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RGM INDUSTRIES, INC.

,
Petitioner,

G.R.
No. 194781
Present:

- versus -

UNITED PACIFIC CAPITAL CORPORATION,


Respondent.

CARPIO, J.,
Chairpers
on,
BRION,
PEREZ,
SERENO,
and
REYES, JJ.
Promulgated:
June 27, 2012

x-----------------------------------------------------------------------------------------x
RESOLUTION
REYES, J.:
At bar is a Petition for Review on Certiorari, under Rule 45 of the Rules of
Court, seeking to annul and set aside the Decision[1] dated July 23, 2010 of the
Court of Appeals (CA) in CA-G.R. CV No. 87727 which affirmed with
modification the Decision[2] dated April 11, 2005 of the Regional Trial Court
(RTC), Branch 147 of Makati City, in Civil Case No. 99-1888, ordering RGM
Industries, Inc. (petitioner) to pay its obligation to United Pacific Capital
Corporation (respondent). The RTC's judgment was modified as to the interest
rates and penalty charges imposed.
Likewise assailed is the CA's Resolution[3] dated December 14, 2010 denying
the petitioner's motion for reconsideration.
The uniform factual findings of the courts a quo[4]

The respondent is a domestic corporation engaged in the business of lending


and financing. On March 3, 1997, it granted a thirty million peso short-term credit
facility in favor of the petitioner. The loan amount was sourced from individual
funders on the basis of a direct-match facility for which a series of promissory
notes were issued by the petitioner for the payment of the loan.
The petitioner failed to satisfy the said promissory notes as they fell due and
the loan had to be assumed in full by the respondent which thereby stepped into the
shoes of the individual funders.
Consequently, on April 4, 1998, the petitioner issued in favor of the
respondent a consolidated promissory note in the principal amount
of P27,852,075.98 for a term of fourteen (14) days and maturing on April 28,
1998. The stipulated interest on the consolidated promissory note was 32% per
annum. In case of default, a penalty charge was imposed in an amount equivalent
to 8% per month of the outstanding amount due and unpaid computed from the
date of default.
The petitioner failed to satisfy the consolidated promissory note, the principal
balance of which as of April 28, 1998 was P27,668,167.87.
The respondent thus sent demand letters to the petitioner but the latter failed
to pay and instead asked for restructuring of the loan. The respondent declined the
request and on October 5, 1999, filed the herein complaint for collection of sum of
money against the petitioner.
The petitioner did not dispute the loan it owes but claimed that the agreed
interest rate was fixed at 15.5% per annum and not the varying interest rates
imposed by the respondent which reached as high as 40% per annum. The
petitioner asserted that the respondent unilaterally imposed the increased interest
rates in violation of the principle of mutuality of contracts.
The respondent, on the other hand, argued that the increased interest rates
were mutually agreed upon and that the same cannot be considered usurious
because usury is legally non-existent in this jurisdiction.

Ruling of the RTC


The RTC ruled in favor of the respondent and held thus:
WHEREFORE, premises considered, Judgment is hereby
rendered for the (respondent) ordering the (petitioner) RGM Industries[,]
Inc. as the Issuer of the consolidated promissory note, to pay
(respondent) the amount of [P]27,668.167.87 representing the
outstanding principal obligation plus interest at the rate of 32% per
annum and penalty charges at the rate of 8% per month from date of
default on the consolidated promissory note until fully paid, and an
amount equivalent to 25% of the amount due as and for attorney's fees,
and to pay the costs of suit.
SO ORDERED.[5]

Ruling of the CA
On appeal, the CA affirmed the RTC's judgment but modified the interest
rates and penalty charges imposed. The CA held that the interest rates levied by
the respondent were excessive and unconscionable hence, must be reduced to 12%
per annum. The CA likewise lowered the penalty charges to 2% per month
considering that the P7,504,522.27 paid by the petitioner was already applied
thereto and the nature of the contract between the parties was a short-term credit
facility. The attorney's fees were reduced from 25% to 10% of the outstanding
obligation. The decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the instant appeal is
hereby PARTLY GRANTED. The impugned Decision is AFFIRMED
with MODIFICATIONS. The interest rate of 32% per annum is
equitably reduced to 12% per annum, the penalty charge of 8% per
month to 2% per month and attorney's fees of 25% of the total unpaid
obligation to 10%.
SO ORDERED.[6]

Its motion for reconsideration[7] of the foregoing issuance having been


denied,[8] the petitioner interposed the present petition arguing that the modified
interest rates and penalty charges decreed by the CA are still exorbitant and that the
CA failed to appreciate the partial payments already made when it upheld the
amount of P27,668,167.87 as petitioner's outstanding balance.
Our Ruling
The petition is partially impressed with merit.
The issue on partial payments and their application to the outstanding
balance involves a calibration of the evidence presented, hence, factual in nature
and not reviewable in the petition at bar. Oft-repeated is the rule that petitions for
review under Rule 45 of the Rules of Court may be brought only on questions of
law, not on questions of fact.[9]
Nevertheless, we are convinced that the courts a quo, in concluding the
outstanding balance of the petitioner, have both carefully considered and
appreciated the evidence of partial payments adduced. As found by the CA, the
payments made by the petitioner before the complaint was filed were duly
deducted from the outstanding balance; while the payments made during the
pendency of the case were applied to the due and outstanding penalty charges.
We affirm the interest rate decreed by the CA. Stipulated interest rates are
illegal if they are unconscionable and courts are allowed to temper interest rates
when necessary. In exercising this vested power to determine what is iniquitous
and unconscionable, the Court must consider the circumstances of each
case. What may be iniquitous and unconscionable in one case, may be just in
another.[10]
We cannot uphold the petitioner's invocation of our ruling in DBP v. Court of
Appeals,[11] wherein the interest rate imposed was reduced to 10% per annum. The
overriding circumstance prompting such pronouncement was the regular payments
made by the borrower. Evidently, such fact is wanting in the case at bar, hence, the
petitioner cannot demand for a similar interest rate.

The circumstances attendant herein are similar to those in Trade &


Investment Development Corporation of the Philippines v. Roblett Industrial
Construction Corporation[12] wherein we levied the legal interest rate of 12% per
annum.
However, pursuant to Bank of the Philippine Islands, Inc. v. Yu,[13] we deem it
proper to further reduce the penalty charge decreed by the CA from 2% per month
to 1% per month or 12% per annum in view of the following factors: (1)
respondent has already received P7,504,522.27 in penalty charges, and (2) the loan
extended to respondent was a short-term credit facility.
On the basis of the same precedent, the attorney's fees must likewise be
equitably reduced considering that: (1) the petitioner has already made partial
payments; (2) the attorney's fees are not an integral part of the cost of borrowing
but a mere incident of collection;[14] and (3) the attorney's fees were intended as
penal clause to answer for liquidated damages, hence, the rate of 10% of the
unpaid obligation is too onerous.[15] Under the premises, attorneys fees equivalent
to one percent (1%) of the outstanding balance is reasonable.[16]
WHEREFORE, in consideration of the foregoing, the Petition is
hereby PARTLY GRANTED. The Decision dated July 23, 2010 of the Court of
Appeals
in
CA-G.R.
CV
No.
87727
isAFFIRMED with
the MODIFICATIONS that: (1) the penalty charge is reduced to 1% per month or
12% per annum; and (2) the attorney's fees is reduced to 1% of the total unpaid
obligation.
SO ORDERED.

SPECIAL SECOND DIVISION


TRADE & INVESTMENT DEVELOPMENT CORPORATION OF
THE PHILIPPINES (Formerly
Philippine Export & Foreign
Loan Guarantee Corporation,
Petitioner,
- versus -

G.R. No. 139290


Present:
PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.
TINGA, and
CHICO-NAZARIO, JJ.

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION,


ROBERTO G. ABIERA and
Promulgated:
LETICIA ABIERA, and PARAMOUNT
INSURANCE CORPORATION,
Respondents.
May 19, 2006
x------------------------------------------------------------------------------ x
RE S O LUTI ON
TINGA, J.:

Under consideration are the motion for reconsideration [1] dated 23 December 2005 and
supplemental motion for reconsideration[2] dated 23 January 2006, both filed by respondent
Paramount Insurance Corporation (Paramount) with regard to our Decision[3] dated 11 November
2005 which disposed of the case as follows:
WHEREFORE, premises considered, the petition is hereby GRANTED.
The Decision of the Court of Appeals is REVERSED and the judgment of the
Regional Trial Court is REINSTATED with the following modifications:
a) ordering respondents Roblett, the Abieras, and Paramount, jointly and
severally, to pay petitioner Philguarantee the amount
of P11,775,611.25, with the following rates of interest and penalty
charge, to wit:

i.

for respondent Paramount, eighteen percent (18%) interest per


annum from 5 June 1990 until fully paid;

ii. for respondents Roblett and the Abieras, sixteen percent (16%)
interest per annum from 5 June 1990 until fully paid; and penalty
charge of sixteen percent (16%) per annum compounded monthly
from 5 June 1990 until fully paid;
b)

ordering respondents Roblett and the Abieras, jointly and


severally, to pay petitioner Philguarantee the amount
of P18,029,219.78 plus 12% interest thereon from the time of
finality of judgment until fully paid;

c)

ordering respondents Roblett and the Abieras, jointly and severally,


to pay petitioner Philguarantee ten percent (10%)
of P11,775,611.25, as attorney's fees, plus the costs of suit;

d)

ordering respondent Paramount, jointly and severally with


respondents Roblett and the Abieras, to pay petitioner
Philguarantee P100,000.00 as reasonable attorney's fees;

e)

ordering respondents Roblett and Benlot, jointly and severally, to


reimburse respondent Paramount whatever amount it would pay
petitioner Philguarantee including all interests, attorney's fees and
the costs; and

f)

ordering all the respondents, jointly and severally, and the thirdparty defendants, also jointly and severally, to pay petitioner
Philguarantee legal interest of 12% per annum on the judgment
awards respectively against them from the time of finality of
judgment until fully paid.

SO ORDERED.[4]

In support of its motion for reconsideration, Paramount submits the following grounds: (1)
Paramount issued a bidders bond and not a performance or guarantee bond so that when
respondent Roblett Industrial Construction Corporation (Roblett) executed the sub-contract
agreement, Paramount was released from liability thereunder; (2) petitioner is guilty of
misrepresentation and concealment in securing Paramounts continuing commitment to answer
for Robletts repayment scheme; (3) petitioner and Roblett entered into a rehabilitation program
which novated the principal obligation of the parties resulting in the discharge of Paramount; (4)

the subject surety bond expired without any claim being made against the same; and (5)
Paramount is not liable for attorneys fees.
The supplemental motion for reconsideration essentially reiterates the allegations and
arguments found in the motion for reconsideration with the additional contention that the interest
charge on the principal debt is unconscionable.
We have perused the instant motions and find no new substantial arguments to warrant
the reversal or modification of our Decision. Respondents motion essentially concerns issues
that have been passed upon and fully considered by the Court in the decision sought to be
reconsidered. Thus, we find no cogent reason to depart from the ruling subject of this
recourse. The only matter left to be resolved is the validity of the interest charge against the
principal amount involved in this case.
Under the surety bond,[5] Paramount bound itself jointly and severally with Roblett to pay
petitioner to the extent of P11,775,611.35 for whatever damages and liabilities the latter may
suffer by virtue of its counterguarantee. Paramount further agreed to pay petitioner interest
thereon at the rate of 18% per annum from the date of receipt of petitioners first demand letter
up to the date of actual payment.
In our Decision, we found that none of the parties questioned the validity of the stipulated
interest rate. Finding the same legal, we upheld its validity. With the suspension of the Usury
Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed
on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent
exercised by one party against the other, the interest rate agreed upon is binding upon them.
[6]
Nevertheless, we ruled that Paramounts liability therefor should commence from the date of
judicial demand, or on 5 June 1990, and not from the date petitioner made a formal notice of
demand to Paramount. This is but fair as the delay in the performance of Paramount is
attributable to the failure of petitioner to inform the former of the developments in the
negotiations with Roblett.
Paramount argues that it is made liable for approximately P48 million, the bulk of which is
the interest charge and not the principal amount. It then submits that the interest is clearly
iniquitous, unconscionable and exorbitant, thus contrary to morals, [7] citing our ruling in Medel v.
Court of Appeals.[8] In the said case, we held as void the stipulation on interest at the rate of
5.5% per month or 66% per annum, on a P500,000.00 loan, the same being excessive,

iniquitous, unconscionable and exorbitant, hence, contrary to morals ("contra bonos mores"), if
not against the law.[9]
It would seem that Paramounts opposition to the interest awarded herein does not spring
from the invalidity of the stipulated interest rate but rather on the resulting amount of interest
charge alone, which if counted from the date of judicial demand would come to roughly P32
million which is thrice the amount of the principal debt of P11,775,611.35.
While the Court recognizes the right of the parties to enter into contracts and who are
expected to comply with their terms and obligations, this rule is not absolute. Stipulated interest
rates are illegal if they are unconscionable[10] and the Court is allowed to temper interest rates
when necessary.[11] In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. [12] What may be
iniquitous and unconscionable in one case, may be just in another. In a number of cases,[13] this
Court equitably reduced the interest rate agreed upon by the parties for being iniquitous,
unconscionable, and/or exhorbitant.
Notably in the case of Development Bank of the Philippines v. Court of Appeals [14], while
this Court held that respondents were liable for the stipulated interest rate of 18% per annum, we
equitably reduced the same to 10% per annum after finding that the interests and penalty charges
alone exceeded the amount of the principal debt. As such, the interests were found to be
excessive. We further held that the additional penalty charge of 8% per annum would
sufficiently cover whatever else damages petitioner may have incurred such as attorneys fees
and litigation expenses.
In the instant case, the resulting interest charge has turned out to be excessive in the
context of its base computation period, and hence, unwarranted in fact and in operation. We are
not unmindful of the length of time this case has been pending in court for which the amount
involved has ballooned to the outrageous amount of more than P45 million which isfour
times the principal debt.
While we have sustained the validity of much higher interest rates of 21% per annum
in Bautista v. Pilar Development Corporation[15] and 24% per annum in Garcia v. Court of
Appeals[16] as the factual circumstances therein warrant, it is well to note that compared to the
instant case, the said cases were litigated for a shorter period of time12 years and 3 years,
respectively. Development Bank of the Philippines[17] was finally decided after only 10 years of

litigation. Here, the complaint was filed in the lower court on 5 June 1990 or sixteen (16) years
ago. Consequently, the already huge principal debt swelled to a considerably disproportionate
sum. Thus, we deem an interest rate of 12% per annum is more reasonable under the
circumstances.
WHEREFORE, premises considered, respondent Paramounts motion for reconsideration
and supplemental motion for reconsideration are GRANTED IN PART and our
assailed Decision dated 11 November 2005 is hereby MODIFIED. The interest rate of 18% per
annum as stipulated in the surety bond is equitably reduced to 12% per
annum. TheDecision is AFFIRMED WITH FINALITY in all other respects.
SO ORDERED.

G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,


vs.
ALEX A. JAUCIAN, respondent.
DECISION
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 Review1 under Rule 45 of the Rules of Court, assailing the July 19,
2000 Decision2 and the June 14, 2001 Resolution3 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, 5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in Civil Case
No. 89-1911 for Sum of Money, is hereby AFFIRMED in 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, on October 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, 1987

P 50,000.00

(b) December 28, 1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11, 1988

50,000.00

(e) January 12, 1988

50,000.00

(f) January 13, 1988

100,000.00

Total
"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 of P40,000.00 on December 28, 1987, with face value
of P65,000.00;
2. Exhibit E for loan of P50,000.00 on January 11, 1988, with face value
of P82,000.00;
3. Exhibit F for loan of P50,000.00 on January 12, 1988, with face value
of P82,000.00;
4. Exhibit G for loan of P100,000.00 on January 13, 1988, with face value
of P164,000.00;
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

P320,000.00

finally for the second time on January 4, 1988 also after certain payments, with a
face value of P56,240.00;
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 of P12,760.00;
"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 of August 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
of P320,000.00 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, 1987

P 50,000.00

(b) December 28, 1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11, 1988

50,000.00

(e) January 12, 1988

50,000.00

(f) January 13, 1988

100,000.00

Total
"The loan on November 13, 1987 and January 6, 1988 ha[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

P320,000.00

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 was P462,600.00. 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 of January 25, 1989, the total payments made by
defendants [were] as follows:
a. Paid releases on November 13, 1987
ofP50,000.00 and January 6, 1988
ofP30,000.00 these two items were not
included in the complaint affirming the fact
that these were paid

P 80,000.00

b. Exhibit 26 Receipt

231,000.00

c. Exhibit 8-25 Receipt

65,300.00

d. Exhibit 27 Receipt

65,000.00

Total

P441,780.00

Less:

320,000.00

Excess Payment

P121,780.00

"Defendant contends that from all perspectives the above excess payment of P121,780.00
is more than the interest that could be legally charged, and in fact as of January 25, 1989,
the total releases have been fully paid.
"On 31 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 petitioner has fully paid her obligations even before filing of this case.

"2. That the charging of interest of twenty-eight (28%) per centum per annum without
any writing is illegal.
"3. That charging of excessive attorneys fees is hemorrhagic.
"4. Charging of excessive penalties per month is in the guise of hidden interest.
"5. The non-inclusion of the husband of the petitioner at the time the case was filed
should have dismissed this case."8
The Courts Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges
that the two lower courts misappreciated the facts when they ruled that she still had an
outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or difference arises as
to the truth or the falsehood of alleged facts; and when there is need for a calibration of the
evidence, considering mainly the credibility of witnesses and the existence and the relevancy of
specific surrounding circumstances, their relation to each other and to the whole, and the
probabilities of the situation.9
It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by
certiorari under Rule 45 of the Rules of Court, as this remedy is generally confined to questions
of law.10 The jurisdiction of this Court over cases brought to it is limited to the review and
rectification of errors of law allegedly committed by the lower court. As a rule, the latters
factual findings, when adopted and affirmed by the CA, are final and conclusive and may not be
reviewed on appeal.11
Generally, this Court is not required to analyze and weigh all over again the evidence already
considered in the proceedings below.12 In the present case, we find no compelling reason to
overturn the factual findings of the RTC -- that the total amount of the loans extended to
petitioner was P320,000, and that she paid a total of onlyP116,540 on twenty-nine dates. These
findings are supported by a preponderance of evidence. Moreover, the amount of the outstanding
obligation has been meticulously computed by the trial court and affirmed by the CA. Petitioner
has not given us sufficient reason why her cause falls under any of the exceptions to this rule on
the finality of factual findings.
Second Issue:

Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent
per month or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167
percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower courts should
have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the payment of
interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts,
this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. "While
the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, 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."13
In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per month, or 66
percent per annum, unconscionable. In the present case, the rate is even more iniquitous and
unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or
unconscionable, it is considered "contrary to morals, if not against the law. [Such] stipulation is
void."15
Since the stipulation on the interest rate is void, it is as if there were no express contract
thereon.16 Hence, courts may reduce the interest rate as reason and equity demand. We find no
justification to reverse or modify the rate imposed by the two lower courts.
Third and Fourth Issue:
Penalties and Attorneys Fees
Article 1229 of the Civil Code states thus:
"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 performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable."
In exercising this power to determine what is iniquitous and unconscionable, courts must
consider the circumstances of each case.17 What may be iniquitous and unconscionable in one
may be totally just and equitable in another. In the present case, iniquitous and unconscionable
was the parties stipulated penalty charge of 5 percent per month or 60 percent per annum, in
addition to regular interests and attorneys fees. Also, there was partial performance by petitioner
when she remitted P116,540 as partial payment of her principal obligation of P320,000. Under
the circumstances, the trial court was justified in reducing the stipulated penalty charge to the
more equitable rate of 14 percent per annum.

The Promissory Note carried a stipulation for attorneys fees of 25 percent of the principal
amount and accrued interests. Strictly speaking, this covenant on attorneys fees is different from
that mentioned in and regulated by the Rules of Court.18 "Rather, the attorneys fees here are in
the nature of liquidated damages and the stipulation therefor is aptly called a penal clause."19 So
long as the stipulation does not contravene the law, morals, public order or public policy, it is
binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled
to enforce the judgment by execution.
Nevertheless, it appears that petitioners failure to comply fully with her obligation was not
motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation
of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to
reduce the civil penalty equitably, when the principal obligation has been partly or irregularly
complied with. Upon this premise, we hold that the RTCs reduction of attorneys fees -- from 25
percent to 10 percent of the total amount due and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against her should have been dismissed, because her husband
was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant dismissal, as it is merely a
formal requirement that may be cured by amendment.20 Since petitioner alleges that her husband
has already passed away, such an amendment has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.

G.R. No. 177729

September 28, 2011

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION (now


TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE
PHILIPPINES), Petitioner,
vs.
AMALGAMATED MANAGEMENT AND DEVELOPMENT CORPORATION,
FELIMON R. CUEVAS, AND JOSE A. SADDUL, JR., Respondents.
DECISION
BERSAMIN, J.:
The matter for resolution refers to the liability of persons who agree to be jointly and solidarily
liable with the main obligor.
In its decision rendered on April 30, 2007 in C.A.-G.R. CV No. 78427,1 the Court of Appeals
(CA) affirmed the decision dated December 27, 2002 of the Regional Trial Court (RTC), Branch
148, in Makati City in Civil Case No. 94-638,2 absolving the co-obligors. Not satisfied with the
result, the petitioner is now before us to assail the CAs decision.
Antecedents
The petitioner, formerly the Philippine Export and Foreign Loan Guarantee Corporation but now
known as the Trade and Investment Development Corporation of the Philippines, is a
government-owned and controlled-corporation created by virtue of Presidential Decree No.
1080, as amended by Republic Act No. 8497. Its primary purpose is to guarantee the foreign
loans, in whole or in part, granted to any domestic entity, enterprise, or corporation, majority of
the capital of which is owned by Filipino citizens.
Respondent Amalgamated Management and Development Corporation (AMDC), a domestic
corporation, had as its main business the hauling of different commodities within the Middle East
countries. Its co-respondents Felimon R. Cuevas (Cuevas) and Jose A. Saddul, Jr. (Saddul) were,
respectively, its President and Vice-President.3
In early 1982, AMDC obtained from the National Commercial Bank of Saudi Arabia (NCBSA) a
loan amounting to SR3.3 million (equivalent to P9,000,000.00) to finance the working capital
requirements and the down payment for the trucks to be used in AMDCs hauling project in the
Middle East. On April 23, 1982, the petitioner issued a letter of guaranty in favor of NCBSA as
the lending bank upon the request of AMDC.4 As the security for the guaranty, Amalgamated
Motors Philippines Incorporated (AMPI), a sister company of AMDC, acted as an
accommodation mortgagor, and executed in favor of the petitioner a real estate mortgage over

two parcels of land located in Dasmarias, Cavite and covered by Transfer Certificate of Title
(TCT) No. 119031 and TCT No.119032 of the Registry of Deeds of Cavite.5 AMDC also
executed in favor of the petitioner a deed of undertaking dated April 21, 1982,6 with Cuevas and
Saddul as its co-obligors. In the deed of undertaking, AMDC, Cuevas, and Saddul jointly and
severally bound themselves to pay to the petitioner, as obligee, whatever damages or liabilities
that the petitioner would incur by reason of the guaranty.
AMDC defaulted on the obligation. Upon demand, the petitioner paid the obligation to NCBSA.
By subrogation and pursuant to the Deed of Undertaking, the petitioner then demanded that
AMDC, Cuevas and Saddul should pay the obligation, but its demand was not complied with.
Hence, it extra-judicially foreclosed the real estate mortgage.7 The Provincial Sheriff of Cavite
conducted a public auction, in which the petitioner acquired the mortgaged properties as the
highest bidder for P4,688,482.00 (TCT No. 119031) and P69,518.00 (TCT No. 119032).8
On the premise that the proceeds of the foreclosure sale were not sufficient to cover the guaranty
because a balance of P45,839,219.95 plus interest and other charges remained unpaid, the
petitioner sued AMDC, Cuevas and Saddul in the RTC to collect the deficiency.9
In a consolidated answer,10 AMDC and Cuevas admitted the existence of the real estate mortgage
and deed of undertaking, but raised defenses, as follows: (a) that they did not receive from the
petitioner any demand for the payment of the loan; (b) that the interests, penalties, fees, charges,
and attorneys fees were usurious, exorbitant, unconscionable, and in violation of law; (c) that
the value of the foreclosed properties was more than sufficient to pay the loan; (d) that the
deficiency claim was unconscionable and unilaterally computed by the petitioner; and (e) that
they made several payments to the petitioner in the form of rental or otherwise.
For his part, Saddul submitted a separate answer,11 averring that he was not liable to the
petitioner for any amount because he did not benefit from the guaranty; that the deed of
undertaking was unenforceable for being executed without any consideration; and that the
petitioner did not notify him that AMDC had incurred in delay in the payment of the obligation.
Saddul averred a cross-claim against AMDC.
AMDC, Cuevas, and Saddul all sought the dismissal of the complaint.
Ruling of the RTC
After trial, the RTC rendered its decision on December 27, 2002,12 decreeing thusly:
WHEREFORE, premises considered judgment is hereby rendered in favor of the plaintiff and
against defendant AMDC. Defendants Cuevas and Saddul are hereby rendered absolved from the
obligation as well as from the deficiency claim as a consequence, the case against them is hereby

dismissed. The cross-claim of defendant/cross-claimant defendant Saddul against defendant


AMDC is hereby dismissed for lack of sufficient basis to grant the same.
Defendant AMDC is hereby ordered to pay the plaintiff the following:
(1) The amount P45,839,219.25 as of March 31, 1993, representing deficiency claim;
(2) The accruing interest of 6% per annum from April 1, 1993 until deficiency claim is
fully paid.
(3) The accruing penalty charge of 6% per annum from April 1, 1993 until deficiency
claim is fully paid.
(4) P4,583,921.92 represents attorneys fees equivalent to 10% of the deficiency claim.
(5) Costs of suit.
SO ORDERED.
Ruling of the CA
The petitioner appealed to the CA, asserting that Cuevas and Saddul should be held jointly and
severally liable with AMDC on its deficiency claim; and that the rates of interest and penalty
charges on the deficiency claim should each be at 16% per annum instead of only 6% per annum.
On April 30, 2007, the CA promulgated its assailed decision,13 viz:
Time and again, We stress the well-settled rule that findings of fact of the trial court as well as its
calibration of the evidence of parties, its assessment of the credibility and probative weight of the
witnesses, and its conclusion based on its findings are accorded by the appellate court with high
respect, if not conclusive effect. In fine, findings of the trial court should not be disturbed on
appeal, unless some facts or circumstances of substance and value have been overlooked which,
if considered, might well affect the result of the case.
In the extant case, We do not find any fact or circumstance which if considered, might affect the
result of the case.
WHEREFORE, premises considered, the judgment of the Regional Trial Court dated December
27, 2002 is hereby AFFIRMED in toto.
SO ORDERED.

Issues
Hence, the petitioner appeals, raising the following issues, to wit:
(1) Whether the CA erred in affirming the RTCs ruling that Cuevas and Saddul were
absolved of personal liability on the petitioners deficiency claim;
(2) Whether the CA erred in ruling that Cuevas and Saddul had not been notified of the
guaranty period extension, and had been thereby exonerated from liability on the
deficiency claim;
(3) Whether the CA erred in holding that Cuevas and Saddul did not receive any demand
letter from the petitioner;
(4) Whether the CA erred in finding that the petitioners claim against Cuevas and
Saddul, Jr. had already prescribed; and
(5) Whether the CA erred in declaring that AMDC was liable to pay interest and penalty
charge at the rate of only 6% per annum instead of 16% per annum.14
Ruling
The appeal is partly meritorious.
I
Pre-trial order is not exclusive about the
issues to be resolved by the trial court
The petitioner posits that based on the RTCs pre-trial order,15 the only issue to be resolved was
whether there was a deficiency claim after the foreclosure of the real estate mortgage; that the
liability of Cuevas and Saddul on the deficiency claim was already an admitted fact under the
pre-trial order; and that the RTC improperly considered and determined their liability.16
The Court cannot sustain the petitioners position.
The pre-trial order nowhere stated that Cuevas and Saddul already admitted their liability on the
petitioners deficiency claim. Their admission appearing in the pre-trial order referred only to the
fact that they and AMDC had received advances in large amounts from the petitioner, and that
the real estate mortgage securing the loan had already been foreclosed.

Whether Cuevas and Saddul were liable on the deficiency claim was proper for the ascertainment
and determination by the RTC as the trial court and the CA as the appellate tribunal,
notwithstanding the silence of the pre-trial order on it, because such issue was deemed
necessarily included in or inferred from the stated issue of whether there was a deficiency still to
be paid by AMDC, Cuevas and Saddul.
It is true that the issues to be tried between the parties in a case shall be limited to those defined
in the pre-trial order, as Section 7, Rule 18 of the Rules of Court explicitly provides:
Section 7. Record of pre-trial. The proceedings in the pre-trial shall be
recorded.1wphi1 Upon the termination thereof, the court shall issue an order which shall recite
in detail the matters taken up in the conference, the action taken thereon, the amendments
allowed to the pleadings, and the agreements or admissions made by the parties as to any of the
matters considered. Should the action proceed to trial, the order shall explicitly define and limit
the issues to be tried. The contents of the order shall control the subsequent course of the action,
unless modified before trial to prevent manifest injustice. (5a, R20)
However, a pre-trial order is not intended to be a detailed catalogue of each and every issue that
is to be taken during the trial, for it is unavoidable that there are issues that are impliedly
included among those listed or that may be inferable from those listed by necessary implication
which are as much integral parts of the pre-trial order as those expressly listed.17
At any rate, it remains that the petitioner impleaded Cuevas and Saddul as defendants, and
adduced against them evidence to prove their liabilities. With Cuevas and Saddul being parties to
be affected by the judgment, it was only appropriate for the RTC to inquire into and determine
their liability for the purpose of arriving at a complete determination of the suit. Thereby, the
RTC acted in conformity with the avowed reason for which the courts are organized, which was
to put an end to controversies, to decide the questions submitted by the litigants, and to settle the
rights and obligations of the parties.18
II
Notice on the guaranty period extension
The petitioner insists that Cuevas and Saddul were liable on the deficiency claim despite the lack
of notice to them about the extension of the guaranty.
The insistence of the petitioner has merit.
To start with, the records indicate that on several occasions, Cuevas and Saddul, as President and
Vice-President, respectively, of AMDC, separately wrote to the petitioner to request the
extension of the guaranty period because AMDC could not pay the obligation on its due

date;19 and that the petitioner granted each request and correspondingly sent letters to NCBSA
informing it of the extensions of the guaranty period.20 The letters granting the requests for
extension of the guaranty period bore the approval and signatures of Cuevas and Saddul as
President and Vice-President, respectively, of AMDC.21 Having thus admitted their letters on the
extension of the guaranty period, Cuevas and Saddul could not anymore feign ignorance of the
guaranty extension.
Moreover, the deed of undertaking specifically stated that the grant of the extension of the
guaranty period did not extinguish or diminish the obligation of Cuevas and Saddul under the
guaranty.22 Hence, whether or not the guaranty period was extended, and whether or not they
were notified of the extension, Cuevas and Saddul remained liable under the guaranty. The
stipulation, which was not illegal or immoral, necessarily bound Cuevas and Saddul. It is worth
noting, too, that a solidary obligation existed among AMDC, Cuevas and Saddul because they
had assented to be jointly and severally liable to the petitioner for whatever damages or liabilities
that it might incur by virtue of the guaranty.23 In a solidary obligation, each debtor was liable for
the entire obligation.24 The petitioner could compel any of the solidary obligors to perform the
entire obligation.
III
Demand to pay the deficiency claim
The petitioner claims that it made a demand on Cuevas and Saddul to pay the deficiency
claim,25 but they still deny the claim.
The petitioners claim is upheld.
In the deed of undertaking, Cuevas and Saddul bound themselves to reimburse or to pay to the
petitioner their obligation under the guaranty upon the latters demand.26 The Civil Code
provides that the obligor incurs in delay from the time the obligee judicially or extrajudicially
demands the fulfillment of the obligation, viz:
Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins. (1100a)
It is noted that the petitioners complaint to recover its deficiency claim from obligors AMDC,
Cuevas and Saddul, being a judicial demand, sufficed to render Cuevas and Saddul in delay in
the payment of the deficiency claim.
IV
When prescriptive period for the
deficiency claim began to run
There is no dispute that the prescriptive period of the petitioners deficiency claim is ten years
under Article 1144 of the Civil Code.27 What remains in issue was the date when the prescriptive
period began to run. The petitioner submits that the 10-year period should be reckoned from the
date of the foreclosure.28
The petitioner is correct.
In Quirino Gonzales Logging Concessionaire v. Court of Appeals,29 we have ruled that the 10year period to recover a deficiency claim starts to run upon the foreclosure of the property
mortgaged, viz:
With respect to the first to the fifth causes of action, as can be gleaned from the complaint, the
Bank seeks the recovery of the deficient amount of the obligation after the foreclosure of the
mortgage. Such suit is in the nature of a mortgage action because its purpose is precisely to
enforce the mortgage contract. A mortgage action prescribes after ten years from the time the
right of action accrued.
The law gives the mortgagee the right to claim for the deficiency resulting from the price
obtained in the sale of the property at public auction and the outstanding obligation at the time of
the foreclosure proceedings. In the present case, the Bank, as mortgagee, had the right to
claim payment of the deficiency after it had foreclosed the mortgage in 1965. In other
words, the prescriptive period started to run against the Bank in 1965. As it filed the
complaint only on January 27, 1977, more than ten years had already elapsed, hence, the action
on its first to fifth causes had by then prescribed. No other conclusion can be reached even if the
suit is considered as one upon a written contract or upon an obligation to pay the deficiency

which is created by law, the prescriptive period of both being also ten years (citing Article
1144 of the Civil Code). (emphasis supplied)30
In view of the real property mortgage having been foreclosed on February 22, 1988 and March
24, 1988,31 the petitioners filing on February 17, 1994 of its complaint to recover the deficiency
claim was well within the 10-year prescriptive period.
V
Rate of interest and penalty charge
The petitioner submits that the interest rate and penalty charge on the amount of the deficiency
claim should each be 16% per annum, not 6% per annum, as the RTC and CA both ruled.32
We do not subscribe to the petitioners submission.
In contracts, the law empowers the courts to reduce interest rates and penalty charges that are
iniquitous, unconscionable and exorbitant.33 Whether an interest rate or penalty charge is
reasonable or excessive is addressed to the sound discretion of the courts. In determining what is
iniquitous and unconscionable, courts must consider the circumstances of the case.34
Although the market value of the two parcels of land at the time of the foreclosure sale and
acquisition by the petitioner totaled P15,225,000.00,35 the parcels were sold to the petitioner for
only P4,758,000.00, a price much lower than the market value. The huge disparity between the
market value and the price realized at the foreclosure sale obviously gave a clear financial
advantage to the petitioner, and this did not escape the attention of both the RTC and the CA. The
disparity became more defined considering that the original amount of the guaranteed obligation
was only P9,000,000.00. These circumstances notwithstanding, the RTC and the CA still granted
the petitioners deficiency claim for P45,839,219.95, plus interest and attorneys fees. In view of
these, to still fix the interest rate and penalty charge at 16% per annum each would be plainly
inequitable and oppressive. The Court agrees with the CA and the RTC that reducing the interest
rate and penalty charge from 16% per annum to 6% per annum was justified.
WHEREFORE, we AFFIRM the decision the Court of Appeals promulgated on April 30, 2007,
subject to the MODIFICATION that respondents FELIMON R. CUEVAS and JOSE A.
SADDUL, JR. are DECLARED jointly and solidarily liable with AMALGAMATED
MANAGEMENT AND DEVELOPMENT CORPORATION on the petitioners deficiency
claim, interest, penalty charges, and attorneys fees.
The respondents shall pay the costs of suit.
SO ORDERED.

G.R. No. 139290

May 19, 2006

TRADE & INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES


(Formerly Philippine Export & Foreign Loan Guarantee Corporation, Petitioner,
vs.
ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION, ROBERTO G. ABIERA
and LETICIA ABIERA, and PARAMOUNT INSURANCE CORPORATION, Respondents.
RESOLUTION
TINGA, J.:
Under consideration are the motion for reconsideration1 dated 23 December 2005 and
supplemental motion for reconsideration2 dated 23 January 2006, both filed by respondent
Paramount Insurance Corporation (Paramount) with regard to our Decision3 dated 11 November
2005 which disposed of the case as follows:
WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision of the
Court of Appeals is REVERSED and the judgment of the Regional Trial Court is REINSTATED
with the following modifications:
a) ordering respondents Roblett, the Abieras, and Paramount, jointly and severally, to pay
petitioner Philguarantee the amount of P11,775,611.25, with the following rates of
interest and penalty charge, to wit:
i. for respondent Paramount, eighteen percent (18%) interest per annum from 5
June 1990 until fully paid;
ii. for respondents Roblett and the Abieras, sixteen percent (16%) interest per
annum from 5 June 1990 until fully paid; and penalty charge of sixteen percent
(16%) per annum compounded monthly from 5 June 1990 until fully paid;
b) ordering respondents Roblett and the Abieras, jointly and severally, to pay petitioner
Philguarantee the amount of P18,029,219.78 plus 12% interest thereon from the time of
finality of judgment until fully paid;
c) ordering respondents Roblett and the Abieras, jointly and severally, to pay petitioner
Philguarantee ten percent (10%) of P11,775,611.25, as attorney's fees, plus the costs of
suit;
d) ordering respondent Paramount, jointly and severally with respondents Roblett and the
Abieras, to pay petitioner Philguarantee P100,000.00 as reasonable attorney's fees;

e) ordering respondents Roblett and Benlot, jointly and severally, to reimburse


respondent Paramount whatever amount it would pay petitioner Philguarantee including
all interests, attorney's fees and the costs; and
f) ordering all the respondents, jointly and severally, and the third-party defendants, also
jointly and severally, to pay petitioner Philguarantee legal interest of 12% per annum on
the judgment awards respectively against them from the time of finality of judgment until
fully paid.
SO ORDERED.4
In support of its motion for reconsideration, Paramount submits the following grounds: (1)
Paramount issued a bidders bond and not a performance or guarantee bond so that when
respondent Roblett Industrial Construction Corporation (Roblett) executed the sub-contract
agreement, Paramount was released from liability thereunder; (2) petitioner is guilty of
misrepresentation and concealment in securing Paramounts continuing commitment to answer
for Robletts repayment scheme; (3) petitioner and Roblett entered into a rehabilitation program
which novated the principal obligation of the parties resulting in the discharge of Paramount; (4)
the subject surety bond expired without any claim being made against the same; and (5)
Paramount is not liable for attorneys fees.
The supplemental motion for reconsideration essentially reiterates the allegations and arguments
found in the motion for reconsideration with the additional contention that the interest charge on
the principal debt is unconscionable.
We have perused the instant motions and find no new substantial arguments to warrant the
reversal or modification of our Decision. Respondents motion essentially concerns issues that
have been passed upon and fully considered by the Court in the decision sought to be
reconsidered. Thus, we find no cogent reason to depart from the ruling subject of this recourse.
The only matter left to be resolved is the validity of the interest charge against the principal
amount involved in this case.
Under the surety bond,5 Paramount bound itself jointly and severally with Roblett to pay
petitioner to the extent ofP11,775,611.35 for whatever damages and liabilities the latter may
suffer by virtue of its counterguarantee. Paramount further agreed to pay petitioner interest
thereon at the rate of 18% per annum from the date of receipt of petitioners first demand letter
up to the date of actual payment.
In our Decision, we found that none of the parties questioned the validity of the stipulated
interest rate. Finding the same legal, we upheld its validity. With the suspension of the Usury
Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed

on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent
exercised by one party against the other, the interest rate agreed upon is binding upon
them.6 Nevertheless, we ruled that Paramounts liability therefor should commence from the date
of judicial demand, or on 5 June 1990, and not from the date petitioner made a formal notice of
demand to Paramount. This is but fair as the delay in the performance of Paramount is
attributable to the failure of petitioner to inform the former of the developments in the
negotiations with Roblett.
Paramount argues that it is made liable for approximately P48 million, the bulk of which is the
interest charge and not the principal amount. It then submits that the interest is clearly iniquitous,
unconscionable and exorbitant, thus contrary to morals,7 citing our ruling in Medel v. Court of
Appeals.8 In the said case, we held as void the stipulation on interest at the rate of 5.5% per
month or 66% per annum, on a P500,000.00 loan, the same being "excessive, iniquitous,
unconscionable and exorbitant, hence, contrary to morals ("contra bonos mores"), if not against
the law."9
It would seem that Paramounts opposition to the interest awarded herein does not spring from
the invalidity of the stipulated interest rate but rather on the resulting amount of interest charge
alone, which if counted from the date of judicial demand would come to roughly P32 million
which is thrice the amount of the principal debt ofP11,775,611.35.
While the Court recognizes the right of the parties to enter into contracts and who are expected to
comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are
illegal if they are unconscionable10 and the Court is allowed to temper interest rates when
necessary.11 In exercising this vested power to determine what is iniquitous and unconscionable,
the Court must consider the circumstances of each case.12 What may be iniquitous and
unconscionable in one case, may be just in another. In a number of cases,13this Court equitably
reduced the interest rate agreed upon by the parties for being iniquitous, unconscionable, and/or
exhorbitant.
Notably in the case of Development Bank of the Philippines v. Court of Appeals14, while this
Court held that respondents were liable for the stipulated interest rate of 18% per annum, we
equitably reduced the same to 10% per annum after finding that the interests and penalty charges
alone exceeded the amount of the principal debt. As such, the interests were found to be
excessive. We further held that the additional penalty charge of 8% per annum would sufficiently
cover whatever else damages petitioner may have incurred such as attorneys fees and litigation
expenses.
In the instant case, the resulting interest charge has turned out to be excessive in the context of its
base computation period, and hence, unwarranted in fact and in operation. We are not unmindful
of the length of time this case has been pending in court for which the amount involved has

ballooned to the outrageous amount of more than P45 million which is four times the principal
debt.
While we have sustained the validity of much higher interest rates of 21% per annum in Bautista
v. Pilar Development Corporation15 and 24% per annum in Garcia v. Court of Appeals16 as the
factual circumstances therein warrant, it is well to note that compared to the instant case, the said
cases were litigated for a shorter period of time12 years and 3 years, respectively.
Development Bank of the Philippines17 was finally decided after only 10 years of litigation.
Here, the complaint was filed in the lower court on 5 June 1990 or sixteen (16) years ago.
Consequently, the already huge principal debt swelled to a considerably disproportionate sum.
Thus, we deem an interest rate of 12% per annum is more reasonable under the circumstances.
WHEREFORE, premises considered, respondent Paramounts motion for reconsideration and
supplemental motion for reconsideration are GRANTED IN PART and our assailed Decision
dated 11 November 2005 is herebyMODIFIED. The interest rate of 18% per annum as
stipulated in the surety bond is equitably reduced to 12% per annum.
The Decision is AFFIRMED WITH FINALITY in all other respects.
SO ORDERED.