G.R. No. 179535 - Espineli vs. People

SPOUSES JOVEN SY AND CORAZON QUE SY (petitioners) executed three promissory notes in favor of CHINA BANKING CORPORATION (China Bank).
The three promissory notes were: PN No. 5070016047 for P8,800,000.00; PN No. 5070016030 for P5,200,000.00; and PN No. 5070014942 for P5,900,000.00.
The PNs contained agreed interest and penalty terms, including penalty charges equivalent to one-tenth of one percent per day (stated as 3% per month compounded) and attorney’s fees of ten percent of the total amount due.
The PNs were secured by a real estate mortgage over petitioners’ property covered by TCT No. N-155159.

PN Nos. 5070016047 and 5070016030: principal payable within 351 days on or before June 14, 2002; interest payable in advance for 15 days from June 28, 2001 to July 13, 2001 at 16% per annum; succeeding interest at prevailing rate thereafter.
PN No. 5070014942: principal payable at P100,000.00 monthly for 59 months; interest monthly at prevailing rates, initially at 23.5%.
Petitioners failed to comply with their obligations, producing an asserted total indebtedness of P28,438,791.69 as computed by China Bank.

China Bank foreclosed the mortgaged property on February 26, 2004 and realized a sale price of P14,500,000.00.
China Bank demanded payment of the alleged deficiency of P13,938,791.69 by letter dated April 19, 2004; petitioners did not pay.
China Bank filed a complaint for sum of money in the RTC praying recovery of the deficiency of P13,938,791.69, plus legal interest, penalty at one-tenth of one percent per day, attorney’s fees of ten percent, and costs.

Petitioners failed to appear for the initial presentation of defendants’ evidence; RTC, by Order dated February 16, 2010, considered the case submitted on plaintiff’s evidence.
China Bank presented computations reflecting interest at prevailing market rates using a 360-day divisor and penalties at one-tenth of one percent per day, plus attorney’s fees at ten percent.

The RTC rendered judgment in favor of China Bank in its May 21, 2010 Decision, recognizing liability for the deficiency balance of P13,938,791.69.
The RTC declared the stipulated penalty of one-tenth of one percent per day (3% per month compounded) iniquitous and unconscionable under Art. 1229 of the Civil Code and reduced it to ...(Subscriber-Only)

Whether the Court of Appeals erred in affirming the RTC’s decretal amount of P13,938,791.69 when the RTC had reduced the contractual penalty from one-tenth of one percent per day to one percent per month, but computations used by China Bank (and adopted in part) still reflected the higher penalty.
Whether the Court of Appeals erred in upholding attorney’s fees without requiring recomputation based on the RTC’s reduction of attorney’s fees from ten percent to PHP 100,000.00.
Whether the striking down of penalties and reduction of attorney’s fees rendered the contractual terms of the PNs void in toto such that the obligation should be recomputed at legal interest of 12% only and remanded to the RTC for recomputation.

Ruling:

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Ratio:

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Doctrine:

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