Title
Spouses Sy vs. China Banking Corp.
Case
G.R. No. 215954
Decision Date
Aug 1, 2016
Spouses defaulted on promissory notes secured by a mortgage; SC reduced penalty charges, corrected interest computation, and lowered attorney's fees, reducing deficiency balance.
spouses
china banking corp
loan obligation
A

Case Summary (G.R. No. 215954)

Factual Background

The petition arises from three promissory notes executed by Spouses Joven Sy and Corazon Que Sy in favor of China Banking Corporation. The PNs bore the following principal amounts: P8,800,000.00 (PN No. 5070016047), P5,200,000.00 (PN No. 5070016030), and P5,900,000.00 (PN No. 5070014942). Two PNs were due within 351 days on or before June 14, 2002 and provided for interest payable in advance for fifteen days at sixteen percent per annum, with succeeding monthly interest at prevailing rates; the third PN called for monthly principal amortizations of P100,000.00 for fifty-nine months with interest initially at 23.5% per annum. Each PN contained a penalty clause of one-tenth of one percent per day (stated as 3% per month compounded) for default and an agreement for attorney’s fees equivalent to ten percent of the total amount due. The obligations were secured by a real estate mortgage over property covered by TCT No. N-155159. The debtors defaulted, and China Bank computed the obligation at P28,438,791.69. China Bank foreclosed the mortgaged property on February 26, 2004 and realized P14,500,000.00; it then demanded payment of a deficiency of P13,938,791.69 by letter dated April 19, 2004. When the demand was not complied with, China Bank filed a complaint for sum of money before the RTC.

Procedural Course to Decision Below

During trial, the petitioners failed to appear for the presentation of defendants’ evidence and the RTC considered the case submitted on the basis of plaintiff’s evidence. The RTC rendered judgment on May 21, 2010 in favor of China Banking Corporation, awarding the deficiency balance as computed by the bank but modifying contractual stipulations it deemed unconscionable. The RTC denied the petitioners’ motion for reconsideration by Order dated June 7, 2011. The petitioners appealed to the Court of Appeals, which affirmed on December 15, 2014. The petitioners filed the present petition under Rule 45 to challenge the CA decision.

Ruling of the Trial Court

The RTC found China Banking Corporation entitled to the deficiency balance and accepted the bank’s computation as the starting point. The RTC held the contractual penalty of one-tenth of one percent per day (equivalent to three percent per month compounded) to be iniquitous and unconscionable and reduced the penalty to one percent on the principal loan for every month of default pursuant to Article 1229. The RTC also reduced the contractual attorney’s fees from ten percent of the total obligation to P100,000.00 as unreasonable in the circumstances. The RTC ordered payment of the deficiency balance of P13,938,791.69 plus interest at twelve percent per annum from the date of extrajudicial demand of April 19, 2004, a one percent monthly penalty, attorney’s fees of P100,000.00, and costs.

Ruling of the Court of Appeals

The Court of Appeals affirmed the RTC on December 15, 2014. The CA concluded that China Bank preponderantly proved its claim for the deficiency balance. The CA sustained the RTC’s reduction of the penalty clause to one percent per month as equitable under Article 1229 and affirmed the award of twelve percent legal interest where there was no agreement as to the post-demand rate.

Issues Presented on Certiorari

The petition challenges the CA’s affirmation of the RTC computation of the deficiency balance. Petitioners asserted that the CA and the RTC erred in leaving intact a deficiency of P13,938,791.69 because the courts failed to recompute the deficiency after: (a) reducing the contractual penalty from one-tenth of one percent per day to one percent per month; and (b) reducing attorney’s fees from ten percent to P100,000.00. Petitioners contended that the CA overlooked that the bank’s computation of P28,438,791.69 as of February 26, 2004 had incorporated compounded daily penalties and ten percent attorney’s fees, and that correcting these items would substantially lower or eliminate the deficiency.

Parties’ Contentions Before the Supreme Court

Petitioners argued that the RTC and CA misappreciated the mathematical computations that produced the deficiency figure and that the CA should have corrected the inconsistency between the courts’ rulings and the bank’s computations. China Banking Corporation countered that petitioners were advancing factual issues on appeal for the first time and that the Supreme Court, reviewing only questions of law in a Rule 45 petition, should not disturb the factual and mathematical findings of the lower courts when supported by substantial evidence.

Legal Standard on Review of Mathematical Computations

The Court reiterated the general rule that mathematical computations are factual determinations and are conclusive when supported by substantial evidence, citing National Transmission Corporation v. Alphaomega Integrated Corporation, Alino v. Heirs of Angelica A. Lorenzo, and Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.. The Court also explained that it may, in the exercise of sound judicial discretion in a petition by certiorari, review factual findings where exceptional circumstances exist, such as findings grounded on speculation, manifestly mistaken inferences, grave abuse of discretion, misapprehension of facts, conflicting findings, findings unsupported by citation to specific evidence, or where the facts asserted in the petition are undisputed by the respondent, citing Armed Forces of the Philippines Mutual Benefit Association, Inc. v. Court of Appeals and the criteria compiled in New City Builders, Inc. v. NLRC and related authorities.

Court’s Analysis of the Mathematical Errors

The Supreme Court found palpable errors in the RTC’s adoption of China Bank’s computations. First, although the RTC equitably reduced the contractual penalty to one percent per month, the computation that produced the bank’s stated deficiency nonetheless used the contractual rate of one-tenth of one percent per day (three percent per month compounded), producing inflated penalty charges. Second, the bank’s computation used a divisor of 360 days in converting annual rates to daily interest, contrary to Article 13, Civil Code, which prescribes 365 days for reckoning years when no agreement exists. Third, the bank’s computation included attorney’s fees of P2,585,344.70 representing ten percent of the total amount, contrary to the RTC’s reduction to P100,000.00. These inconsistencies demonstrated a misapprehension of facts and palpable error that justified correction by the Court.

Re-computation and Correct Figures

Applying the RTC’s reduced penalty of one percent per month, adopting the 365-day rule under Article 13, and substituting the RTC’s attorney’s fees award of P100,000.00, the Supreme Court recalculated the components of the obligation as of February 26, 2004. The Court found the total interest due from the three PNs at P1,911,665.24 and total penalty charges at P1,849,541.26, producing a subtotal of interest, penalties and principal of P22,234,132.93 when combined with the principal of P18,372,926.43 and attorney’s fees of P100,000.00. After crediting the foreclosure proceeds of P14,500,000.00, the Court determined the correct deficiency balance to be P7,734,132.93.

Exercise of Discretion to Decide Rather Than Remand

The Court explained that, although it could have remanded the matter to the trial court for recomputation, it exercised its discretion to correct the clear computational er

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