Case Summary (G.R. No. 113926)
Key Dates and Documents
Promissory Notes executed in 1983:
- PN TL/74/748/83 (P100,000; signed April 27, 1983).
- PN TL/74/1296/83 (P100,000; signed July 28, 1983).
- PN TL/74/1491/83 (P65,000; signed August 31, 1983).
Each note stipulated interest at 23% per annum and maturity in six monthly installments. Principal balances remaining upon default: P16,665; P83,333; and P65,000 respectively.
Procedural Posture
SBTC filed a collectible case when Eusebio failed to pay the outstanding balances. The RTC rendered judgment for the bank but imposed interest at 12% per annum (instead of the contractual 23%), awarded 20% attorney’s fees, and costs; it also held co-maker Leila Ventura jointly and severally liable. SBTC moved for partial reconsideration seeking enforcement of the 23% rate, compounded quarterly as provided in the notes, and confirmation of Ventura’s joint liability; the court denied the increase in interest but affirmed Ventura’s joint liability. SBTC then brought the present petition.
Issue Presented
Whether the contractual interest rate of 23% per annum stipulated in the promissory notes is enforceable despite the Usury Law ceiling and whether the courts may, in the absence of illegality or other justification, override a stipulated interest rate and impose the 12% per annum statutory/default rate.
Applicable Law (including constitutional framework)
Because the decision was rendered after 1990, the 1987 Constitution is the governing constitution for the period in which the case was decided. The principal statutory and regulatory materials considered are: Central Bank Circular No. 905 (effective December 22, 1982), Section 1-a of P.D. No. 1684 granting the Monetary Board authority to prescribe maximum interest rates and adjust them, the Usury Law (whose practical effect was altered by regulatory action), and Article 1306 of the New Civil Code (binding force of freely agreed contract stipulations). Precedents invoked by the Court included Philippine National Bank v. Court of Appeals and Quijano v. Development Bank of the Philippines, as they relate to the scope of monetary/regulatory authority and statutory construction.
Central Bank Circular No. 905 and the Monetary Board’s Authority
Circular No. 905 contains two provisions pivotal to this case: (1) it provides that rates of interest, including associated charges, on loans or forbearances are not to be subject to any ceiling prescribed under or pursuant to the Usury Law; and (2) it provides that, in the absence of an express contractual stipulation, the rate of interest for loans or in judgments remains 12% per annum. The Circular was issued pursuant to P.D. No. 1684, which empowers the Monetary Board to prescribe maximum rates and to change them according to prevailing conditions. The Court treated Circular No. 905 as a regulatory measure that suspended the practical effect of the Usury Law ceiling for contracts entered after the Circular’s effective date.
Contractual Freedom and Statutory Construction
The Court emphasized the principle that contracting parties may freely stipulate terms of their agreement so long as those terms are not contrary to law, morals, good customs, public order, or public policy (Article 1306, New Civil Code). Citing prior decisions, the Court applied the doctrine that where statutory language is clear and unambiguous, courts must apply it according to its express terms without resort to interpretation. In this case, the clear language of Circular No. 905 and the enabling decree (P.D. No. 1684) permitted parties to agree on interest rates exceeding traditional Usury Law ceilings for loans made after the Circular’s effective date.
Application to the Facts
All three promissory notes were executed in 1983, after Central Bank Circular No. 905 took effect in December 1982. The contractual rate of 23% per annum was expressly set in the notes and was not challenged by the debtor in the trial court or on appeal in any substantive manner; indeed, the debtor did not dispute the contractual terms and signaled willingness to negotiate. Given the Circular’s suspension of the Usury Law ceiling and the parties’ free agre
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Facts
- Petitioner Security Bank and Trust Company (SBTC) is the holder of three promissory notes executed by private respondent Magtanggol Eusebio in 1983, all with a stipulated interest rate of 23% per annum and payable in six monthly installments.
- Promissory Note No. TL/74/178/83 was executed on April 27, 1983 in the amount of One Hundred Thousand Pesos (P100,000.00), payable in six monthly installments with 23% per annum interest up to the fifth installment.
- Promissory Note No. TL/74/1296/83 was executed on July 28, 1983 in the amount of One Hundred Thousand Pesos (P100,000.00), payable in six monthly installments plus 23% interest per annum.
- Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in the amount of Sixty Five Thousand Pesos (P65,000.00), payable in six monthly installments plus 23% interest per annum.
- Private respondent Leila Ventura signed all three promissory notes as co-maker.
- Upon maturity, the principal balances remaining on the notes were stated in the record as:
- PN No. TL/74/748/83 — P16,665.00 as of September 1983.
- PN No. TL/74/1296/83 — P83,333.00 as of August 1983.
- PN No. TL/74/1991/83 — P65,000.00 as of August 1983.
- SBTC filed a collectible case in court against respondent Eusebio upon his refusal and failure to pay the balances.
Procedural History
- The Regional Trial Court (RTC) of Makati, Branch 61 (presided by Judge Fernando V. Gorospe) rendered judgment on March 30, 1993, finding defendant Eusebio liable to plaintiff SBTC and awarding the three principal sums with interest at 12% per annum (instead of the 23% stipulated), attorney’s fees equivalent to 20% of the total amount due, and costs.
- Petitioner SBTC filed a motion for partial reconsideration on August 6, 1993, seeking:
- Recognition and enforcement of the agreed 23% per annum interest rate.
- Compounding of awarded interest quarterly from due date as provided in the promissory notes.
- A holding that co-maker Leila Ventura is jointly and severally liable with Eusebio without need for demand.
- The RTC issued an order denying the motion insofar as it sought rates of interest beyond 12% per annum, and reaffirmed that defendant Leila Ventura is jointly and severally liable with Eusebio.
- SBTC filed the present petition for review on certiorari to the Supreme Court, assailing the RTC’s lowering of interest to 12% per annum.
Primary Legal Questions Presented
- Whether the rate of interest on a loan or forbearance of money, goods or credits as stipulated in a contract, when far in excess of the ceiling prescribed under or pursuant to the Usury Law, should prevail over Section 2 of Central Bank Circular No. 905 which prescribes a continuing rate of 12% per annum.
- Whether the courts have discretion to override stipulated interest rates in promissory notes and impose 12% interest on loans in the absence of evidence justifying imposition of a higher rate.
Dispositive Portion of the RTC Judgment (as quoted)
- The RTC ordered defendant Eusebio to:
- Pay P16,665.00 plus interest of 12% per annum starting 27 September 1983 until fully paid;
- Pay P83,333.00 plus interest of 12% per annum starting 28 August 1983 until fully paid;
- Pay P65,000.00 plus interest of 12% per annum starting 31 August 1983 until fully paid;
- Pay an amount equivalent to 20% of the total amount due as attorney’s fees;
- Pay the costs of suit.
Petitioner’s Contentions on Reconsideration
- SBTC contended that:
- The parties agreed upon an interest rate of 23% per annum in the promissory notes.
- Interest awarded by the court should be compounded quarterly from due date as expressly provided in the three promissory notes.
- Co-maker Leila Ventura should be held jointly and severally liable with defendant Eusebio without need for a prior demand.
Legal Framework and Authorities Quoted in the Decision
- Central Bank Circular No. 905 (effective December 22, 1982), specifically:
- Sec. 1: “The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged