emphasis supplied)
It is clear from the stipulation between the parties that the
interest rate may be increased "in the event alawshould be enacted
increasing the lawful rate of interest that may be chargedon this
particular kind of loan." The Escalation Clause was dependent on an
increase of rate made by "law" alone.
CIRCULAR No. 494, although it has the effect of law, is not a
law. "Although a circular duly issuedis not strictly a statute or a
law, it has, however, the force and effect of law." (Emphasis
supplied). "An administrative regulation adopted pursuant to law
has the force and effect of law." "That administrative rules and
regulations have the force of law can no longer be questioned."
The distinction between a law and an administrative regulation
is recognized in the Monetary Board guidelines quoted in the latter
to the BORROWER of Ms. Paderes of September 24, 1976 (supra).
According to the guidelines, for a loan's interest to be subject to
the increases provided in CIRCULAR No. 494, there must be an
Escalation Clause allowing the increase "in the event thatany law
or Central Bank regulationis promulgated increasing the maximum
rate for loans." The guidelines thus presuppose that a Central Bank
regulation is not within the term "any law."
The distinction is again recognized by P.D. No. 1684,
promulgated on March 17, 1980, adding section 7-a to the Usury Law,
providing that parties to an agreement pertaining to a loan could
stipulate that the rate of interest agreed upon may be increased in
the event that the applicable maximum rate of interest is increased
"by law or by the Monetary Board." To quote:
Sec. 7-a. Parties to an agreement pertaining to a loan or
forbearance of money, goods or credits may stipulate that the rate
of interest agreed upon may be increased in the event that the
applicable maximum rate of interest
is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only if there is
also a stipulation in the agreement that the rate of interest
agreed upon shall be reduced in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary
Board;
Provided, further, That the adjustment in the rate of interest
agreed upon shall take effect on or after the effectivity of the
increase or decrease in the maximum rate of interest.'
(Paragraphing and emphasis supplied).
It is now clear that from March 17, 1980, escalation clauses to
be valid should specifically provide: (1) that there can be an
increase in interest if increased by law or by the Monetary Board;
and (2) in order for such stipulation to be valid, it must include
a provision for reduction of the stipulated interest "in the event
that the applicable maximum rate of interest is reduced by law or
by the Monetary Board."
Petitioners never agreed in writing to pay the increased
interest rates demanded by respondent bank in contravention to the
tenor of their credit agreement. That an increase in interest rates
from 18% to as much as 68% is excessive and unconscionable is
indisputable. Between 1981 and 1984, petitioners had paid an amount
equivalent to virtually half of the entire principal
(P7,735,004.66)which was applied to interest alone. By the time the
spouses tendered the amount of P40,142,518.00 in settlement of
their obligations; respondent bank was demanding P58,377,487.00
over and above those amounts already previously paid by the
spouses.
Escalation clauses are not basically wrong or legally
objectionable so long as they are not solely potestative but based
on reasonable and valid grounds.9Here, as clearly demonstrated
above, not only the increases of the interest rates on the basis of
the escalation clause patently unreasonable and unconscionable, but
also there are no valid and reasonable standards upon which the
increases are anchored.
We go now to respondent bank's claim that the principal issue in
the case at bench involves its right to foreclose petitioners'
properties under P.D. 385. We find respondent's pretense
untenable.
Presidential Decree No. 385 was issued principally to guarantee
that government financial institutions would not be denied
substantial cash inflows necessary to finance the government's
development projects all over the country by large borrowers who
resort to litigation to prevent or delay the government's
collection of their debts or loans.10In facilitating collection of
debts through its automatic foreclosure provisions, the government
is however, not exempted from observing basic principles of law,
and ordinary fairness and decency under the due process clause of
the Constitution.11
In the first place, because of the dispute regarding the
interest rate increases, an issue which was never settled on merit
in the courts below, the exact amount of petitioner's obligations
could not be determined. Thus, the foreclosure provisions of P.D.
385 could be validly invoked by respondent only after settlement of
the question involving the interest rate on the loan, and only
after the spouses refused to meet their obligations following such
determination. InFilipinas Marble Corporation v.Intermediate
Appellate Court,12involving P.D. 385's provisions on mandatory
foreclosure, we held that:
We cannot, at this point, conclude that respondent DBP together
with the Bancom people actually misappropriated and misspent the $5
million loan in whole or in part although the trial court found
that there is "persuasive" evidence that such acts were committed
by the respondent. This matter should rightfully be litigated below
in the main action. Pending the outcome of such litigation, P.D.
385 cannot automatically be applied for if it is really proven that
respondent DBP is responsible for the misappropriation of the loan,
even if only in part, then the foreclosure of the petitioner's
properties under the provisions of P.D. 385 to satisfy the whole
amount of the loan would be a gross mistake. It would unduly
prejudice the petitioner, its employees and their families.
Only after trial on the merits of the main case can the true
amount of the loan which was applied wisely or not, for the benefit
of the petitioner be determined. Consequently, the extent of the
loan where there was no failure of consideration and which may be
properly satisfied by foreclosure proceedings under P.D. 385 will
have to await the presentation of evidence in a trial on the
merits.
InRepublic Planters Bank v.Court of Appeals13the Court
reiterating thedictumin Filipinas Marble Corporation, held:
The enforcement of P.D. 385 will sweep under the rug' this
iceberg of a scandal in the sugar industry during the Marcos
Martial Law years. This we can not allow to happen. For the benefit
of future generations, all the dirty linen in the
PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so
that the same may NEVER be repeated.
It is of paramount national interest, that we allow the trial
court to proceed with dispatch to allow the parties below to
present their evidence.
Furthermore, petitioners made a valid consignation of what they,
in good faith and in compliance with the letter of the Credit
Agreement, honestly believed to be the real amount of their
remaining obligations with the respondent bank. The latter could
not therefore claim that there was no honest-to-goodness attempt on
the part of the spouse to settle their obligations. Respondent's
rush to inequitably invoke the foreclosure provisions of P.D. 385
through its legal machinations in the courts below, in spite of the
unsettled differences in interpretation of the credit agreement was
obviously made in bad faith, to gain the upper hand over
petitioners.
In the face of the unequivocal interest rate provisions in the
credit agreement and in the law requiring the parties to agree to
changes in the interest rate in writing, we hold that the
unilateral and progressive increases imposed by respondent PNB were
null and void. Their effect was to increase the total obligation on
an eighteen million peso loan to an amount way over three times
that which was originally granted to the borrowers. That these
increases, occasioned by crafty manipulations in the interest rates
is unconscionable and neutralizes the salutary policies of
extending loans to spur business cannot be disputed.
WHEREFORE, PREMISES CONSIDERED, the decision of the Court of
Appeals dated August 27, 1993, as well as the resolution dated
February 10, 1994 is hereby REVERSED AND SET ASIDE. The case is
remanded to the Regional Trial Court of Makati for further
proceedings.
SO ORDERED.
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[G.R. No. 131622.November 27, 1998]
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.
D E C I S I O N
PARDO,J.:
The case before the Court is a petition for review
oncertiorari,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
ofP500,000.00, 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 ofP50,000.00 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 ofP50,000.00, payable in two months.Veronica gave only the
amount ofP47,000.00, to the borrowers, as she retainedP3,000.00, as
advance interest for one month at 6% per month.Servado and Leticia
executed a promissory note forP50,000.00, to evidence the loan,
payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from
Veronica another loan in the amount ofP90,000.00, 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
onlyP84,000.00, 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 ofP300,000.00, 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 ofP300,000.00, after a month, or on July
11, 1986.However, only the sum ofP275,000.00, 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 Leticiawith the latter's husband,
Dr. Rafael Medel, consolidated all their previous unpaid loans
totalingP440,000.00, and sought from Veronica another loan in the
amount ofP60,000.00, bringing their indebtedness to a total
ofP500,000.00, payable on August 23, 1986.The executed a promissory
note, reading as follows:
"Baliwag, BulacanJuly 23, 1986
"Maturity DateAugust 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
Currencywithinterestthereonattherateof5.5PERCENTpermonthplus2%servicechargeperannumfromdatehereofuntil
fully paid according to the amortization schedule contained
herein.(Underscoring supplied)
"Payment will be made in full at the maturity date.
"ShouldI/WEfailtopayanyamortizationorportionhereofwhendue, all
the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay
anadditionalamountequivalenttoonepercent(1%)permonthoftheamountdueanddemandableaspenaltychargesintheformofliquidateddamagesuntil
fully paid; and the
furthersumofTWENTYFIVEPERCENT(25%)thereoninfull, without
deductionsasAttorney'sFeewhether 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 ofP500,000.00, 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
ofP500,000.00, 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
substantialpayments 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 ofP47,000.00
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 ofP84,000.00 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 ofP285,000.00 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 ofP50,000.00 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 CentralBank 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
ofP500,000.00, 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 ofP50,000.00 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 recourseviapetition for
review oncertiorari.[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 ofP500,000.00, 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 theP500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant.13However, 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 Companyvs.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.
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[G.R. No. 125944.June 29, 2001]
SPOUSES DANILO SOLANGON and URSULA SOLANGON,petitioners, vs.JOSE
AVELINO SALAZAR,respondent.
D E C I S I O N
SANDOVAL-GUTIERREZ,J.:
Petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, of the decision of the Court
of Appeals in CA-G.R. CV No. 37899, affirming the decision of the
Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case
No. 375-M-91, Spouses Danilo and Ursula Solangon vs. Jose Avelino
Salazar for annulment of mortgage.The dispositive portion of the
RTC decision reads:
WHEREFORE, judgment is hereby rendered against the plaintiffs in
favor of the defendant Salazar, as follows:
1.Ordering the dismissal of the complaint;
2.Ordering the dissolution of the preliminary injunction issued
on July 8, 1991;
3.Ordering the plaintiffs to pay the defendant the amount of
P10,000.00 by way of attorneys fees; and
4.To pay the costs.
SO ORDERED.[1]
The facts as summarized by the Court of Appeals in its decision
being challenged are:
On August 22, 1986, the plaintiffs-appellants executed a deed or
real estate mortgage in which they mortgaged a parcel of land
situated in Sta. Maria, Bulacan, in favor ofthe defendant-appellee,
to secure payment of a loan of P60,000.00 payable within a period
of four (4) months, with interest thereon at the rate of 6% per
month (Exh. B).
On May 27, 1987, the plaintiffs-appellants executed a deed of
real estate mortgage in which they mortgaged the same parcel of
land to the defendant-appellee, to secure payment of a loan of
P136,512.00, payable within a period of one (1) year, with interest
thereon at the legal rate (Exh. 1).
On December 29, 1990, the plaintiffs-appellants executed a deed
of real estate mortgage in which they mortgaged the same parcel of
land in favor of defendant-appellee, to secure payment of a loan in
the amount of P230,000.00 payable within a period of four (4)
months, with interest thereon at the legal rate (Exh. 2, Exh.
C).
This action was initiated by the plaintiffs-appellants to
prevent the foreclosure of the mortgaged property.They alleged that
they obtained only one loan form the defendant-appellee, and that
was for the amount of P60,000.00, the payment of which was secured
by the first of the above-mentioned mortgages.The subsequent
mortgages were merely continuations of the first one, which is null
and void because it provided for unconscionable rate of
interest.Moreover, the defendant-appellee assured them that he will
not foreclose the mortgage as long as they pay the stipulated
interest upon maturity or within a reasonable time thereafter.They
have already paid the defendant-appellee P78,000.00 and tendered
P47,000.00 more, but the latter has initiated foreclosure
proceedings for their alleged failure to pay the loan P230,000.00
plus interest.
On the other hand, the defendant-appellee Jose Avelino Salazar
claimed that the above-described mortgages were executed to secure
three separate loans of P60,000.00 P136,512.00 and P230,000.00, and
that the first two loans were paid, but the last one was not.He
denied having represented that he will not foreclose the mortgage
as long as the plaintiffs-appellants pay interest.
In their petition, spouses Danilo and Ursula Solangon ascribe to
the Court of Appeals the following errors:
1.The Court of Appeals erred in holding that three (3) mortgage
contracts were executed by the parties instead of one (1);
2.The Court of Appeals erred in ruling that a loan obligation
secured by a real estate mortgage with an interest of 72% per cent
per annum or 6% per month is not unconscionable;
4.The Court of Appeals erred in holding that the loan of
P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in
his ANSWER that the same was already paid; and
5.The Court of Appeals erred in not resolving the SPECIFIC
ISSUES raised by the appellants.
In his comment, respondent Jose Avelino Salazar avers that the
petition should not be given due course as it raises questions of
facts which are not allowed in a petition for review on
certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third
contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino
Salazar only one (1) loan in the amount of P60,000.00 secured by
the first mortgage of August 1986.According to them, they signed
the third mortgage contract in view of respondents assurance that
the same will not be foreclosed.The trial court, which is in the
best position to evaluate the evidence presented before it, did not
give credence to petitioners corroborated testimony and ruled:
The testimony is improbable.The real estate mortgage was signed
not only by Ursula Solangon but also by her husband including the
Promissory Note appended to it.Signing a document without knowing
its contents is contrary to common experience.The uncorroborated
testimony of Ursula Solangon cannot be given weight.[2]
Petitioners likewise insist that, contrary to the finding of the
Court of appeals, they had paid the amount of P136,512.00, or the
second loan.In fact, such payment was confirmed by respondent
Salazar in his answer to their complaint.
It is readily apparent that petitioners are raising issues of
fact in this petition.In a petition for review under Rule 45 of the
1997 Rules of Civil Procedure, as amended, only questions of law
may be raised and they must be distinctly set forth. The settled
rule is that findings of fact of the lower courts (including the
Court of Appeals) are final and conclusive and will not be reviewed
on appeal except:(1) when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when the Court of Appeals, in making its
findings,went beyond the issues of the case and such findingsare
contrary to the admission of both appellant and appellee; (6) when
the findings of the Court of Appeals are contrary to those of the
trial court; and (7) when the findings of fact are conclusions
without citation of specific evidence on which they are
based.[3]
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of
interest involved here.They maintain that the Court of
Appealserredin decreeing that the stipulated interest rate of 72%
per annum or 6% per month isnot unconscionable.
The Court of Appeals, in sustaining the stipulated interest
rate, ratiocinated that since the Usury Law had been repealed by
Central Bank Circular No. 905 there is no more maximum rate of
interest and the rate will just depend on the mutual agreement of
the parties.Obviously, this was in consonance with our ruling
inLiam Law v. Olympic Sawmill Co.[4]
The factual circumstances of the present case require the
application of a different jurisprudential instruction.While the
Usury Law ceiling on interest rates was lifted by C.B. Circular No.
905, nothing in the said circular grants lenderscarte
blancheauthority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their
assets.[5]InMedel v. Court of Appeals,[6]this court had the
occasion to rule on this question - whether or not the stipulated
rate of interest at5.5%per month on a loan amounting to P500,000.00
is usurious.While decreeing that the aforementioned interest was
not usurious, this Court held that the same must be equitably
reduced for beinginiquitous,unconscionableandexorbitant,thus:
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.However, we can not consider the rate
usurious because this Court has consistently held that Circular No.
905 of the Central Bank, adopted on December 22, 1982, has
expressly removed the interest ceilings prescribed by the Usury Law
and that the Usury Law is now legally inexistent.
In Security Bank and Trust Company vs. Regional Trial Court of
Makati, Branch 61 the Court held that CB Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply suspended the
latters effectivity.Indeed, we have held that a Central Bank
Circular can not repeal a law.Only a law can repeal another law.In
the recent case of Florendo v. Court of Appeals, the Court
reiterated the ruling that by virtue of CB Circular 905, the Usury
Law has been rendered ineffective. Usury Law has been legally
non-existent in our jurisdiction.Interest can now be charged as
lender and borrower may agree upon.
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.The stipulation is void.The
courts shall reduce equitably liquidated damages, whether intended
as an indemnity or a penalty if they are iniquitous or
unconscionable.(Emphasis supplied)
In the case at bench, petitioners stand on a worse
situation.They are required to pay the stipulated interest rate
of6%per month or72%per annum which is definitely outrageous and
inordinate.Surely, it is more consonant with justice that the said
interest rate be reduced equitably.An interest of 12% per annum is
deemed fair and reasonable.
WHEREFORE, the appealed decision of the Court of Appeals is
AFFIRMED subject to the MODIFICATION that the interest rate of 72%
per annum is ordered reduced to 12 % per annum.
SO ORDERED.
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[G.R. No. 146942.April 22, 2003]
CORAZON G. RUIZ,petitioner,vs. COURT OF APPEALS and CONSUELO
TORRES,respondents.
D E C I S I O N
PUNO,J.:
On appeal is the decision[1]of the Court of Appeals in CA-G.R.
CV No. 56621 dated 25 August 2000, setting aside the decision[2]of
the trial court dated 19 May 1997 and lifting the permanent
injunction on the foreclosure sale of the subject lot covered by
TCT No. RT-96686, as well as its subsequent Resolution[3]dated 26
January 2001, denying petitioners Motion for Reconsideration.
The facts of the case are as follows:
Petitioner Corazon G. Ruiz is engaged in the business of buying
and selling jewelry.[4]She obtained loans from private respondent
Consuelo Torres on different occasions, in the following
amounts:P100,000.00;P200,000.00;P300,000.00;
andP150,000.00.[5]Prior to their maturity, the loans were
consolidated under one (1) promissory note dated March 22, 1995,
which reads as follows:[6]
P750,000.00Quezon City, March 22, 1995
P R O M I S S O R YN O T E
For value received, I,CORAZON RUIZ, as principal andROGELIO
RUIZas surety in solidum, jointly and severally promise to pay to
the order ofCONSUELO P. TORRESthe sum of SEVEN HUNDRED FIFTY
THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an
interest at the rate of three per cent (3%) a month, for thirteen
months, payable every _____ of the month, and to start onApril
1995and to mature onApril 1996, subject to renewal.
If the amount due is not paid on date due, a SURCHARGE of ONE
PERCENT of the principal loan, for every month default, shall be
collected.
Remaining balance as of the maturity date shall earn an interest
at the rate of ten percent a month, compounded monthly.
It is finally agreed that the principal and surety in solidum,
shall pay attorneys fees at the rate of twenty-five percent (25%)
of the entire amount to be collected, in case this note is not paid
according to the terms and conditions set forth, and same is
referred to a lawyer for collection.
In computing the interest and surcharge, a fraction of the month
shall be considered one full month.
In the event of an amicable settlement, the principal and surety
in solidum shall reimburse the expenses of the plaintiff.
(Sgd.) Corazon Ruiz__________________
PrincipalSurety
The consolidated loan ofP750,000.00 was secured by a real estate
mortgage on a 240-square meter lot in New Haven Village,
Novaliches, Quezon City, covered by Transfer Certificate of Title
(TCT) No. RT-96686, and registered in the name of petitioner.[7]The
mortgage was signed by Corazon Ruiz for herself and as
attorney-in-fact of her husband Rogelio.It was executed on 20 March
1995, or two (2) days before the execution of the subject
promissory note.[8]
Thereafter, petitioner obtained three (3) more loans from
private respondent, under the following promissory notes:(1)
promissory note dated 21 April 1995, in the amount
ofP100,000.00;[9](2) promissory note dated May 23, 1995, in the
amount ofP100,000.00;[10]and (3) promissory note dated December 21,
1995, in the amount ofP100,000.00.[11]These combined loans
ofP300,000.00 were secured byP571,000.00 worth of jewelry pledged
by petitioner to private respondent.[12]
From April 1995 to March 1996, petitioner paid the stipulated 3%
monthly interest on theP750,000.00 loan,[13]amounting
toP270,000.00.[14]After March 1996, petitioner was unable to make
interest payments as she had difficulties collecting from her
clients in her jewelry business.[15]
Due to petitioners failure to pay the principal loan
ofP750,000.00, as well as the interest payment for April 1996,
private respondent demanded payment not only of theP750,000.00
loan, but also of theP300,000.00 loan.[16]When petitioner failed to
pay, private respondent sought the extra-judicial foreclosure of
the aforementioned real estate mortgage.[17]
On September 5, 1996, Acting Clerk of Court and Ex-Officio
Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal
and Supervising Sheriff Silverio P. Bernas issued a Notice of
Sheriffs Sale of subject lot. The public auction was scheduled on
October 8, 1996.[18]
On October 7, 1996, one (1) day before the scheduled auction
sale, petitioner filed a complaint with the RTC of Quezon City
docketed as Civil Case No. Q-96-29024, with a prayer for the
issuance of a Temporary Restraining Order to enjoin the sheriff
from proceeding with the foreclosure sale and to fix her
indebtedness to private respondent toP706,000.00.The computed
amount ofP706,000.00 was based on the aggregate loan ofP750,000.00,
covered by the March 22, 1995 promissory note, plus the other loans
ofP300,000.00, covered by separate promissory notes, plus interest,
minusP571,000.00 representing the amount of jewelry pledged in
favor of private respondent.[19]
The trial court granted the prayer for the issuance of a
Temporary Restraining Order,[20]and on 29 October 1996, issued a
writ of preliminary injunction.[21]In its Decision dated May 19,
1997, it ordered the Clerk of Court and Ex-Officio Sheriff to
desist with the foreclosure sale of the subject property, and it
made permanent the writ of preliminary injunction.It held that the
real estate mortgage is unenforceable because of the lack of the
participation and signature of petitioners husband. It noted that
although the subject real estate mortgage stated that petitioner
was attorney-in-fact for herself and her husband, the Special Power
of Attorney was never presented in court during the trial.[22]
The trial court further held that the promissory note in
question is a unilateral contract of adhesion drafted by private
respondent.It struck down the contract as repugnant to public
policy because it was imposed by a dominant bargaining party
(private respondent) on a weaker party
(petitioner).[23]Nevertheless, it held that petitioner still has an
obligation to pay the private respondent.Private respondent was
further barred from imposing on petitioner the obligation to pay
the surcharge of one percent (1%) per month from March 1996
onwards, and interest of ten percent (10%) a month, compounded
monthly from September 1996 to January 1997.Petitioner was thus
ordered to pay the amount ofP750,000.00 plus three percent (3%)
interest per month, or a total ofP885,000.00, plus legal interest
from date of [receipt of] the decision until the total amount
ofP885,000.00 is paid.[24]
Aside from the foregoing, the trial court took into account
petitioners proposal to pay her other obligations to private
respondent in the amount ofP392,000.00.[25]
The trial court also recognized the expenses borne by private
respondent with regard the foreclosure sale and attorneys fees.As
the notice of the foreclosure sale has already been published, it
ordered the petitioner to reimburse private respondent the amount
ofP15,000.00 plus attorneys fees of the same amount.[26]
Thus, the trial court computed petitioners obligation to private
respondent, as follows:
Principal Loan .P750,000.00
Interest.. 135,000.00
Other Loans..392,000.00
Publication Fees.15,000.00
Attorneys Fees 15,000.00
TOTALP1,307,000.00
with legal interest from date of receipt of decision until
payment of total amount ofP1,307,000.00 has been made.[27]
Private respondents motion for reconsideration was denied in an
Order dated July 21, 1997.
Private respondent appealed to the Court of Appeals.The
appellate court set aside the decision of the trial court.It ruled
that the real estate mortgage is valid despite the
non-participation of petitioners husband in its execution because
the land on which it was constituted is paraphernal property of
petitioner-wife.Consequently, she may encumber the lot without the
consent of her husband.[28]It allowed its foreclosure since the
loan it secured was not paid.
Nonetheless, the appellate court declared as invalid the 10%
compounded monthly interest[29]and the 10% surcharge per month
stipulated in the promissory notes dated May 23, 1995 and December
1, 1995,[30]and so too the 1% compounded monthly interest
stipulated in the promissory note dated 21 April 1995,[31]for being
excessive, iniquitous, unconscionable, and contrary to morals.It
held that the legal rate of interest of 12% per annum shall apply
after the maturity dates of the notes until full payment of the
entire amount due, and that the only permissible rate of surcharge
is 1% per month, without compounding.[32]The appellate court also
granted attorneys fees in the amount ofP50,000.00, and not the
stipulated 25% of the amount due, following the ruling in the case
ofMedel v. Court of Appeals.[33]
Now, before this Court, petitioner assigns the following
errors:
(1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PROMISSORY NOTE OFP750,000.00 IS NOT A CONTRACT OF
ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE
CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT
REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF
RESPONDENT AND AGAINST PETITIONER.
(2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE
OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE PETITIONER AND
NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE MORTGAGED
PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NOR DISCUSSED AND ARGUED
BEFORE THE TRIAL COURT.
(3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
DISREGARDING THE TRIAL COURTS COMPUTATION OF THE ACTUAL OBLIGATIONS
OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME
IS BASED ON EVIDENCE SUBMITTED BEFORE IT.
The pertinent issues to be resolved are:
(1) Whether the promissory note ofP750,000.00 is a contract of
adhesion;
(2) Whether the real property covered by the subject deed of
mortgage dated March 20, 1995 is paraphernal property ofpetitioner;
and
(3) Whether the rates of interests and surcharges on the
obligation of petitioner to private respondent are valid.
I
We hold that the promissory note in the case at bar is not a
contract of adhesion.InSweet Lines, Inc. vs. Teves,[34]this Court
discussed the nature of a contract of adhesion as follows:
. . . there are certain contracts almost all the provisions of
which have been drafted only by one party, usually a
corporation.Such contracts are calledcontracts of adhesion,because
the only participation of the other party is the signing of his
signature or his adhesion thereto.Insurance contracts, bills of
lading, contracts of sale of lots on the installment plan fall into
this category.[35]
. . . it is drafted only by one party, usually the corporation,
and is sought to be accepted or adhered to by the other party . . .
who cannot change the same and who are thus made to adhere hereto
on the take it or leave it basis . . . [36]
In said case ofSweet Lines,[37]the conditions of the contract on
the 4 x 6 inches passenger ticket are in fine print.Thus we
held:
. . . it is hardly just and proper to expect the passengers to
examine their tickets received from crowded/congested counters,
more often than not during rush hours, for conditions that may be
printed thereon, much less charge them with having consented to the
conditions, so printed, especially if there are a number of such
conditions in fine print, as in this case.[38]
We further stressed in the said case that the questioned
Condition No. 14 was prepared solely by one party which was the
corporation, and the other party who was then a passenger had no
say in its preparation.The passengers have no opportunity to
examine and consider the terms and conditions of the contract prior
to the purchase of their tickets.[39]
In the case at bar, the promissory note in question did not
contain any fine print provision which could not have been examined
by the petitioner.Petitioner had all the time to go over and study
the stipulations embodied in the promissory note.Aside from the
March 22, 1995 promissory note forP750,000.00, three other
promissory notes of different dates and amounts were executed by
petitioner in favor of private respondent.These promissory notes
contain similar terms and conditions, with a little variance in the
terms of interests and surcharges.The fact that petitioner and
private respondent had entered into not only one but several loan
transactions shows that petitioner was not in any way compelled to
accept the terms allegedly imposed by private respondent.Moreover,
petitioner, in her complaint[40]dated October 7, 1996 filed with
the trial court, never claimed that she was forced to sign the
subject note.Paragraph five of her complaint states:
That on or about March 22, 1995 plaintiff was required by the
defendant Torres to execute a promissory note consolidating her
unpaid principal loan and interests which said defendant computed
to be in the sum ofP750,000.00 . . .
To be required is certainly different from being compelled.She
could have rejected the conditions made by private respondent.As an
experienced business- woman, she ought to understand all the
conditions set forth in the subject promissory note.As held by this
Court inLee, et al. vs. Court of Appeals, et al.,[41]it is presumed
that a person takes ordinary care of his concerns.[42]Hence, the
natural presumption is that one does not sign a document without
first informing himself of its contents and consequences.This
presumption acquires greater force in the case at bar where not
only one but several documents were executed at different times by
petitioner in favor of private respondent.
II
We also affirm the ruling of the appellate court that the real
property covered by the subject deed of mortgage is paraphernal
property. The property subject of the mortgage is registered in the
name of Corazon G. Ruiz, of legal age, married to Rogelio Ruiz,
Filipinos.Thus, title is registered in the name of Corazon alone
because the phrase married to Rogelio Ruiz is merely descriptive of
the civil status of Corazon and should not be construed to mean
that her husband is also a registered owner.Furthermore,
registration of the property in the name of Corazon G. Ruiz, of
legal age, married to Rogelio Ruiz is not proof that such property
was acquired during the marriage, and thus, is presumed to be
conjugal.The property could have been acquired by Corazon while she
was still single, and registered only after her marriage to Rogelio
Ruiz.Acquisition of title and registration thereof are two
different acts.[43]The presumption under Article 116 of the Family
Code that properties acquired during the marriage are presumed to
be conjugal cannot apply in the instant case.Before such
presumption can apply, it must first be established that the
property was in fact acquired during the marriage.In other words,
proof of acquisition during the marriage is a conditionsine qua
nonfor the operation of the presumption in favor of conjugal
ownership.[44]No such proof was offered nor presented in the case
at bar.Thus, on the basis alone of the certificate of title, it
cannot be presumed that said property was acquired during the
marriage and that it is conjugal property.Since there is no showing
as to when the property in question was acquired, the fact that the
title is in the name of the wife alone is determinative of its
nature as paraphernal, i.e., belonging exclusively to said
spouse.[45]The only import of the title is that Corazon is the
owner of said property, the same having been registered in her name
alone, and that she is married to Rogelio Ruiz.[46]
III
We now resolve the issue of whether the rates of interests and
surcharges on the obligation of petitioner to private respondent
are legal.
The four (4) unpaid promissory notes executed by petitioner in
favor of private respondent are in the following amounts and
maturity dates:
(1)P750,000.00, dated March22, 1995 matured on April 21,
1996;
(2)P100,000.00, dated April 21, 1995 matured on August 21,
1995;
(3)P100,000.00, dated May23, 1995 matured on November 23, 1995;
and
(4)P100,000.00, dated December 21, 1995 matured on March 1,
1996.
TheP750,000.00 promissory note dated March 22, 1995 has the
following provisions:
(1) 3% monthly interest, from the signing of the note until its
maturity date;
(2) 10% compounded monthly interest on the remaining balance at
maturity date;
(3) 1% surcharge on the principal loan for every month of
default; and
(4) 25% attorneys fees.
TheP100,000.00 promissory note dated April 21, 1995 has the
following provisions:
(1) 3% monthly interest, from the signing of the note until its
maturity date;
(2) 10% monthly interest on the remaining balance at maturity
date;
(3) 1% compounded monthly surcharge on the principal loan for
every month of default; and
(4) 10% attorneys fees.
The two (2) otherP100,000.00 promissory notes dated May 23, 1995
and December1, 1995 have the following provisions:
(1) 3% monthly interest, from the signing of the note until its
maturity date;
(2) 10% compounded monthly interest on the remaining balance at
maturity date;
(3) 10% surcharge on the principal loan for every month of
default; and
(4) 10% attorneys fees.
We affirm the ruling of the appellate court, striking down as
invalid the 10% compounded monthly interest, the 10% surcharge per
month stipulated in the promissory notes dated May 23, 1995 and
December 1, 1995, and the 1% compounded monthly interest stipulated
in the promissory note dated April 21, 1995.The legal rate of
interest of 12% per annum shall apply after the maturity dates of
the notes until full payment of the entire amount due.Also, the
only permissible rate of surcharge is 1% per month, without
compounding.We also uphold the award of the appellate court of
attorneys fees, the amount of which having been reasonably reduced
from the stipulated 25% (in the March 22, 1995 promissory note) and
10% (in the other three promissory notes) of the entire amount due,
to a fixed amount ofP50,000.00.However, we equitably reduce the 3%
per month or 36% per annum interest present in all four (4)
promissory notes to 1% per month or 12% per annum interest.
The foregoing rates of interests and surcharges are in accord
withMedel vs. Court of Appeals,[47]Garcia vs. Court of
Appeals,[48]Bautista vs. Pilar Development Corporation,[49]and the
recent case ofSpouses Solangon vs. Salazar.[50]This Court
invalidated a stipulated 5.5% per month or 66% per annum interest
on aP500,000.00 loan inMedel[51]and a 6% per month or 72% per annum
interest on aP60,000.00 loan inSolangon[52]for being excessive,
iniquitous, unconscionable and exorbitant.In both cases,we reduced
the interest rate to 12% per annum.We held that while the Usury Law
has been suspended by Central Bank Circular No. 905, s. 1982,
effective on January 1, 1983, and parties to a loan agreement have
been given wide latitude to agree on any interest rate, still
stipulated interest rates are illegal if they are unconscionable.
Nothing in the said circular grants lenders carte blanche authority
to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.[53]On the
other hand, inBautista vs. Pilar Development Corp.,[54]this Court
upheld the validity of a 21% per annum interest on aP142,326.43
loan, and inGarcia vs. Court of Appeals,sustained the agreement of
the parties to a 24% per annum interest on anP8,649,250.00 loan.It
is on the basis of these cases that we reduce the 36% per annum
interest to 12%.An interest of 12% per annum is deemed fair and
reasonable. While it is true that this Court invalidated a much
higher interest rate of 66% per annum inMedel[55]and 72%
inSolangon[56]it has sustained the validity of a much lower
interest rate of 21% inBautista[57]and 24% inGarcia.[58]We still
find the 36% per annum interest rate in the case at bar to be
substantially greater than those upheld by this Court in the two
(2) aforecited cases.
The 1% surcharge on the principal loan for every month of
default is valid.This surcharge or penalty stipulated in a loan
agreement in case of default partakes of the nature of liquidated
damages under Art. 2227 of the New Civil Code, and is separate and
distinct from interest payment.[59]Also referred to as a penalty
clause, it is expressly recognized by law.It is an accessory
undertaking to assume greater liability on the part of an obligor
in case of breach of an obligation.[60]The obligor would then be
bound to pay the stipulated amount of indemnity without the
necessity of proof on the existence and on the measure of damages
caused by the breach.[61]Although the courts may not at liberty
ignore the freedom of the parties to agree on such terms and
conditions as they see fit that contravene neither law nor morals,
good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced if it is iniquitous or
unconscionable.[62]In the instant case, the 10% surcharge per month
stipulated in the promissory notes dated May 23, 1995 and December
1, 1995 was properly reduced by the appellate court.
In sum, petitioner shall pay private respondent the
following:
1. Principal of loan under promissory note dated
March 22, 1995 ...P750,000.00
a.1% interest per month on principal from March 22, 1995 until
fully paid, lessP270,000.00 paid by petitioner as interest from
April 1995 to March 1996
b.1% surcharge per month on principal from May 1996 until fully
paid
2. Principal of loan under promissory note dated
April 21, 1995 ..P100,000.00
a.1% interest per month on principal from April 21, 1995 until
fully paid
b.1% surcharge per month on principal from September 1995 until
fully paid
3. Principal of loan under promissory note dated
May 23, 1995 ....P100,000.00
a.1% interest per month on principal from May 23, 1995 until
fully paid
b.1% surcharge per month on principal from December 1995 until
fully paid
4. Principal of loan under promissory note dated
December 1, 1995...P100,000.00
a.1% interest per month on principal from December 1, 1995 until
fully paid
b.1% surcharge per month on principal from April 1996 until
fully paid
5. Attorneys fees...P50,000.00
Hence, since the mortgage is valid and the loan it secures
remains unpaid, the foreclosure proceedings may now proceed.
IN VIEW WHEREOF, the appealed Decision of the Court of Appeals
is AFFIRMED, subject to the MODIFICATION that the interest rate of
36% per annum is ordered reduced to 12 % per annum.
SO ORDERED.
`````````````````````````````````````````````````````````````````````````````````````````````````````````````````
[G.R. No. 158382.January 27, 2004]
MANSUETO CUATON,petitioner, vs. REBECCA SALUD and COURT OF
APPEALS (Special Fourteenth Division),respondents.
D E C I S I O N
YNARES-SANTIAGO,J.:
Before the Court is a petition for review oncertiorariassailing
the August 31, 2001 Decision[1]of the Court of Appeals in CA-G.R.
CV No. 54715 insofar as it affirmed the Judgment[2]of the Regional
Trial Court of General Santos City, Branch 35, in SPL. Civil Case
No. 359, imposing interest at the rate of 8% to 10% per month on
the one-million-peso loan of petitioner.
On January 5, 1993, respondent Rebecca Salud, joined by her
husband Rolando Salud, instituted a suit for foreclosure of real
estate mortgage with damages against petitioner Mansueto Cuaton and
his mother, Conchita Cuaton, with the Regional Trial Court of
General Santos City, Branch 35, docketed as SPL. Civil Case No.
359.[3]The trial court rendered a decision declaring the mortgage
constituted on October 31, 1991 as void, because it was executed by
Mansueto Cuaton in favor of Rebecca Salud without expressly stating
that he was merely acting as a representative of Conchita Cuaton,
in whose name the mortgaged lot was titled.The court ordered
petitioner to pay Rebecca Salud,inter alia, the loan secured by the
mortgage in the amount of One Million Pesos plus a total
P610,000.00 representing interests of 10% and 8% per month for the
period February 1992 to August 1992, thus
Original loan
------------------------------------------------------P1,000,000.00
10% interest for the month of
February 1992
balance only
---------------------------------------------50,000.00
10% interest for the month of
March 1992
---------------------------------------------100,000.00
10% interest for the month of
April 1992
----------------------------------------------100,000.00
10% interest for the month of
May 1992
-----------------------------------------------100,000.00
10% interest for the month of
June 1992
-----------------------------------------------100,000.00
8% interest for the month of
July 1992
------------------------------------------------80,000.00
8% interest for the month of
August 1992
--------------------------------------------80,000.00
---------------------
Total amount as of August 1992 ------------------P 1,
610,000.00[4]
The dispositive portion of the trial courts decision, reads:
WHEREFORE, premises considered, judgment is hereby rendered:
a)Declaring the mortgage executed by Mansueto Cuaton over the
property owned by Conchita Cuaton, covered by TCT NO. T-34460,
dated October 31, 1991, in favor of Rebecca Salud as unauthorized,
void and unenforceable against defendant, Conchita Cuaton hence,
the TRO issued against the foreclosure thereof is hereby made
permanent.The annotation of the mortgage over said property is
likewise cancelled;
b)Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca
Salud, the sum of One Million Six Hundred Ten Thousand
(P1,610,000.00) Pesos, with legal interest thereon, from January 5,
1993 until fully paid;
c)Ordering defendant, Mansueto Cuaton, to pay Attorneys fees of
P25,000.00 in favor of the plaintiff, Rebecca Salud and to pay the
cost of this suit.
Defendants counterclaims, being merely a result of the filing of
plaintiffs complaint are hereby DISMISSED.
SO ORDERED.[5]
Both parties filed their respective notices of appeal.[6]
On August 31, 2001, the Court of Appeals rendered the assailed
decision affirming the judgment of the trial court.Petitioner filed
a motion for partial reconsideration of the trial courts decision
with respect to the award of interest in the amount of P610,000.00,
arguing that the same was iniquitous and exorbitant.[7]This was
denied by the Court of Appeals on May 7, 2003.[8]
Hence, the instant petition on the sole issue of whether the 8%
and 10% monthly interest rates imposed on the one-million-peso loan
obligation of petitioner to respondent Rebecca Salud are valid.
We find merit in the petition.
InRuiz v. Court of Appeals,[9]we declared that the Usury Law was
suspended by Central Bank Circular No. 905, s. 1982, effective on
January 1, 1983, and that parties to a loan agreement have been
given wide latitude to agree on any interest rate.However, nothing
in the said Circular grants lenderscarte blancheauthority to raise
interest rates to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets.The stipulated interest
rates are illegal if they are unconscionable.
Thus, inMedel v. Court of Appeals,[10]andSpouses Solangon v.
Salazar,[11]the Court annulled a stipulated 5.5% per month or 66%
per annum interest on a P500,000.00 loan and a 6% per month or 72%
per annum interest on a P60,000.00 loan, respectively, for being
excessive, iniquitous, unconscionable and exorbitant.In both cases,
the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on
the one-million-peso loan of petitioner are even higher than those
previously invalidated by the Court in the above cases.Accordingly,
the reduction of said rates to 12% per annum is fair and
reasonable.
Stipulations authorizing iniquitous or unconscionable interests
are contrary to morals (contra bonos mores), if not against the
law.[12]Under Article 1409 of the Civil Code, these contracts are
inexistent and void from the beginning.They cannot be ratified nor
the right to set up their illegality as a defense be
waived.[13]
Moreover, the contention regarding the excessive interest rates
cannot be considered as an issue presented for the first time on
appeal.The records show that petitioner raised the validity of the
10% monthly interest in his answer filed with the trial
court.[14]To deprive him of his right to assail the imposition of
excessive interests would be to sacrifice justice to
technicality.Furthermore, an appellate court is clothed with ample
authority to review rulings even if they are not assigned as
errors.This is especially so if the court finds that their
consideration is necessary in arriving at a just decision of the
case before it.We have consistently held that an unassigned error
closely related to an error properly assigned, or upon which a
determination of the question raised by the error properly assigned
is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error.[15]Since
respondents pointed out the matter of interest in their Appellants
Brief[16]before the Court of Appeals, the fairness of the
imposition thereof was opened to further evaluation.The Court
therefore is empowered to review the same.
The case ofEastern Shipping Lines, Inc. v. Court of
Appeals,[17]laid down the following guidelines on the imposition of
interest, to wit:
1.When the obligation is breached, and it consists in the
payment of a sum of money,i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default,i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 23 of the Civil
Code.
x x xx x xx x x
3.When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of
credit.
Applying the foregoing rules, the interest of 12% per annum
imposed by the Court (in lieu of the invalidated 10% and 8% per
month interest rates) on the one-million-peso loan should be
computed from the date of the execution of the loan on October 31,
1991 until finality of this decision.After the judgment becomes
final and executory until the obligation is satisfied, the amount
due shall further earn interest at 12% per year.
WHEREFORE, in view of all the foregoing, the instant petition
isGRANTED.The August 31, 2001 Decision of the Court of Appeals in
CA-G.R. CV No. 54715, which affirmed the Decision of the Regional
Trial Court of General Santos City, Branch 35, in SPL. Civil Case
No. 359, isMODIFIED.The interest rates of 10% and 8% per month
imposed by the trial court is reduced to 12% per annum, computed
from the date of the execution of the loan on October 31, 1991
until finality of this decision.After the judgment becomes final
and executory until the obligation is satisfied, the amount due
shall further earn interest at 12% per year.
SO ORDERED.
`````````````````````````````````````````````````````````````````````````````````````````````````````````````
[G.R. No. 149004.April 14, 2004]
RESTITUTA M. IMPERIAL,petitioner,vs. ALEX A.
JAUCIAN,respondent.
D E C I S I O N
PANGANIBAN,J.:
Iniquitous and unconscionable stipulations on interest rates,
penalties and attorneys fees are contrary to morals.Consequently,
courts are granted authority to reduce them equitably.If reasonably
exercised, such authority shall not be disturbed by appellate
courts.
The Case
Before us is a Petition for Review[1]under Rule 45 of the Rules
of Court, assailing theJuly 19, 2000Decision[2]and theJune 14,
2001Resolution[3]of the Court of Appeals (CA) in CA-GR CV No.
43635.The decretal portion of the Decision is as follows:
WHEREFORE, premises considered, the appealed Decision of the
Regional Trial Court, 5thJudicial Region, Branch 21,NagaCity,
datedAugust 31, 1993, in Civil Case No. 89-1911 for Sum of Money,
is herebyAFFIRMEDin toto.[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The dispositive portion of the August 31, 1993 Decision,
promulgated by the Regional Trial Court (RTC) of Naga City (Branch
21) and affirmed by the CA, reads as follows:
Wherefore, Judgment is hereby rendered declaring Section I,
Central Bank Circular No. 905, series of 1982 to be of no force and
legal effect, it having been promulgated by the Monetary Board of
the Central Bank of the Philippines with grave abuse of discretion
amounting to excess of jurisdiction; declaring that the rate of
interest, penalty, and charges for attorneys fees agreed upon
between the parties are unconscionable, iniquitous, and in
violation of Act No. 2655, otherwise known as the Usury Law, as
amended; and ordering Defendant to pay Plaintiff the amount of FOUR
HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100
(P478,194.54) PESOS, Philippine currency, with regular and
compensatory interests thereon at the rate of twenty-eight (28%)
per centum per annum, computed from August 31, 1993 until full
payment of the said amount, and in addition, an amount equivalent
to ten (10%) per centum of the total amount due and payable, for
attorneys fees, without pronouncement as to costs.[5]
The Facts
The CA summarized the facts of the case in this wise:
The present controversy arose from a case for collection of
money, filed by Alex A. Jaucian against Restituta Imperial,
onOctober 26, 1989.The complaint alleges,inter alia, that defendant
obtained from plaintiff six (6) separate loans for which the former
executed in favor of the latter six (6) separate promissory notes
and issued several checks as guarantee for payment.When the said
loans became overdue and unpaid, especially when the defendants
checks were dishonored, plaintiff made repeated oral and written
demands for payment.
Specifically, the six (6) separate loans obtained by defendant
from plaintiff on various dates are as follows:
(a)November 13, 1987P50,000.00
(b)December 28, 198740,000.00
(c)January 6, 198830,000.00
(d)January 11, 198850,000.00
(e)January 12, 198850,000.00
(f)January 13, 1988100,000.00
TotalP320,000.00
The loans were covered by six (6) separate promissory notes
executed by defendant.The face value of each promissory notes is
bigger [than] the amount released to defendant because said face
value already include[d] the interest from date of note to date of
maturity.Said promissory notes, which indicate the interest of 16%
per month, date of issue, due date, the corresponding guarantee
checks issued by defendant, penalties and attorneys fees, are the
following:
1.Exhibit D for loan ofP40,000.00 onDecember 28, 1987, with face
value ofP65,000.00;
2.Exhibit E for loan ofP50,000.00 on January 11, 1988, with face
value ofP82,000.00;
3.Exhibit F for loan ofP50,000.00 onJanuary 12, 1988, with face
value ofP82,000.00;
4.Exhibit G for loan ofP100,000.00 onJanuary 13, 1988, with face
value ofP164,000.00;
5.Exhibit H This particular promissory note covers the second
renewal of the original loan ofP50,000.00 on November 13, 1987,
which was renewed for the first time on March 16, 1988 after
certain payments, and which was renewed finally for the second time
on January 4, 1988 also after certain payments, with a face value
ofP56,240.00;
6.Exhibit I This particular promissory note covers the second
renewal of the original loan ofP30,000.00 on January 6, 1988, which
was renewed for the first time on June 4, 1988 after certain
payments, and which was finally renewed for the second time on
August 6, 1988, also after certain payments, with [a] face value
ofP12,760.00;
The particulars about the postdated checks, i.e., number,
amount, date, etc., are indicated in each of the promissory
notes.Thus, for Exhibit D, four (4) PB checks were issued; for
Exhibit E four (4) checks; for Exhibit F four (4) checks; for
Exhibit G four (4) checks; for Exhibit H one (1) check; for Exhibit
I one (1) check;
The arrangement between plaintiff and defendant regarding these
guarantee checks was that each time a check matures the defendant
would exchange it with cash.
Although, admittedly, defendant made several payments, the same
were not enough and she always defaulted whenever her loans
mature[d].As ofAugust 16, 1991, the total unpaid amount, including
accrued interest, penalties and attorneys fees,
[was]P2,807,784.20.
On the other hand, defendant claims that she was extended loans
by the plaintiff on several occasions, i.e., from November 13, 1987
to January 13, 1988, in the total sum ofP320,000.00 at the rate of
sixteen percent (16%) per month.The notes mature[d] every four (4)
months with unearned interest compounding every four (4) months if
the loan [was] not fully paid.The loan releases [were] as
follows:
(a)November 13, 1987P50,000.00
(b)December 28, 198740,000.00
(c)January 6, 198830,000.00
(d)January 11, 198850,000.00
(e)January 12, 198850,000.00
(f)January 13, 1988100,000.00
TotalP320,000.00
The loan onNovember 13, 1987andJanuary 6, 1988ha[d] been fully
paid including the usurious interests of 16% per month, this is the
reason why these were not included in the complaint.
Defendant alleges that all the above amounts were released
respectively by checks drawn by the plaintiff, and the latter must
produce these checks as these were returned to him being the drawer
if only to serve the truth.The above amount are the real amount
released to the defendant but the plaintiff by masterful
machinations made it appear that the total amount released
wasP462,600.00.Because in his computation he made it appear that
the true amounts released was not the original amount, since it
include[d] the unconscionable interest for four months.
Further, defendant claims that as ofJanuary 25, 1989, the total
payments made by defendants [were] as follows:
a.Paid releases onNovember 13, 1987ofP50,000.00 andJanuary 6,
1988ofP30,000.00 these two items were not included in the complaint
affirming the fact that these were paidP80,000.00
b.Exhibit 26 Receipt231,000.00
c.Exhibit 8-25 Receipt65,300.00
d.Exhibit 27 Receipt65,000.00
TotalP441,780.00
Less:320,000.00
Excess PaymentP121,780.00
Defendant contends that from all perspectives the above excess
payment ofP121,780.00 is more than the interest that could be
legally charged, and in fact as ofJanuary 25, 1989, the total
releases have been fully paid.
On31 August 1993, the trial court rendered the assailed
decision.[6]
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was
improper for the RTC to rule on the constitutionality of Section 1,
Central Bank Circular No. 905, Series of 1982.Nonetheless, the
appellate court affirmed the judgment of the trial court, holding
that the latters clear and detailed computation of petitioners
outstanding obligation to respondent was convincing and
satisfactory.
Hence, this Petition.[7]
The Issues
Petitioner raises the following arguments for our
consideration:
1.That the p