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544 Phil. 18
FIRST DIVISION
[ G.R. NO. 148491, February 08, 2007 ]
SPOUSES ZACARIAS BACOLOR AND CATHERINE BACOLOR, PETITIONERS, VS. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH AND MARCELINO C. BONUAN, RESPONDENTS.
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, assailing the Decision [1] of the Court of Appeals in CA-G.R. CV No. 47732 promulgated on February 23, 2001 and its Resolution dated May 30, 2001.
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan of P244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent. They executed a promissory note providing that the amount shall be payable within a period of ten (10) years with a monthly amortization of P5,380.00 beginning March 11, 1982 and every 11th day of the month thereafter; that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of three percent (3%) on any unpaid monthly amortization; that there shall be a service charge of three percent (3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to enforce the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as attorney's fees and fifteen percent (15%) of the amount due as liquidated damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of land located in Dagupan City, Pangasinan, registered under Transfer Certificate of Title No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent bank P412, 199.36. Thereafter, they failed to pay the remaining balance of the loan.
On August 7, 1992, petitioners received from respondent bank a statement of account stating that their indebtedness as of July 31, 1992 amounts to P840,845.61.
In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to pay their loan within fifteen (15) days from notice, appropriate action shall be taken against them.
Due to petitioners' failure to settle their obligation, respondent instituted, on March 5, 1993, an action for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a complaint for violation of the Usury Law against respondent, docketed as Civil Case No. D-10480. They alleged that the provisions of the promissory note constitute a usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service charge, attorney's fees and liquidated damages, and (3) deductions for surcharges and insurance premium. In their amended complaint, petitioners further alleged that, during the closure of respondent bank, it ceased to be a banking institution and, therefore, could not charge interests and institute foreclosure proceeding.
On August 25, 1994, the RTC rendered its decision dismissing petitioners' complaint, holding that:
Hence, this present petition for review on certiorari raising this lone issue: whether the interest rate is "excessive and unconscionable."
It is the petitioners' contention that while the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, there is nothing in the said circular which grants respondent bank carte blanche authority to raise interest rates to levels which "either enslave the borrower or lead to a hemorrhaging of their assets." [3]
In its comment [4], respondent bank maintained that petitioner, by signing the Deed of Mortgage and Promissory Note, knowingly and freely consented to its terms and conditions. A contract between the parties must not be impaired. The interest rate of 24% per annum is not usurious and does not violate the Usury Law. [5]
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated in writing. Here, the parties agreed in writing on February 11, 1982 that the rate of interest on the petitioners' loan shall be 24% per annum.
At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary Board of the Central Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest rates on a certain class of loans, thus:
This Court has consistently held that for sometime now, usury has been legally non-inexistent and that interest can now be charged as lender and borrower may agree upon. [7] As a matter of fact, Section 1 of Central Bank Circular No. 905 states that:
Petitioners invoke this Court's rulings in Almeda vs. Court of Appeals [10] and Medel vs. Court of Appeals [11] to show that the interest rate in the subject promissory note is unconscionable. Their reliance on these cases is misplaced. In Almeda, what this Court struck down as being unconscionable and excessive was the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus:
Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon them under the loan agreement. A contract is the law between the parties and they are bound by its stipulations. [12]
Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July 1, 1994), it lost its function as a banking institution and, therefore, could no longer charge interests and institute foreclosure proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, [13] this Court ruled that the bank's closure did not diminish the authority and powers of the designated liquidator to effectuate and carry on the administration of the bank, thus:
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs against petitioners.
SO ORDERED.
Puno, C.J., (Chairperson), Sandoval-Gutierrez, and Azcuna, JJ., concur.
Corona, J., on leave.
Garcia, J., no part.
[1] Rollo, pp.19-30. Penned by Associate Justice Cancio Garcia (now a member of this Court), with Associate Justice Oswaldo D. Agcaoili (Retired) and Associate Justice Elvi John S. Asuncion, concurring.
[2] Id., pp. 37-38.
[3] Id., p.14, citing Almeda vs. Court of Appeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292.
[4] Id., pp. 40-46
[5] Section 1 P.D. 166 provides: "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 any contract as to such rate or interest shall be six percentum per annum, or such rate as may be prescribed by the Monetary Board of the Central Bank for that purpose in accordance with the authority hereby granted.
[6] 77 O.G. No. 12, p. 1555, March 23, 1981.
[7] Liam Law v. Olympic Sawmill Co., G.R. No. L-30771, May 28, 1984, 129 SCRA 439; Medel v. Court of Appeals, G.R. No. 131622, November 27, 1998, 299 SCRA 481; People v. Dizon, G.R. No. 120957, August 22, 1996, 260 SCRA 851; People's Financing Corp. v. Court of Appeals, G.R. No. 80791, December 4, 1990, 192 SCRA 34; Verdejo v. Court of Appeals, G.R. No. L-77735, January 29, 1988, 157 SCRA 743.
[8] Central Bank Circular No. 905, Series of 1982, 78 Off. Gaz. 7336.
[9] G.R. No. 139290, May 19, 2006, 490 SCRA 1.
[10] G.R. No. 113412, April 17, 1996, 256 SCRA 292.
[11] G.R. No. 131622, November 27, 1998, 299 SCRA 481.
[12] Salvador v. Court of Appeals, G.R. No. 124899, March 30, 2004, 426 SCRA 433.
[13] G.R. No. 70054, December 11, 1991, 204 SCRA 767.
[14] G.R. No. 148163, December 6, 2004, 445 SCRA 482.
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan of P244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent. They executed a promissory note providing that the amount shall be payable within a period of ten (10) years with a monthly amortization of P5,380.00 beginning March 11, 1982 and every 11th day of the month thereafter; that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of three percent (3%) on any unpaid monthly amortization; that there shall be a service charge of three percent (3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to enforce the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as attorney's fees and fifteen percent (15%) of the amount due as liquidated damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of land located in Dagupan City, Pangasinan, registered under Transfer Certificate of Title No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent bank P412, 199.36. Thereafter, they failed to pay the remaining balance of the loan.
On August 7, 1992, petitioners received from respondent bank a statement of account stating that their indebtedness as of July 31, 1992 amounts to P840,845.61.
In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to pay their loan within fifteen (15) days from notice, appropriate action shall be taken against them.
Due to petitioners' failure to settle their obligation, respondent instituted, on March 5, 1993, an action for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a complaint for violation of the Usury Law against respondent, docketed as Civil Case No. D-10480. They alleged that the provisions of the promissory note constitute a usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service charge, attorney's fees and liquidated damages, and (3) deductions for surcharges and insurance premium. In their amended complaint, petitioners further alleged that, during the closure of respondent bank, it ceased to be a banking institution and, therefore, could not charge interests and institute foreclosure proceeding.
On August 25, 1994, the RTC rendered its decision dismissing petitioners' complaint, holding that:
(1) The terms and conditions of the Deed of Mortgage and the Promissory Note are legal and not usurious.On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial court. Petitioner's subsequent motion for reconsideration was denied.
The plaintiff freely signed the Deed of Mortgage and the Promissory Note with full knowledge of its terms and conditions.
The interest rate of 24% per annum is not usurious and does not violate the Usury Law (Act 2655) as amended by P.D. No. 166.
The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money etc., regardless of maturity x x x, shall not be subject to any ceiling under or pursuant to the Usury Law, as amended (CB Circular no. 905). Hence, the 24% interest per annum is allowed under P.D. No. 166.
For sometime now, usury has been legally non-existent. Interest can now be as lender and borrower may agree upon (Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743).
The imposition of penalties in case the obligation is not fulfilled is not prohibited by the Usury Law. Parties to a contract of loan may validly agree upon the imposition of penalty charges in case of delay or non-payment of the loan. The purpose is to compel the debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265).
(2) The closure of Banco Filipino did not suspend or stop its usual and normal banking operations like the collection of loan receivables and foreclosures of mortgages.
In view of the foregoing, plaintiffs failed to substantiate their cause of action against the defendant. [2]
Hence, this present petition for review on certiorari raising this lone issue: whether the interest rate is "excessive and unconscionable."
It is the petitioners' contention that while the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, there is nothing in the said circular which grants respondent bank carte blanche authority to raise interest rates to levels which "either enslave the borrower or lead to a hemorrhaging of their assets." [3]
In its comment [4], respondent bank maintained that petitioner, by signing the Deed of Mortgage and Promissory Note, knowingly and freely consented to its terms and conditions. A contract between the parties must not be impaired. The interest rate of 24% per annum is not usurious and does not violate the Usury Law. [5]
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated in writing. Here, the parties agreed in writing on February 11, 1982 that the rate of interest on the petitioners' loan shall be 24% per annum.
At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary Board of the Central Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest rates on a certain class of loans, thus:
SECTION 2. The interest rate on a loan forbearance of any money, goods, or credits with a maturity of more than seven hundred thirty (730) days shall not be subject to any ceiling. [6]In the present case, the term of the subject loan is for a period of 10 years. Considering that its maturity is more than 730 days, the interest rate is not subject to any ceiling following the above provision. Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as amended by P.D. 116.
This Court has consistently held that for sometime now, usury has been legally non-inexistent and that interest can now be charged as lender and borrower may agree upon. [7] As a matter of fact, Section 1 of Central Bank Circular No. 905 states that:
SECTION 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. [8]Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, [9] this Court has ruled that:
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.There is no indication in the records that any of the incidents which vitiate consent on the part of petitioners is present. Indeed, the interest rate agreed upon is binding on them. With respect to the penalty and service charges, the same are unconscionable or excessive.
Petitioners invoke this Court's rulings in Almeda vs. Court of Appeals [10] and Medel vs. Court of Appeals [11] to show that the interest rate in the subject promissory note is unconscionable. Their reliance on these cases is misplaced. In Almeda, what this Court struck down as being unconscionable and excessive was the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus:
It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract by increasing the interest rates of 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 the interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest x x x.Petitioners also cannot find refuge in Medel. In this case, what this Court declared as unconscionable was the imposition of a 66% interest rate per annum. In the instant case, the interest rate is only 24% per annum, agreed upon by both parties. By no means can it be considered unconscionable or excessive.
Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon them under the loan agreement. A contract is the law between the parties and they are bound by its stipulations. [12]
Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July 1, 1994), it lost its function as a banking institution and, therefore, could no longer charge interests and institute foreclosure proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, [13] this Court ruled that the bank's closure did not diminish the authority and powers of the designated liquidator to effectuate and carry on the administration of the bank, thus:
x x x. We did not prohibit however acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to the normal operations of a bank. There is no doubt that that the prosecution of suits for collection and the foreclosure of mortgages against debtors of the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. x x x.Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybañez, [14] where one of the issues was whether respondent bank can collect interest on its loans during its period of liquidation and closure, this Court held:
In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership of Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated liquidator to administer and continue the bank's transactions. The Court allowed the bank liquidator to continue receiving collectibles and receivables or paying off creditor's claims and other transactions pertaining to normal operations of a bank. Among these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank was allowed to collect interests on its loans while under liquidation, provided that the interests were legal.In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or unconscionable; and that during the closure of respondent bank, it could still function as a bonding institution, hence, could continue collecting interests from petitioners.
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs against petitioners.
SO ORDERED.
Puno, C.J., (Chairperson), Sandoval-Gutierrez, and Azcuna, JJ., concur.
Corona, J., on leave.
Garcia, J., no part.
[1] Rollo, pp.19-30. Penned by Associate Justice Cancio Garcia (now a member of this Court), with Associate Justice Oswaldo D. Agcaoili (Retired) and Associate Justice Elvi John S. Asuncion, concurring.
[2] Id., pp. 37-38.
[3] Id., p.14, citing Almeda vs. Court of Appeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292.
[4] Id., pp. 40-46
[5] Section 1 P.D. 166 provides: "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 any contract as to such rate or interest shall be six percentum per annum, or such rate as may be prescribed by the Monetary Board of the Central Bank for that purpose in accordance with the authority hereby granted.
[6] 77 O.G. No. 12, p. 1555, March 23, 1981.
[7] Liam Law v. Olympic Sawmill Co., G.R. No. L-30771, May 28, 1984, 129 SCRA 439; Medel v. Court of Appeals, G.R. No. 131622, November 27, 1998, 299 SCRA 481; People v. Dizon, G.R. No. 120957, August 22, 1996, 260 SCRA 851; People's Financing Corp. v. Court of Appeals, G.R. No. 80791, December 4, 1990, 192 SCRA 34; Verdejo v. Court of Appeals, G.R. No. L-77735, January 29, 1988, 157 SCRA 743.
[8] Central Bank Circular No. 905, Series of 1982, 78 Off. Gaz. 7336.
[9] G.R. No. 139290, May 19, 2006, 490 SCRA 1.
[10] G.R. No. 113412, April 17, 1996, 256 SCRA 292.
[11] G.R. No. 131622, November 27, 1998, 299 SCRA 481.
[12] Salvador v. Court of Appeals, G.R. No. 124899, March 30, 2004, 426 SCRA 433.
[13] G.R. No. 70054, December 11, 1991, 204 SCRA 767.
[14] G.R. No. 148163, December 6, 2004, 445 SCRA 482.