SECOND DIVISION
|
LAND
BANK OF THE Petitioner, - versus - YOLANDA G. DAVID, Respondent. |
G.R. No. 176344 Present:
QUISUMBING, J., Chairperson, CARPIO
MORALES, TINGA, VELASCO, JR., and BRION, JJ. Promulgated: August
22, 2008 |
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D E C I S I O N
CARPIO MORALES, J.:
Respondent,
Yolanda G. David, doing business under the trade name David Poultry Farm with
address at Arayat, Pampanga, obtained on April 21, 1993 a P1,100,000 loan
from petitioner, Land Bank of the Philippines (Land Bank), to bear interest “based
on the prevailing lender’s rates/special financing rate”[1]
and penalty charge of 12% per annum in case of default in the settlement
thereof. To secure the payment of the
loan, respondent mortgaged[2] a
parcel of land covered by Transfer Certificate of Title No. 334702-R.[3]
Due to
serious business reverses suffered by respondent, she and petitioner executed on
As conditions for restructuring, the BORROWER hereby undertakes and promises, without need for any notice or demand or any act or deed to perform the following:
1. Restructuring of BORROWER’s subject’s [sic] outstanding obligation of PESOS: ONE MILLION ONE HUNDRED SEVENTY ONE THOUSAND
FOUR HUNDRED SIXTY SEVEN & 18/100 CTS. (P1,171, 467.18) as of
February 29, 1996 as follows:
a)
Upfront payment of PESOS: THREE HUNDRED
THOUSAND SIX HUNDRED TWENTY THREE & 55/100 CTS. (P300,623.55)
presently lodged to Accounts Payable (A/P) shall be applied as follows:
P165,146.85 – to
settle the penalty
& interest
135, 476.70 – to partially pay the
========== principal
P300,625.55
b)
The remaining principal balance of PESOS:
EIGHT HUNDRED SEVENTY THOUSAND EIGHT HUNDRED FORTY THREE & 63/100 (P870,843.63) after above
application shall be charged interest at
17% per annum (p.a.) effective P79,000.00) starting
2. Failure of the BORROWER to remit two consecutive quarterly amortizations shall be sufficient ground to initiate foreclosure proceedings;
x x x x
5. All other terms and conditions of the original Loan Agreement as well
as existing collateral documents not inconsistent herewith shall remain in
force and effect.[5] (Emphasis supplied)
Respondent defaulted in the payment
of monthly amortizations of the loan; hence, the entire balance of the loan became
due and demandable[6] which, as
of P971,324.89.[7] Despite demand,[8] respondent failed to settle her obligation, prompting
petitioner to initiate foreclosure proceedings.[9]
Respondent thereupon filed on
1. That immediately upon the filing of th[e] action, a Restraining Order issue, prohibiting and stopping the defendant from proceeding with the Sale of the aforesaid property on July 28 and until the final resolution of th[e] case;
2. After hearing converting said Restraining Order into a Writ of Preliminary Injunction;
3. After trial: --
a. Declaring CB Circular No. 905 basis of high interest rate and any other circular floating the interest rate as without legal basis whatsoever and therefore null and void;
b. Declaring PD No. 116 which authorizes the CB now BSP to fix interest rates or ceiling as unconstitutional for being among others an undue delegation of legislative power.
c. Declaring that all payments made by the plaintiff to defendant be considered as payment of the principal without interest whatsoever;
d. Ordering defendant Bank to pay attorney’s fee of P50,000.00.[11] (Underscoring supplied)
As prayed for by respondent, the
Executive Judge–Presiding
Judge of Branch 42 of the
Petitioner filed its Answer (With
Compulsory Counterclaim [for damages and attorney’s fees]).
After conducting a hearing on
respondent’s application for the issuance of writ of preliminary injunction, Branch
43 of the San Fernando RTC to which the case was raffled denied the application
by Order[13] of
Respondent subsequently filed on June
8, 1998 a Supplemental Complaint[14]
alleging that even before the denial of her application for writ of preliminary
injunction, the mortgaged property was sold at public auction for P1,298,460.88,
pursuant to which a Certificate of Sale[15]
was issued. She thus prayed for the
annulment of the Certificate of Sale on the ground that “the amount for
which [petitioner sought] to have the property sold at public auction is
mostly an accumulation of usurious interest x x x.”[16] The Supplemental Complaint was admitted[17]
by the trial court as was a subsequently filed Amended Supplemental Complaint.[18]
After trial, the trial court, by
Decision[19] of
On appeal,[20]
the Court of Appeals, noting that the loan extended to respondent was part of
the social assistance program to improve the plight of farmers, found the
interest rate of 17% per annum and the penalty charge of 12% per
annum exorbitant and thus reduced them to 12% per annum and 5% per
annum, respectively. And it nullified the sale at public auction of the
mortgaged property. Thus the appellate
court disposed in its challenged Decision of
WHEREFORE,
in view of the foregoing, the Decision dated
Appellant is, however, directed to PAY appellee LBP the amount of Five Hundred Ninety Two Thousand and Seven Hundred Ninety Two Pesos and 42/100 (P592,792.42) with interest at the legal rate from March 29, 1999, upon payment of which appellee LBP shall RETURN title of the mortgaged property to plaintiff-appellant and RESTORE her in possession thereof.
The award of moral and exemplary damages, attorney’s fees and expenses of litigation to defendant LBP is SET ASIDE.
SO
ORDERED.[22] (Emphasis
in the original)
Its
Motion for Reconsideration[23]
having been denied,[24] petitioner
filed the present Petition for Review on Certiorari,[25]
raising the following issues:
(A)
WHETHER OR NOT THE INTEREST RATE OF 17% PER
ANNUM, AS PROVIDED IN THE RESTRUCTURING AGREEMENT, AS WELL AS THE PENALTY
CHARGES OF 12% PER ANNUM CAN BE CONSIDERED AS EXORBITANT AND UNCONSCIONABLE.
(B)
WHETHER OR NOT THE FORECLOSURE PROCEEDINGS
CAN BE NULLIFIED ON THE GROUND THAT THE INTEREST RATES IMPOSED BY LAND BANK WAS
UNCONSCIONABLE.[26]
The
petition fails.
Jurisprudence
empowers courts to equitably reduce interest rates.[27] And the law empowers them to reduce penalty
charges. Thus, Article 1229 of the Civil
Code provides:
The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no partial performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (Emphasis and underscoring supplied)
Whether
an interest rate or penalty charge is reasonable or iniquitous is addressed to
the sound discretion of the courts.[28] In determining what is iniquitous and
unconscionable, courts must consider the circumstances of each case,[29] for
what may be just in one case may be iniquitous and unconscionable in another.[30] Thus, while this Court sustained the validity
of a 21% per annum interest in Spouses
Bautista v. Pilar Development
Corporation,[31] it reduced an 18% per annum
interest rate to 12% per
annum in Trade & Investment Development Corporation of the Phils. v.
Roblett:[32]
Section 24 of R.A. No. 8435 (The
Agriculture and Fisheries Modernization Act of 1997) provides that “[t]he Land
Bank of the Philippines shall, in accordance with its original mandate, focus
primarily on plans and programs in relation to the financing of agrarian reform
and the delivery of credit services to the agriculture and fisheries
sectors, especially to small farmers and fisherfolk.” In the case at bar, the purpose of the loan
was to finance the construction of two broiler houses and a feeds warehouse.[33] The observation by the Court of Appeals that
the loan extended to respondent was part of the social assistance program to
improve the plight of farmers is thus well-taken.
The
Court notes respondent’s claim, that even after the restructuring on April 18,
1996 of the original loan, which was not
refuted by petitioner, her profits greatly diminished due to the poor quality
of feeds provided by Vitarich such
that in April 1997, she earned a profit of only P8,236.43.[34]
Given
the business losses that respondent suffered, coupled with the fact that she had
made partial payments on both the original loan and the restructured loan,[35]
the reduction by the appellate court of the interest rate and penalty charge is
justified.[36]
While,
as petitioner argues, the nullity of the interest rate and penalty charge does
not affect its right to recover the principal amount of the loan, the public
auction of the mortgaged property is nevertheless void,[37]
the amount indicated as mortgage indebtedness having included excessive,
iniquitous, and exorbitant interest rate and penalty charge.
x x x The nullity of the stipulation on the usurious interest does not x x x affect the lender’s right to recover the principal of the loan. Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered without the stipulation of the excessive interest.
While
the terms of the Real Estate Mortgage remain effective, the foreclosure
proceedings held on P874,125.00. Likewise, in the demand letter dated P874,125.00 for the
unpaid loan. Since the debt due is limited
to the principal of P350,000.00 with 12% per annum as legal
interest, the previous demand for payment of the amount of P874,125.00
cannot be considered as a valid demand for payment. For an obligation to become due, there must
be a valid demand. Nor can the
foreclosure proceedings be considered valid since the total amount of the
indebtedness during the foreclosure proceedings was pegged at P874,125.00
which included interest and which this Court now nullifies for being excessive,
iniquitous, and exorbitant. x x x (Emphasis and underscoring supplied)[38]
WHEREFORE,
the petition is, in
light of the foregoing disquisition, DENIED.
SO ORDERED.
CONCHITA
CARPIO MORALES
Associate
Justice
WE CONCUR:
|
LEONARDO A. QUISUMBING Associate Justice Chairperson |
DANTE O. TINGA Associate Justice |
|
PRESBITERO J. VELASCO, JR. Associate Justice |
ARTURO D. BRION Associate Justice |
ATTESTATION
I attest
that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
LEONARDO
A. QUISUMBING
Associate
Justice
Chairperson
CERTIFICATION
Pursuant to
Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO
S. PUNO
Chief Justice
[1] Loan Agreement, Exhibit “1,” Exhibits (Defendant).
[2] Real Estate Mortgage, Exhibit “2,” Exhibits (Defendant).
[3] Transfer Certificate of Title, Exhibit “3,” Exhibits (Defendant).
[4] Restructuring Agreement, Exhibit “4,” Exhibits (Defendant).
[5] Ibid.
[6] TSN,
[7] Statement of Account as of
[8] Vide Exhibit “7,” Exhibits (Defendants); TSN,
[9] TSN,
[10] Records, pp. 1-6.
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21] Penned by Court of Appeals Associate
Justice Arcangelita M. Romilla-Lontok with the concurrence of Associate
Justices Rodrigo V. Cosico and Danilo B. Pine.
CA rollo, pp. 86-101. Vide pp. 97-98.
[22] CA rollo, p. 101.
[23]
[24]
[25] Rollo, pp. 29-41.
[26]
[27] Vide
Ruiz v. Court of Appeals,
449 Phil. 419, 433-435 (2003).
[28] Poltan v. BPI Family Savings Bank,
G.R. No. 164307, March 5, 2007, 517 SCRA 430, 446.
[29] Vide
Trade & Investment
Development Corporation of the
[30] Vide
ibid.
[31] 371 Phil. 533, 543-544 (1999).
[32] Supra note 29 at 7-8.
[33] Loan Agreement, Exhibit “1,” Exhibits (Defendant).
[34] TSN,
[35] TSN,
[36] Lo
v. Court of Appeals, 458 Phil. 414, 419 (2003).
[37] Heirs of Zoilo Espiritu v.
Landrito, G.R. No. 169617,
[38]