FIRST DIVISION
[G.R. No. 135046. August 17, 1999]
SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR
DEVELOPMENT CORPORATION, respondent.
D E C I S I O N
PUNO, J.:
This petition for review seeks to
reverse and set aside the Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 51363[1] which reversed the Decision of the Regional
Trial Court, Makati, Branch 138 in Civil Case No. 17702.[2]
The following facts are
uncontroverted.
In 1978, petitioner spouses
Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las
Pinas, Metro Manila. To partially
finance the purchase, they obtained from the Apex Mortgage & Loan Corporation
(Apex) a loan in the amount of P100,180.00.
They executed a promissory note on December 22, 1978 obligating
themselves, jointly and severally, to pay the "principal sum of
P100,180.00 with interest rate of 12% and service charge of 3%" for a
period of 240 months, or twenty years, from date, in monthly installments of
P1,378.83.[3] Late payments were to be charged a penalty
of one and one-half per cent (1 1/2%) of the amount due. In the same promissory note, petitioners
authorized Apex to "increase the rate of interest and/or service
charges" without notice to them in the event that a law, Presidential
Decree or any Central Bank regulation should be enacted increasing the lawful
rate of interest and service charges on the loan.[4] Payment of the promissory note was secured
by a second mortgage on the house and lot purchased by petitioners.[5]
Petitioner spouses failed to pay
several installments. On September 20,
1982, they executed another promissory note in favor of Apex. This note was in the amount of P142,326.43
at the increased interest rate of twenty-one per cent (21%) per annum with no
provision for service charge but with penalty charge of 1 1/2% for late
payments. Payment was to be made for a
period of 196 months or 16.33 years in monthly installments of P2,576.68,
inclusive of principal and interest.
Petitioner spouses also authorized Apex to "increase/decrease the
rate of interest and/or service charges" on the note in the event any law
or Central Bank regulation shall be passed increasing or decreasing the same.[6]
In November 1983, petitioner
spouses again failed to pay the installments.
On June 6, 1984, Apex assigned the second promissory note to respondent
Pilar Development Corporation without notice to petitioners.
On August 31, 1987, respondent corporation,
as successor-in-interest of Apex, instituted against petitioner spouses Civil
Case No. 17702 before the Regional Trial Court, Makati, Branch 138. Respondent corporation sought to collect
from petitioners the amount of P140,515.11 representing the unpaid balance of
the principal debt from November 23, 1983, including interest at the rate of
twenty-one per cent (21%) under the second promissory note, and 25% and 36% per
annum in accordance with Central Bank Circular No. 905, series of 1982. Respondent also sought payment of ten per
cent (10%) of the amount due as attorney's fees.[7]
In their answer, petitioner
spouses mainly contended that the terms of the second promissory note
increasing the interest rate to 21% and the escalation clauses authorizing Apex
to increase interest rates pursuant to any law or Central Bank regulation are
null and void in the absence of a de-escalation clause in the same note.[8]
After pre-trial, both parties
submitted the case for decision on the sole issue of the interest rate.
The trial court rendered judgment
on September 22, 1995. It ordered
petitioner spouses to pay respondent corporation the sum of P140,515.11, with
interest at the rate of 12% per annum, plus service charge, viz:
"WHEREFORE, judgment is hereby rendered as follows:
(a) Plaintiff is entitled to collect from the defendants the amount of P140,515.11 with interest at the rate of 12% per annum from November 23, 1983 until the amount is fully paid plus the stipulated service charge;
(b) Ordering defendants as joint and several obligors to pay plaintiff the amount stated in paragraph (a) hereof;
(c) Counterclaim is hereby dismissed.
No pronouncement as to costs.
SO ORDERED."[9]
Both parties appealed to the Court
of Appeals. In a Decision dated May 14,
1998, the appellate court reversed the trial court by applying the interest
rate of 21% per annum, and adding attorney's fees of 10%. Thus:
"IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby REVERSED and SET ASIDE and a new one entered ordering the defendants to pay the plaintiffs the amount of P142,326.43, as principal with interest at the rate of 21% from November 23, 1983 until the amount is fully paid; the sum equivalent to 10% of the amount due as attorney's fees and the costs of this suit.
SO ORDERED." [10]
Petitioner spouses moved for
reconsideration. In a Resolution dated
August 18, 1998, the Court of Appeals denied the motion but reduced the
principal amount of the obligation from P142,326.42 to P140,515.11.[11]
Hence this recourse.
Petitioner spouses claim that the
Court of Appeals erred:
I
IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE PARTIES ARE INDEPENDENT OF EACH OTHER.
CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES CONSTITUTE A SINGLE-LOAN TRANSACTION.
II
IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER ANNUM AS STIPULATED IN THE SECOND PROMISSORY NOTE.
CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST RATE FROM 12% PER ANNUM (1ST PROMISSORY NOTE) TO 21% PER ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL.
III
IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS ATTORNEY'S FEES.
CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S FEES IS NOT PROPER UNDER THE CIRCUMSTANCES.
IV
IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS AND UNSUSTAINABLE."
CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS REQUIRED WHEN CREDIT IS ASSIGNED.
V
IN NOT RULING THAT UNDER THE CIRCUMSTANCES
PETITIONERS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES.[12]
The controversy in this petition
involves the rate of interest respondent creditor is entitled to collect on
petitioners' loan: whether it be 12%
under the promissory note of December 22, 1978, or 21% under the promissory
note of September 20, 1982.
Petitioners claim that the
interest rate of 12% per annum should be adjudged inasmuch as the two
promissory notes constitute one transaction.
Allegedly, the first note defined the terms and conditions of the loan
while the second note is merely an extension of and derives its existence from
the former. Hence, the second note is
governed by the stipulations in the first note.[13]
The two promissory notes are
identically entitled "Promissory Note with Authority to Assign
Credit." The notes were prepared by Apex in standard form and consist of
two (2) pages each. Except for one or
two stipulations, they contain the same provisions and the same blanks for the
amount of the loan and other pertinent data subject of each note. However, on the upper right portion of the
second note, there appears a typewritten entry which reads:
"This cancels PN # A-387-78 dated December 22, 1978."[14]
Correspondingly,
on the face of each page of the first promissory note, i.e., PN No.
A-387-78 dated December 22, 1978, the word "Cancelled" is boldly
stamped twice with the date "September 16, 1982" and a signature
written in a space inside the letters of the word.[15]
The first promissory note was
cancelled by the express terms of the second promissory note. To cancel is to strike out, to revoke,
rescind or abandon, to terminate.[16] In fine, the first note was revoked and
terminated. Simply put, it was
novated. The extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first is a novation.[17] Novation is made either by changing the
object or principal conditions, referred to as an objective or real novation;
or by substituting the person of the debtor or subrogating a third person to
the rights of the creditor, which is known as subjective or personal novation.[18] In both objective and subjective novation, a
dual purpose is achieved-- an obligation is extinguished and a new one is
created in lieu thereof.[19] Novation may either be express, when the new
obligation declares in unequivocal terms that the old obligation is
extinguished; or implied, when the new obligation is on every point
incompatible with the old one.[20] Express novation takes place when the
contracting parties expressly disclose that their object in making the new
contract is to extinguish the old contract, otherwise the old contract remains
in force and the new contract is merely added to it, and each gives rise to an
obligation still in force.[21]
Novation has four (4) essential
requisites: (1) the existence of a
previous valid obligation; (2) the agreement of all parties to the new
contract; (3) the extinguishment of the old contract; and (4) the validity of
the new one.[22] In the instant case, all four requisites
have been complied with. The first
promissory note was a valid and subsisting contract when petitioner spouses and
Apex executed the second promissory note.
The second promissory note absorbed the unpaid principal and interest of
P142,326.43 in the first note which amount became the principal debt therein,
payable at a higher interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a
higher principal, a higher interest rate, and a higher monthly amortization,
all to be paid within a shorter period of 16.33 years. These changes are substantial and constitute
the principal conditions of the obligation.[23] Both parties voluntarily accepted the terms
of the second note; and also in the same note, they unequivocally stipulated to
extinguish the first note. Clearly,
there was animus novandi, an express intention to novate.[24] The first promissory note was cancelled and
replaced by the second note. This
second note became the new contract governing the parties' obligations.
In their second assigned error,
petitioners contend that in the second promissory note, the escalation of the
interest rate from 12% to 21% per annum is unlawful and cannot be imposed for
failure of the escalation provisions to include valid de-escalation
clauses. In the absence of
de-escalation clauses, the Court of Appeals allegedly erred in applying Central
Bank Circulars Nos. 705, 712 and 905 issued by the Monetary Board of the
Central Bank of the Philippines.[25]
At the time the parties executed
the first promissory note in 1978, the interest of 12% was the maximum rate
fixed by the Usury Law for loans secured by a mortgage upon registered real
estate.[26] On December 1, 1979, the Monetary Board of
the Central Bank of the Philippines[27] issued Circular No. 705 which fixed the
effective rate of interest on loan transactions with maturities of more than
730 days to twenty-one per cent (21%) per annum for both secured and unsecured
loans.[28] On January 28, 1980, The Monetary Board
issued Circular No. 712 reiterating the effective interest rate of 21% on said
loan transactions.[29] On January 1, 1983, CB Circular No. 905,
series of 1982, took effect. This
Circular declared that the rate of interest on any loan or forbearance of any
money, goods or credits, regardless of maturity and whether secured or
unsecured, "shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended."[30] In short, Circular No. 905 removed the
ceiling on interest rates for secured and unsecured loans, regardless of
maturity.[31]
When the second promissory note
was executed on September 20, 1982, Central Bank Circulars Nos. 705 and 712
were already in effect. These Circulars
fixed the effective interest rate for secured loan transactions with maturities
of more than 730 days, i.e, two (2) years, at 21% per annum. The interest rate of 21% provided in the
second promissory note was therefore authorized under these Circulars.
The question of whether the
escalation clauses in the second promissory note are valid is irrelevant. Respondent corporation has signified that it
is collecting petitioners' debt only at the fixed interest rate of 21% per
annum, as expressly agreed upon in the second promissory note, not at the
escalated rates authorized under the escalation clauses.[32] The Court of Appeals therefore did not err
in applying the interest rate of 21% to petitioner's loan under the second
promissory note.
Neither did the Court of Appeals
err in imposing attorney's fees of ten per cent (10%) on the amount due. The award of attorney's fees is expressly stipulated
in the fourth paragraph of the promissory note itself, viz:
"In case of non-payment of the amount of this note or any
portion of it on demand when given due, or any other amount/s due on account of
this note, the entire obligation shall become due and demandable, and if for
the enforcement of the payment thereof, APEX MORTGAGE AND LOANS CORP. is
constrained to entrust the case to its attorneys, I/We, jointly and severally,
bind myself/ourselves to pay TEN (10%) per cent on the amount due on the note
as attorney's fees, such amount in no case to be less than FIVE HUNDRED
(P500.00) PESOS in addition to the legal fees and other incidental
expenses."[33]
Petitioners' lack of bad faith in
resisting imposition of the increased interest rate cannot serve to mitigate
their liability for liquidated damages.
Petitioner Florante Bautista is a lawyer and he should have been aware
of the effects of the stipulations in the second promissory note and the
pertinent CB Circulars on his obligation.
At the same time, there is no showing that the amount of liquidated
damages is iniquitous and unconscionable for this court to equitably reduce the
same.[34]
Finally, the fact that petitioners
were not notified of the assignment of their credit by Apex to herein
respondent corporation is not material.
In the eighth paragraph of the second promissory note, petitioners
expressly waived notice to any assignment of credit, viz:
"It is understood that APEX MORTGAGE AND LOANS CORPORATION has
the right to assign this promissory note, or make use of it as collateral in
favor of any third person whomsoever and this will constitute as an authority
therefore waiver of notice of such action taken [sic]."[35]
The
purpose of the notice is only to inform the debtor that from the date of the
assignment, payment should be made to the assignee and not to the original
creditor.[36]
IN VIEW WHEREOF, the petition is denied and the Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 51363 are affirmed.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares -Santiago, JJ., concur.
[1] Penned by Justice Conrado M. Vasquez, Jr. and
concurred in by Justices Fermin A. Martin, Jr. and Teodoro P. Regino.
[2] Penned by Judge Sixto Marella, Jr.
[3] Promissory Note with Authority to Assign Credit,
paragraph 1, Rollo, p. 67.
[4] Id., par. 3.
[5] Id., par. 10, Rollo, p. 68.
[6] Id., pars. 3 and 9; see also Comment,
p. 4, Rollo, p. 154.
[7] Complaint, pp. 1-2, Annex “D” to the
Petition, Rollo, pp. 54-55.
[8] Answer, pp. 2-3, Annex "E" to the Petition,
Rollo, pp. 62-63.
[9] RTC Decision, p. 5, Annex "C" to
the Petition, Rollo, p. 53.
[10] CA Decision, p. 7, Annex “A” to the Petition,
Rollo, p. 46.
[11] CA Resolution, Annex “B” to the Petition, Rollo,
p. 48.
[12] Petition, pp. 11-12, Rollo, pp. 21-22.
[13] Petition,
pp. 12-14, Rollo, pp. 22-24; Reply, pp. 1-3, Rollo, pp. 159-161.
[14] Rollo, p. 56.
[15] Rollo, pp. 67-68.
[16] "Cancel," Black's Law Dictionary,
4th ed. [1951].
[17] Articles 1291 and 1292, Civil Code;
Tolentino, Civil Code, vol. 4, p. 381 [1991]; Aquino, Civil Code, vol. 2, p.
344 [1990].
[18] Article 1291, Civil Code; Tolentino, supra,
at 381-383; Aquino, supra, at 344-349.
[19] Cochingyan, Jr. v. R & B Surety
Ins. Co., 151 SCRA 339, 349 [1987]; De Cortes v. Venturanza, 79 SCRA
709, 722-723 [1977].
[20] Article 1292, Civil Code; Fortune Motors
(Phils.) Corporation v. Court of Appeals, 267 SCRA 653, 668 [1997];
Cochingyan, Jr. v. R & B Surety and Insurance Co., Inc., supra,
at 349; Board of Liquidators v. Floro, 110 Phil. 482, 488 [1960];
Zapanta v. de Rotaeche, 21 Phil. 154, 159 [1912].
[21] Tolentino, Civil Code, vol. 4, p. 384 [1991]
citing Philippine National Bank v. Granada, CA-G.R. No. 13919-R, July
20, 1955.21
[22] Reyes v. Court of Appeals, 264 SCRA
35, 43 [1996]; Tiu Siuco v. Habana, 45 Phil. 707, 712 [1924]; Zapanta v.
Rotaeche, supra; see also Tolentino, supra, at 382.
[23] See Tolentino, supra, at 386.
[24] Tiu Siuco v. Habana, supra, at
713.
[25] Petition, pp. 15-20; Rollo, pp. 25-30.
[26] Section 2, Act No. 2655 (The Usury Law).
[27] The Monetary Board of the Central Bank of the
Philippines was authorized by P.D. No. 116 effective in 1973 to "prescribe
the maximum rate or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to change such rates whenever
warranted by prevailing economic and social conditions (Section 1-a, Act No.
2655, as amended by P.D. 116).
[28] Paragraph 4; CB Circular No. 705 is entitled
"Superseding Circular No. 586, Prescribing Ceilings on the Rates of
Interest on Loans and Yields on Purchases of Instruments by Banks and Non-Bank
Financial Intermediaries." This Circular amended Circular No. 586
promulgated on January 1, 1978 fixing the effective rate of interest by banks
and non-bank financial intermediaries at nineteen per cent (19%).
[29] Circular No. 712 amended Circular No. 705 to
include non-stock savings and loan associations in the coverage of paragraphs 3
and 4 of Circular No. 705.
[30] Section 1, Circular No. 905, series of
1982. This Circular, by Sec. 33
thereof, took effect on January 1, 1983.
[31] Republic Planters Bank v. Court of
Appeals, 216 SCRA 738, 748 [1992]; Philippine National Bank v. Court of
Appeals, 196 SCRA 536, 544 [1991].
[32] Comment, pp. 3-4, Rollo, pp. 153-154.
[33] Rollo,
p. 56.
[34] Article 2227, Civil Code.
[35] Rollo, p. 56.
[36] Rodriguez v. Court of Appeals, 207
SCRA 553, 559 [1992].